Financial Inclusion, Fintechs and Digital Disruption in Africa

Agrippa GR Mugwagwa Avatar

Banks are going to have a ‘Uber’ moment said Anthony Jenkins after leaving Barclays as CEO in 2015. Jenkins’ message is an instructive characterization of the rise of fintechs which have gained prominence on a wave
of innovation in financial services delivery in 2015. Fintechs made their impact in both the developed as well as the developing world with interesing results. In the developing world the impact has been profound and ground-breaking in most markets.  ‘

Fintechs are basically financial technology start-up companies that have carved an aggregator role between traditional banks and the market, delivering some exciting value-added services using software better than banks.      In the transport industry, ride-sharing tech outfit Uber has turned the taxi industry on its head in most developed markets, and software ingenuity is at the heart of the innovation. Interestingly Uber has also landed in some African capitals such as Johannesburg, Lagos and Nairobi, never mind the traffic chaos that hogs most of African cities. In mid-2015 the median waiting time in Cape Town and Johannesburg was not way out of line with international trends at 3.5 and 3.6 minutes, respectively. According to Uber Nigeria Head, Ebi Etawodi, Lagos is experiencing exponential growth of 200X, but predictably an outlier waiting mean of 8.4 minutes which is staggering when compared to leaders San Francisco 2.6 minutes.

Uber has many other peers that have disrupted the status quo and made a tonne of money in the process. Uber services and ambitions go beyond ride hailing; Ubercopter, Uberhealth, UberEats, UberAssist and other value added services being in operation or pilot in different markets. The current extreme weather conditions across the globe resonates with the solutions offered by Uber in the infographic above, no surprise they could have featured large at the Paris Climate Change conference in December 2015. Below is a snapshot of well known digital disruption case studies;

Fintechs are seeking to disrupt the financial services industry in pretty much the same way these businesses have carved space for themselves in their respective industries. One of the most successful payments aggregators in recent times has been Paypal which opened up the e-commerce arena in a game-changing way.

September 2015 was an eventful month for me, speaking at 2 fintech-oriented banking events in Johannesburg (Retail Banking Africa by Flemming Gulf) and Nairobi (Cards and Payments by Terrapin) inside a week. Value-added, over-the-top or some such term was the common refrain to otherwise vibrant discourses in financial service innovation in Africa. It is quite apparent when one follows the presentations and debates the majority of banks are ill-prepared to manage the fintech phenomenon. Higher up in boardrooms the focus is mostly on the traditional methodology of doing business. I presented an e-commerce paper at the East African Cards and Payments conference in Nairobi which was themed ‘Future Bank’. My conclusion was that banks are doing well in the east and other African regions in embracing incremental technology applications to automate and improve customer convenience.

Mobile Money in Africa has created a solid foundation for financial inclusion on the continent. Mobile network operators and fintechs have largely leapfrogged traditional banks in rolling this financial service. Fintechs, many of whom are extensions of some of the network operators have seen a boon ushered in by mobile money as most banks are not as nimble in exploiting the opportunity. To have a fighting chance in the new brave disrupted world of mobile money, financial inclusion, on-demand economy and eroded trust in banks they have to embrace fintechs through acquisitions, partnerships or sponsoring start-ups as the best defence to fend off the big fight on the horizon.

Unfortunately the majority of banks have a cynical view for tech start-ups, which does not bode well for their defence. A typical established African commercial bank is unlikely to launch a peer-to-peer lending service, its deemed way too risky. Escalate the conversation to bitcoin and crypto-currencies and the discussion quickly hits a cul de sac.

However, it is also true that there is much market liquidity out there that can be harnessed and deployed to deficit areas and benefit the economy at large. Most central banks and governments on the continent are pushing banks to craft financial inclusion plans which should facilitate the economic participation by marginalized citizens at the base of the pyramid. If at all, MNOs and fintechs are the inclusion priority for most central banks as their initiatives are embracing more people into the financial ecosystem. Fintechs do not need to be nudged or encouraged, they are burning the midnight candle to develop solutions that will ensure they cream the opportunities. Their trademark is to do things quicker, smarter and cheaper, whilst banks focus on doing the same old things better, quicker and perhaps cost effectively. The monetization model in value-added financial services has shifted in a big way, and banks need a sea-change in thinking to make a decent return. Even though they invariably do not have as much budget as mobile phone operators, they generally have more marketing swagger than most banks.

