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Over the last decade, the Fintech landscape has grown by an annual rate of about 24% across developed nations within Europe, North America, and Asia according to an overview of market developments by EY. As this growth has become amplified, we see Fintechs proving to have a considerable impact on the financial industry in the way of innovative, customer-friendly solutions that offer greater flexibility than current options provided by traditional institutions. While this works in developed nations, where the customer base wants flexibility, in underdeveloped nations like Sub-Saharan African, there is massive potential. Here is how Fintechs are helping African Nations transition from being unbanked or underbanked to financial inclusion.
he biggest alternative to date is the mobile application, M-Pesa, which is a mobile phone-based money transfer, financing, and microfinancing service that was launched back in 2007. It allows individuals to deposit, withdraw, transfer, and pay for goods and services with their mobile device. When an individual sends balances, they use a PIN-secured and SMS text message to other users who can then redeem them as regular money. While there is a fee for sending and withdrawing money, it is small. This banking service is branchless, as banking agents are found at retail outlets or as airtime resellers, rather than as actual bank tellers.
There are several spaces and regions within Africa, where intermediaries are inefficient, corrupt, and commit all kinds of financial crimes like fraud. An open ledger would not only replace intermediaries, but it can also increase transaction efficiency. Corrupt individuals would never be able to delete or remove transactions as ID verification would be used to track every transaction in existence.
With an open ledger like the Blockchain, all transactions would be recorded and be accessible to the public. This would allow individuals, companies, and departments to monitor their own funding, wealth, and investments without fear of crooked money coming in or out.
There are close to forty-one different currencies that serve the entirety of the African continent, and many of them are not easily converted from one to another. Plus, for anyone wishing to do business in Africa with these currencies are going to find that their value is quite volatile. For local citizens, currency fluctuations pose a real problem when it comes to buying and selling goods and services. Fintechs look to provide protection from local currency fluctuations by bringing in the blockchain and expanding access to finance via cryptocurrencies.
While most Fintechs have been focused on bringing digital finance options into Africa, the next wave of Fintechs will be looking to bring critical services to the unbanked populations; namely lending, insurance, and wealth management. Fintechs are looking at bringing through alternative credit scoring and lending solutions to people within Africa who need to access loans and insurance policies, such as farmers and small business owners. With alternative credit scoring and lending, blockchain will reduce transaction costs and intermediation costs, helping citizens bypass the use of third parties or expensive verification checks.
While the three main markets for Fintech in Africa are Nigeria, South African, and Kenya, there are other Fintech markets growing in Uganda, Ghana, and Egypt which are focusing on providing specific financial services in investments and insurance. With this said, it is safe to say that the space is going to continue to grow at an exponential rate as the rate of innovation continues to skyrocket.
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