The internet has changed the way Africans communicate, the way we receive and find information, how we do business, and the way we manage our lives. In particular, the internet has changed how we shop, analyze data, and handle our finances. This article attempts to explain how the internet changed the way we handle money and why most Fintech companies focus on two main categories. We also explore opportunities introduced by technologies like blockchain.
Africa Fintech; A focus on Lending and Transfers
The growth of Africa’s Fintech sector largely owes its origin to the invention of MPESA, a mobile-based money transfer service that has enabled many Kenyans to access financial services without necessarily using the bank. The massive success of MPESA has influenced lots of Fintech companies to join the financial sector and develop their ideas through utilization of the services such as those offered by MPESA to provide many financial solutions. However, despite their large number, most of these Fintech companies can be put into these broad categories:
- Lending and finance
- Payment and transfers
Why Are Fintechs only Focusing on Two Areas?
According to a recent research study conducted by Finnovating for Africa, the Fintech space has witnessed fast growth. These startup companies are disrupting the traditional financial services and replacing them with innovative solutions which, in recent years, has commanded the attention of banks and investors like never before.
Surprisingly, the Payment & Finance category has recorded a high number of startups as compared to other categories in the report. Most of these startups have a common objective of easing the process of sending and receiving money. Lending & Financing is the next huge thing in the Fintech industry due to the high number of startups being registered. It is quite evident that almost all of Africa’s Fintech startups have shown concentration on these two big categories.
Reasons Why African Fintechs are Mostly Focusing on Digital Payments and Mobile Money
Digital Wallets (Lending and finance)
The concept of the digital wallet is built around the digital version of the traditional wallet. It involves a range of technology innovations that allow you to perform different financial tasks. A good percentage of these digital wallet services work through apps for smartphones.
A digital wallet will help you to perform several financial obligations such as payment of food, bus fare and gift cards. Some of the smartphone digital wallets also allow you to store concert tickets upon purchase. Most of the digital services offer the same services that are offered by banking institutions but in an easy and fast way. This is the reason why digital wallet services are gaining popularity.
Mobile Money (Payment and transfers)
Mobile money began as a payment service that is performed using a phone. However, ever since its birth, it is quickly evolving to now including a wide range of financial services. Mobile users are now able to gain access to their money from anywhere they are and at any time they feel to do so, without obtaining services from banks.
Even though this system might not replace banks, most people prefer using them to conduct small transactions. However, in some countries, the use of mobile money has increased so fast and it has diverted many people from obtaining similar services from banks.
For instance, Mobile money has witnessed huge success, especially in Kenya since the invention of MPESA service. Majority of the Kenyan population now rely on this platform to conduct most of their transactions since it is easy, fast and can be utilized anywhere.
Benefits of Using Digital Wallets and Mobile Payments Over Bank Accounts
Despite various concerns that are facing the efforts towards a cashless future, digital wallets and mobile payments have gone beyond being just a payment system of goods and services. They are undergoing evolution to the benefit of both business and its customers.
The importance of digital wallets and mobile payments to customers remains immeasurable, this is because they can now move around without having to carry a bulky wallet. Customers will also have to worry less about whether they carried cash, credit card or their ID for transactions since all the information needed is contained in their smartphone. Unlike your wallet, the chance that you are going to forget your phone is very low, because, obviously the phone is part of your life in very many other ways.
In addition, you are able to save more time through utilization of digital and mobile payment system. For instance, you don’t need to insert your card into an EMV terminal, instead you only need to swipe to transact. If you will be shopping online, then you are going to benefit greatly from digital wallet since you don’t need to do your shopping in a hurry before the session expires because having the digital wallet guarantees you instant payments online.
Opportunities to Be Tapped in the Future of Digital Wallet
With the continual advancement of technology digital wallet might become one of the inventions that influences people’s everyday activities. The opportunities that the digital wallet could tap in future are very many since digital wallet apps could diversify from being used just over the counter to performing transactions such as:
- Real estate settlements,
- Fundraising and donations,
- Paying mortgage, utility and educational expenses,
- Transferring money
- Portfolio shifts
The evolution of digital wallet is unstoppable and its future is going to pay off with the digital wallet becoming the backbone of all interactions within the blockchain. It will be able to perform various forms of transactions exceeding storing and trading of cryptocurrency to the providing access to the management and trading traditional financial assets.
How Blockchain is Likely to Influence Mobile Payment Systems
There are two most thriving developments in the electronic payment industry; mobile payments and blockchain system. However, the combination of these two trends could result in increased security, speedy, and effective approach to payment and transfer of funds.
Here are some of the ways that the blockchain technology could change the payment system:
- Lending and Financing
The peer-to-peer lending system is among the most interesting trends currently occurring in the payment industry. In fact, there is a possibility that P2P could be growing quite fast in the Fintech industry. Some of the reasons include:
- Its convenience
- Low interest rates
- Intact ROI for investors
Through utilization of blockchain technology, borrowers are able to use their mobile devices to obtain a loan straight from their lender without the need to go through regulations and lots of paperwork as seen in the traditional banks and financial institutions.
Payments and Transfers
According to World Bank’s estimations, the average cost of payment throughout the world is 7.5%, with commercial banks recording a figure of over 10%. Decreasing this cost to 5% means that up to $16 billion could be saved across the globe. Through the elimination of the third parties involved, blockchain has the opportunity of enabling anyone in the world to transfer money without incurring any charges.
With the evolution of the mobile payment system, consumers are going to be able to get into stores and get out within a short time. This is due to the enablement of innovations such as Amazon Go which also have the potential of speeding and increasing sales volumes. Such inventions clearly portray a future with cashier-less supermarkets where not even credit cards are used.
Through the utilization of these innovations, the demand for services from banks is fast reducing. With these developments, some banks are reducing the number of their branches. With the expected upward trend in the growth of African Fintech innovations, there is a high chance that we could be moving towards very little or zero use of banking institutions.