BLOG

FINANCIAL TECHNOLOGIES

The main factors and trends that are driving fintech adoption in Africa

22 August 2022

During the past decade we have witnessed the impressive journey of fintech services to Africa. Tech enabled financial services such as mobile payments, mobile banking and digital lending have been widely adopted by the local population, making Africa as one of the fastest-growing banking and payments market globally. Fintech is rapidly spreading into the region, which represents a large and attractive market opportunity for innovative fintech companies.

At the beginning of another exciting decade let’s take a look at all the key factors that led the way for Africa to be established as a leader in the adoption of fintech services (we have separated them in 4 main categories)

Demographic Trends

Africa has the world’s fastest-growing population and according to a UN report over 50{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of global population growth through 2050 will come from the continent. Additionally, around 65{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of the population is under 35, a demographic that tends to be more tech friendly as they adopt more new technologies and services.

Besides having world’s fastest-growing population Africa also has the world’s fastest-growing middle class. Again according to UN expectations the middle class population of the region will reach 1.1 billion, representing 42{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of the total population, by 2060.

Last but not least, urbanization is increasing in the continent, with Africa’s urban population projected to double over the next 25 years, while migration throughout the region is also driving substantial growth in remittances.

Limited Bank Infrastructure

Africa’s majority of population remains unbanked through the traditional banking system due to various reasons. Vast rural areas, especially in Sub Saharan Africa, not only don’t have access to bank branches but they are also characterized by poor transportation infrastructure, which results to the region’s large unbanked population. For example, according to World Bank statistics, in Sub-Saharan Africa there are only 4.5 bank branches per 100,000 people (in US the amount of branches is about 7x). Additionally, low income levels of the local population are unattractive for banks.

Mobile & Internet Penetration

Africa has proven a fertile ground for mobile and penetration is already fairly high in most African markets, while broadband internet penetration is also rising in the region as communications infrastructure continues to improve. According to the latest available data, mobile penetration in the continent has exceeded 80{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} and internet penetration is near 36{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}. At the same time, due to the broad lack of bank access, mobile carriers are partnering with financial institutions and driving mobile payments growth in many African markets.

Alternative Data and Peer-to-Peer Transactions

Access to credit is still limited throughout Africa, due in part to a significant unbanked population with limited or no credit histories. Fintech companies seized the opportunity and by using alternative data, such as utility bill payments, social media data and increasingly available digital financial data they were able to determine creditworthiness for these populations, offering them critical financial services through technology. 

On the other hand, increasing ease of cross-border transactions and favorable regulation have driven expansion in peer-to-peer payments in Africa, improving access to credit and drastically reducing the cost of remittances.

At the dawn of a new year and a new decade fintech services are expected to meet huge growth. Stay tuned, the journey continues…