Updated: Jan 4, 2019
Nigeria and Kenya are leading lights of Financial Technology (FinTech) innovation in Africa. With their collective population and economic potentials, there are numerous opportunities capable of sustaining the relevance of FinTech. These include: collaborating with regional partners to provide excellent services to consumers that have been historically underserved, and to build a better and more inclusive future for financial services.
FinTech provides alternative solutions and business models that could render traditional banking processes obsolete. This piece assesses the opportunities that could be created in East and West Africa through a redefined financial system propelled by FinTech. This piece also describes the governments and financial sectors of both regions, digitisation settlement, and lastly, the financial market segments of economy through consumer protection.
Financial sector creates a massive amount of data exploiting by FinTech companies that can be utilised to segment customer populations, identify opportunities for new products and services and optimise pricing. In this segment, product manufacturers may use data and analytics to computerise decision-making processes. Innovative start-ups, retailers, established banks, card companies and other payment services providers are the payment systems that underpin the services that enable funds to be transferred between people and institutions.
For the financial system (banking), FinTech offers sustainable and realistic opportunities by enhancing the value proposition and driving sales, reducing operating costs, facilitating easy access to loans, and lowering interest rates. To consumers, this is an efficient and accessible development. Research on the advantages of using FinTech services suggests that FinTech improves financial services, economic growth and access to services in Nigeria and Kenya.
Government’s Role in the Evolution of FinTech
Governments in East and West Africa see FinTech as a means to deliver social and economic outcomes, but are taking different approaches towards supporting FinTech evolution.
While governments around the world, and sometimes within the same jurisdiction, have taken different approaches toward FinTech, it is clear they see FinTech as a critical part of the future of financial services – and believe they have a role to play in ensuring the sector evolves for the good of consumers, businesses and the global economy.
For the Nigerian government, like most governments, supporting FinTech is a means toward achieving four key goals:
Increasing financial inclusion and access. Governments want their people to have access to quality financial services. This is the primary drive of FinTech.
Improving efficiency. Governments want financial services to be efficient and sufficiently robust, which makes enabling technologies and solutions such as real-time payments, Agent Banking, open application programming interfaces possible.
Stimulating competition. Governments want to encourage healthy competition in order to create a sustainable and effective industry, with many seeing new FinTech players as driving driving forces for competitive change.
Ensuring stability. Governments want to ensure the stability of the financial services system as a whole by managing emerging bubbles and potential system risks.
Turning Goals into Action
To achieve their objectives, many West and East African governments are focused on modifying existing regulatory frameworks and enacting new legislation(s) to bridge identified gaps. To support these activities, government typically follow a 'three Es' approach.
Engage. Working with FinTech startups and the broader financial services community to develop an understanding of current trends.
Educate. Working to better educate themselves on the complexities of FinTech innovation, by partnering with other governments and organisations to conduct research and gain more insights.
Experiment. Working to find ways to allow experimentation while maintaining sector stability.
Many governments are also supporting FinTech in other ways – from providing tax incentives and grants to encouraging mobility of talent. They are also engaging FinTech companies directly to improve their own data and analytics, digital identity, payments and transactional banking.
Koffi, H. (2016) The Fintech Revolution: An Opportunity for the West African Financial Sector. Open Journal of Applied Sciences, 6, 771-782. doi: 10.4236/ojapps.2016.611068.