Monday,
February 18, 2019 04:39PM / By Amadou N. R. Sy / IMF
If you are reading this blog—drawn by current buzz around financial technology
and the "fintech” reference in the title, and its promise to democratize
financial services—then it is probably a safe bet to assume that you have heard
of M-Pesa.
This mobile payments system started
in Kenya in 2007 now boasts 30 million users in 10 countries, with other
competitors, such as MTN Money and Orange Money, also operating around the
continent.
The use of mobile money has grown
exponentially over the past 10 years, making the region the global leader in
mobile money innovation, adoption, and usage. M-Pesa services are now offered
in countries as diverse as Albania, D.R. Congo, Egypt, Ghana, India, Kenya,
Lesotho, Mozambique, Romania, and Tanzania. Prospective agreements with MTN
Group will allow both Orange Money and M-Pesa services to cover an even larger
number of countries across the continent.
Mobile money and greater financial inclusion
While
access to traditional banking services remains almost a mirage for most
Africans, the near-universal availability of mobile phones has allowed millions
to access mobile money services. Mobile money accounts now surpass bank
accounts in the region and greater financial inclusion has benefited large
swathes of the population that remain unbanked including the poor, the young,
and women.
Sub-Saharan
Africa is the only region in the world where close to 10 percent of GDP in
transactions occur through mobile money. This compares with just 7 percent
of GDP in Asia and less than 2 percent of GDP in other regions.
Most
African users now rely on mobile payments to send and receive money
domestically. Increasingly, they are taking advantage of new services to
also send and receive money internationally. In addition, they use mobile
money to pay their bills, receive their wages, and pay for goods and services.
Moving up the financial services value chain
Innovation
is allowing Africans to move up the “financial services value chain.” From
mobile payments, customers in sub-Saharan Africa are gaining access to mobile
banking and other services as they open saving accounts, take out loans,
purchase insurance, and invest in Government securities or in stock markets
with a few touches of their mobile phone. They can even “borrow” electricity
and pay later instead of sitting in the dark.
New
innovations in fintech are proceeding rapidly. New technologies are being
developed and implemented on the continent, and they have the potential to
yield significant benefits for Africa. Recognizing this, foreign investors have
stepped up their backing for African Fintech firms, while those firms develop
solutions adapted to the region, for example, to cater for the relatively lower
internet speed in some areas. The falling price of smartphones will also help
the region reap the rewards of internet-based solutions.
Greater digital inclusion and innovation
In our
new
paper, we suggest that the challenge now is for the continent to leverage
this success in mobile money. It needs to transition to other fintech
services and a digital economy. Greater digital inclusion and innovation will
not only spur economic growth but a growth that comes with new jobs—the number
one preoccupation on a continent that will see more than half the world’s
population growth by 2050.
Africa
is well positioned to meet its fintech and digital challenges, and with the
right policies in place, it could reap a “digital dividend.” But first,
policymakers need to address the existing large infrastructure gap in the
region, starting with electricity and internet services.
Second:
Africa will need to balance the perennial demands of fast-moving innovation
against the slower pace of regulation. Good regulation is needed but stifling
innovation would be costly.
Fintech beyond financial services
Finally, a message to policymakers and entrepreneurs: consider the potential of fintech beyond the narrow confines of financial services. This untapped resource can help create jobs and increase the productivity of both workers and firms. Ultimately, fintech could be the critical stepping stone towards a digital economy for Africa—a continent where most countries are still overly dependent on a few dominant sectors. Fintech—if exploited well—could yet prove key to this structural transformation.
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