The Sil­i­con Sa­van­nah

Premier Magazine (South AFrica) - - Contents - Text: Bron­wyn Wil­liams, Trend Trans­la­tor at Flux­ Im­ages © Pex­els

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).

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