Every once in a while, the field of innovation and entrepreneurship sees a new trend taking the lead, influencing the market and dominating the headlines. After the age of social media, location services and now the sharing economy period (the list goes on and on), 2019 is marked as “the year of Fintech”. With a variety of technological advancements and innovations (mainly blockchain and challenger banking technologies), the number of ambitious companies in the field has been steadily increasing. So is the money invested in the sector, with the belief that Fintech has the potential to impact billions of people around the world. The hot trend isn’t exclusive for startups and young companies: in the last years, we’ve witnessed some tech industry giants taking the lead with products like Apple Pay and AliPay, with others are expected to reveal more services soon. In Africa too, Fintech is not left behind. In fact, it is simply the opposite: African Fintech companies raised the most funds out of all the sectors in 2018, raising $ 284.6 million, nearly double the next sector on the list (clean-tech companies, with $ 143.5 million), reflecting the tremendous potential investors recognize. The continuous rise of Fintech in Africa (a 24% increase over 10 years) is not only a result of the technological potential of the companies: it also reflects the huge potential to impact the lives of hundreds of millions of people, far more significantly than in the US. 7 times the impact We can go further than saying that the impact on Africa will be “more significant” than on the US and calculate this gap. To do so, we need to focus on the sector’s cornerstone: the transaction fees paid by the user for using any payments service, from credit cards, through mobile money to new, innovative payment solutions. This reveals two different realities, as in Africa, the average transaction fee can go from 9.5 per cent in Kenya to 18.3 per cent in Nigeria – at best case, more than 6 times the average in the US, which is ~1.5 per cent. The core reason for this difference is the number of people holding a bank account. In the United States, the vast majority of the population - 93.5 per cent in 2017 - had a bank account. Therefore, transferring payments to each other and businesses can be done quickly, conveniently and cheaply. The status of credit cards companies also rose as a convenient solution (which automatically connects to the customer’s bank account), while its usage fees remained relatively inexpensive (thanks to the existing alternative), and averaged about 1.5 per cent. Africa is very different, with about two-thirds of the sub-Saharan African population unbanked, mainly due to geographical, infrastructure and trust challenges. As a result, hundreds of millions of people have no other option rather than relying on cash as their primary financial means. More than being unsafe (theft and forgery) and less convenient, the use of cash also prevents advanced financial services such as loans, credit, savings, pensions and more, which reduce the speed of money in the economy. Hundreds of millions are left behind From this vacuum emerged mobile payments companies, quickly becoming major players in the African financial market, with almost 400 million registered accounts (2018), a transaction volume of 1.7 billion USD, and total net worth of 26.8 billion USD (according to a GSMA report). Albeit their size and transaction volumes, these companies have one pressing problem: high transaction fees, with an average cost of sending $1 to a user on the same network can get as high as 9.5 per cent in fees - 6 times higher than the fee in the US (according to a report by Egyptian Investment Bank EFG Hermes). As the transaction amount rises, the fee gets smaller - and goes down to 2.6 per cent for a 20$ transfer. This gap harms the poorest populations in Africa, millions of families living in the rural areas of the continent, with low micro-transactions that do not usually exceed 1 USD. For these families, mobile payments are far from an ideal solution, as paying a fee of 9.5 per cent per transaction is just not an option. The rural, poor communities are bound to benefit the most from any disruptive solution. Fintech is emerging, influencing the global economic sphere, yet its impact will be different in every continent. For the vast majority of the US population, it’s still a “nice-to-have” product, which will create a better, more convenient, user experience. Lower transaction fees will enable users to enjoy a saving of 1.5 per cent of their expense. The real potential for impact is in Africa. For hundreds of millions of unbanked people with no real solution designated for their needs, the Fintech sector can be much more than a “nice-to-have” solution. It can be a real disruption, leading the way to a much better financial reality. The writer is the founder of Ignite Power, a solar power firm in Rwanda
