On a continent where a huge proportion of the population is “un-banked”, financial innovations are driving increased access to financial services to this traditionally under-served market. Fintech is solving problems that will aid in increasing economic growth, will reduce poverty and will create new market opportunities.
Traditionally, this huge market segment has been slow to join the traditional banking and financial services sector for a number of reasons. There is a lack of trust in banks which are seen to offer little value but demand big fees, not to mention instances where less financially literate clients have been sold inappropriate and unnecessary products, further perpetuating the perception of the bank taking their money. There are regulatory barriers to entry, including onerous application processes where documents may be required that aren’t easy to come by.
Rather, this market segment has traditionally been serviced by informal community-based providers such as Stokvels, which offer flexibility and quick access to finances when needed.
Technology and the rapidly rising access to mobile connectivity are driving fintech innovations that solve these problems for customers.
Fintech for financial inclusion
Probably the most successful example of this is Mpesa, the mobile money solution that is now the largest financial service business across Africa. This P2P payment and micro-loan offering was built in partnership with Kenya’s largest mobile provider. It offers a simple and cost-effective solution to migrant workers who need to send money home at a low cost and with minimal KYC required. It solved a real problem for customers who previously had to use expensive money transfer services or travel long distances themselves to hand over cash. Mpesa brought millions of financially excluded people into the formal financial system. It transforms the mobile phone into a bank account and offers the freedom to transact 24/7.
Microfinance solutions also enable access to financial services, whether for personal use or to fund business ventures. Companies like LulaLend enable fast access to business funding, using scoring technology to evaluate the real-time performance of a business and offer clients the best funding for their specific situation, and access to funds in their account within 24 hours. This means that a small business can access the funds it needs to grow, purchase stock, or bridge a cash flow gap. LulaLend uses scoring technology, eliminating the need for formal financial documents and slow turnaround times required to secure loans from the bank. RainFin offers a digital credit marketplace where businesses looking to borrow money are enabled to get funded by investors seeking competitive rates. Again, innovative technology underpins the marketplace.
Fintech in the personal finance space like the rise of online investment and trading platforms such as EasyEquities and 10X, eliminate the costs of brokers fees and high minimum investments to make investing in the JSE and offshore accessible to anyone who can get online. With the government encouraging saving by introducing Tax-Free investing a few years ago, these platforms use innovations such as fractional shares to eliminate cost barriers and enable financial inclusion giving everyone the ability to create wealth. 10x does a great job at helping people plan for their retirement, something that has traditionally confused customers with a bewildering selection of options, poor performance and non-transparent, high fees.
In these and many other examples, fintech has been used as an enabler to solve a problem or unmet need of consumers.
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