A Revolution: Africa’s High-Tech Money Companies Are Innovative Disruptors

“This time around, traditional bank-to-bank competition is not the issue. This new wave of competition is coming from both nimble, innovative, cloud- and mobile-first startups as well as the major technology players largely unencumbered by policy and regulation.”  – David Lynch, Director at DBS Bank, describing the vulnerability of traditional banking institutions.

“Fintech,” or financial technology, companies singularly focus upon the development and application of cutting-edge technology to make banking services more accessible and efficient. These companies are also offering services similar to traditional banking systems that have, for the most part, dominated the global banking sphere for well over a century.

DBS logoProminent banks, such as the aforementioned DBS in Hong Kong, recognize the vulnerability of their respective business models as a result of innovations coming out of fintech startups across the world. As a result, many traditional banks are coming to the realization that a proactive approach to innovation is a necessity to compete in this rapidly-evolving economic sector.

There is perhaps no other area of the world where this trend is more evident than in Africa. By most accounts, Africa’s brick-and-mortar banks have been slow to realize the disruptive innovation and competitive threat that fintech startups pose.  One prominent South African entrepreneur put it this way: “The banking sector in Africa is going to be disrupted faster than anywhere else in the world.”

Two primary reasons for this disruption are: (1) the rapid adoption of smartphones, and (2) the disproportional number of unbanked people. Some areas of Africa, such as South Africa and Kenya, have among the fastest-growing populations in terms of smartphone usage, but lag far behind in terms of banking services. Statistically, it is estimated that only about one-third of sub-Saharan Africans have bank accounts, while over two-thirds have a mobile phone.

However, demographic trends do not fully tell the story of the rapid rise of fintech in Africa. This article examines the innovative nature of fintech startups and their wide-reaching effects on the global marketplace.

Africa and Fintech Success

Arguably, fintech companies have had the most successful track record of any startup sector in Africa. In a span of under a decade, fintech startups have built user-friendly, easily-understandable digital platforms for millions of people.

As mentioned, the primary driver behind the fintech phenomenon is the wide adoption of digital technology. In perhaps no other place in the world has mobile access proliferated at such a remarkable pace. As a result, African businesses are building their brands, and African consumers are well-informed. Some financial institutions also see an opportunity to increase efficiency and reduce operating costs.

While there are a number of factors contributing to the rise of fintech in Africa (e.g., mobile access), there exist prominent drivers that have spearheaded these efforts. These include no business license requirements; an enhanced mobile network infrastructure; streamlined access of mobile applications (apps); increases in processing capabilities, and customer-centric business models, among others.

While there are a number of success stories related to the fintech industry, some stories have garnered disproportionate levels of attention. Recently, Barclays Rise – a global startup initiative of Barclay’s Bank focusing on fintech – began operations in Cape Town, South Africa. Additionally, the banking conglomerate has drastically expanded its presence within Africa (more on this below).

BitPesa, a digital money transfer and exchange platform, has become one of Africa’s prominent startup stories. Recently, the company expanded, opening offices in the cities of Lagos, London, and San Francisco. The enterprise recently received another round of funding in efforts to scale its operations and research potential new markets.

Africa’s Fintech Revolution

Put simply, fintech is drastically altering the way that everyday Africans use and manage money. Innovative disruptions from the fintech industry took hold following the 2008 global recession, blindsiding the established banking order.

fintechThe continuing economic development on the African continent effectively created an opportunity for innovative companies to reach a previously-underserved population: people without banking services. As a result of this insight, fintech startups have blossomed into a leading catalyst for economic development throughout the continent.

The scale at which fintech startups have disrupted banking practices in such a short period of time has been nothing short of astonishing. Accenture, a leading global consulting company, estimates that over one-third of worldwide financial services revenue is at risk due to innovations from fintech companies.

One example of the rapid proliferation of fintech innovation is the presence of Barclays in 13 African countries. According to the company’s financial statements, Barclays’ 2015 revenue was 25.45 billion British Pounds (33.3 billion U.S. dollars). The company currently employs over 140,000 people in over 50 countries.

Arian Lewis, Barclay’s Head of Open Innovation, summarizes the company’s stake: “People in Africa do banking on their mobile phones, but our talent base is all built on bricks and mortar banking. So we’re thinking, are we actually a tech company? To make that shift you have to approach talent that sits at the front end of that change curve.”