The Silicon Savannah
Fin-tech is not so much disrupting the existing African financial services industry as it is building the African banking business model from the ground up.
In many areas of the continent, when it comes to financial services there is simply nothing to disrupt. Large swathes of Africa’s low and lower-middle income segments are not served or at the very least under-served when it comes to formal financial services.
Today, around 80% of Sub-saharan Africans still have no access to formal banking services. Formal banking services in rural areas are sparse to non-existent, due to the high cost of rolling out robust traditional financial infrastructure. Even consumers in urban areas of Africa are priced out of more developed financial services such as credit lines, home loans, and insurance.
This represents a huge opportunity for entrepreneurs. With around 330 million adult Africans lacking access to formal financial services, the vast majority of the potential banking customer base in Africa is, as yet, unclaimed.
African banks have admitted their own infrastructure failures by, for the most part, ignoring this massive market leaving the rollout of mobile money services to innovative private sector fin-tech start-ups.
The fin-tech revolution in Africa is building an industry from scratch and
doing things traditional banks could never do themselves. For this reason, the African fin-tech story is in sharp contrast to developed economies.
In first world economies, traditional banks and institutions have a broad presence and a strong, entrenched infrastructure. However, those same entrenched banking systems make the developed world a far less friendly place for disruptive financial services to take hold. Firstly, people already have access to functional banking services. This means there is less of a demand from consumers, whose needs have already been met for banking alternatives. Secondly, entrenched banking systems come with entrenched legislative, bureaucratic red tape, which start-ups have to work around.
In other words, the first world needs to do a lot of breaking down of existing, entrenched banking structures and consumer complacency before it can rebuild and reinvent the future of finance.
Africa, however, with its lack of infrastructure and under-serviced population, can build new mobile, digital banking systems from scratch, without having to side-step entrenched institutions and consumers who are reluctant to embrace change. There is potential here for Africa to leapfrog the first world and become a world leader in the fin-tech space.
Cape Town, South Africa, and the so-called “Silicon Savannah” region of Kenya are emerging as the biggest techincubator hot-spots on the continent.
For example, it is well known that Africa leads the world in mobile cellphone payments technology development and adoption. M-pesa, the mobile money transfer service was launched by Safaricom, in partnership with Vodaphone, in Kenya in 2007. Just over a decade later, M-pesa has 60 million user accounts across the world and operates in nine countries, including India and Romania. A full 43% of Kenya’s GDP passes through the service every day. This is an astounding success, considering Forrester Research reports that indicate that while 61% of Americans have heard of digital wallets, only 11% have used one.
This innovation, like many other global success stories, was born out of necessity, as a cost-effective, efficient way for the still mostly unbanked adult population on the continent to bank.
Another example of how need leads technology is illustrated in how Mastercard launched its world-first biometric credit cards in South Africa. Mastercard chose South African because of a problem it needed to solve in that market. The company chose South Africa as the launch location not because South Africa was its biggest or best market, but because of the high levels of credit card fraud in the country.
Played well, fin-tech could be Africa’s big opportunity to disrupt the global financial economy and become a leader, not a follower of Western technology and business models.
The fin-tech revolution in Africa is building an industry from scratch and doing things traditional banks could never do themselves.
Unicorn Hunting: Where to find the next big thing in African fin-tech
Kenya and Nigeria’s tech scene, known as the Silicon Savannah, is home to some of the most innovative fin-tech start-ups on the continent. In particular, the ihub innovation centre on Ngong Road in the centre of the IT district in Nairobi, known as the heart of the Silicon Savannah, has incubated more than 170 start-ups since 2010.
South Africa’s own Silicon Cape attracted the most international funding of any African region ($46 million) last year. Notable start-ups to emerge from the Silicon Cape include Yoco, a mobile credit-card reader system, which has already processed over a billion rand in transactions; and Jumo, which facilitates financial inclusion for SMES by using cellular data to create financial identities, which can then be used to obtain funding. Jumo is billed to become the first “unicorn” in South Africa (a tech company with a billion dollar market cap).