Recently, during a conversation with an African colleague, he mentioned that Fintech in Africa wasn’t disruptive. I was shocked and mentioned that Africa was going through a Leap-Frog era with the Telecom and Fintech boom and asked why he thought it wasn’t disruptive. He felt that a few years ago (in 2010) 80% of the population were unbanked, so there was nothing to disrupt.
That has changed massively though. As of last year, about 220 Million consumers were using Mobile Wallet across the continent, thanks to the mobile penetration. Many such payment providers do not inter-operate and that has been restrictive, especially for payments across countries within Africa. This space is being regulated to force payment providers to allow inter-operability.
However, with the Payments space over crowded, startups in Africa are now looking at Remittance and Lending. Remittance is the largest form of Foreign investment into Africa. In 2015, $62bn worth of remittance flowed into the continent, whereas the total Foreign Direct Investment (FDI) was $55bn, and total foreign aid was just over $50bn.
Western Union charges close to 10% for remittances and have about 12% of the market share. If the remittance commission came down to 5%, $16 Billion of savings can be made. And Africa currently pays the largest commissions for remittances into the continent. No wonder its a huge inefficiency that start ups target.
A Rwandan startup Mergims allow relatives abroad to purchase airtime, electricity and other goods for their family at home instead of transferring cash. Mergims was one of the nominated startups in “Rising startups awards” from SWIFT and came fourth globally. Remittance along with Payments make up about 50% of African startups, but unlike Payments, Remittance still is some way from reaching its peak.
Many Lending Fintechs in Africa have taken an approach which is culturally aligned. Stokvel, which is the name for community banking in South Africa is used traditionally by a group of people who want to save money. People often choose to save and lend in community groups rather than formal banks.
Stokvels can be a savings scheme where members regularly contribute an agreed amount from which they receive a one-off lump sum. The sum can cover the costs of groceries, investments, holidays , or simply to save.
StokFella a startup based on the Stokvel principle have developed an app that can be used for creating and managing such communities. Stokvels can not only be used in lending, but also can be used for health insurance for example. There can be innovative applications once the communities have been created.
Its interesting to see Fintechs taking a very customized approach that would suit Africa and its culture. They are not just replicating business models used in the developed world, but are thinking ground up to come up with new ones.
Arunkumar Krishnakumar is a Fintech thought leader and an investor.
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