I asked my good friend Johan Bosini at JUMO.WORLD why they had changed their tech-driven financial outfit’s name from AFB? His tongue-in-cheek answer was that the old name sounded so much like a bank and top tech minds in the market are unlikely to get attracted by such. JUMO.WORLD uses a mobile-based algorithm to disburse micro-loans to people they have never met across the African continent. The emerging young financial services consumer understands and believes that indeed tech-driven algorithms have less bias and prejudice in lending than relationship managers.

African banks in particular do not have much choice than reinvent and repackage themselves to seize the new opportunities via the untapped financial inclusion market. The oft flaunted reasons for the siege that banks find themselves under is largely the heightened regulation post-2008 financial crash (now worsened by anti-laundering and counter-terrorism efforts globally), low levels of trust and a huge contingent of smart ex-bankers seeking out opportunities. You add the low barriers to starting up a fintech, there you have the proverbial death by a thousand wounds for banks. The barriers to establish a fintech are generally low in most markets, as low as $5,000 given that much of the capital is skills, innovation and intellect. They are the kings of the API (application programming interface), they are masters at commercialising interface with the customer via tech.

Banks are also not seriously taking note of a new trend where MNOs and fintechs are actively seeking to ‘de-bank the banked’ who elect to use their prepaid or mobile payment products not because their income or social profile is low but because they willingly prefer them over normal bank accounts. Banking has been commoditised through technology and for African operators the banking penetration rate of +/-20% means a great upside potential for MNOs and fintechs. In his Bank 3.0 Brett King predicts that ‘banking will be everywhere and anyone can provide the utility of a bank’

Big banking brands have gone on to reconfigure their skills set, with reports indicating that almost a third of Goldman Sachs’ complement are engineers. Whilst a change in the skills make-up is a move in the right direction banks have many issues against them, not least inertia or lack of agility to rush ahead of the curve given their well known conservative ethos. Banks have for long invested in trying to do the same things better, but the new order demands quite the opposite; do new innovative things faster than your competition.

Legacy banking systems remain an albatross for most banks as they are not only expensive but relatively inflexible when compared to the fresh applications that fintechs are bringing to the table. Big banking software firms are also under immense pressure to reinvent themselves to be flexible, more innovative, sexy and fintechy so as to protect market-share which is under obvious threat. They stampede to sponsor, exhibit and share perspectives at most conferences as a route to win mind and market-share in an increasingly competitive environment. They have also broken down their product offering and in certain instances partner the small fintechs to breakthrough where they deem the later’s value proposition to be compelling – co-opetition.

McKinsey research predicts that technology will wipe out two-thirds of profits from retail lending, car loans and credit cards. The strange combination of nerds in t-shirts and venture capital has firmly set its sights on disrupting financial services, in much the same way tech has disrupted other industries – peer-to-peer lending, payments, wealth management through to crowd-funding. One major difference however is that fintechs need banks to navigate the intense regulation and integration into the banking and payments networks, requirements that are not so critical in other industries. It is thus wise that fintechs do not antagonize but partner the incumbents as they expand their influence via the interface.


  1. Robert Ndlovu
  2. Clinton D. Mutambo

    Interesting read. There’s a notable exception in Equity Bank of Kenya. They’ve not only responded well to the new order, but have gone on to counter disrupt Safaricom & M-Pesa. This was accomplished through their thin sim & MVNO product, Equitel, It had 1m signups within the first week of launch. A big indicator of how threatened the disruptor felt was pursuing court action & losing 🙂 . FNB is another innovator making interesting moves. All other banks in Africa seem to be laggards begging to be disrupted.

    1. Agrippa Mugwagwa

      You are right Clinton, but there are some peculiar differences between the SA and Kenyan banking industries. Banks are heavily insulated from disruption in SA, and MNOs have have found the opportunities to disrupt rather limited. The spectacular failure to replicate M-pesa being a case in point. FNBConnect is making huge inroads on the back of ex-CEO Michael Jordaan’s transformation of the group. I admire James Mwangi’s guts at Equity to pursue the MVNO route to counter Safaricom’s dominance in Kenya.

  3. Macd Chip

    “…Fintechs made their impact in both the developed…”

    In Africa l do agree and most developing countries. But in mature developed countries like Britain lm yet to see this impact, money flows from one bank to another with the speed of light.
    The FSA worked hard to remove barriers between banks with no charges being introduced and in my opinion that brought mobile money to closer to death.

    All l need now is my mobile phone to transfer money or buy services. So what new things can mobile money bring?

  4. G

    The type of fintechs that will dirupt banking beyong mobile money need a high number of smartphones since most of them are app based, that is lacking in africa which is why fintech has not been that diruptive beyond mobile money which uses ussd