The Role of Fintech Startups in Advancing Payment Infrastructure in Africa
The African payment infrastructure has witnessed a massive transformation in recent years, which has resulted in the inclusion of a greater percentage of the population in the formal financial ecosystem. While this transformation results from many factors, the role of fintech startups in it can’t be overemphasized.
Many game-changing digital solutions in the financial sector are the products of these fintech startups. From online payment gateways to mobile payments, cross-border payments, QR codes, payment links, and other digital payment solutions, these companies are revolutionizing the African payment infrastructure.
How Fintech Startups are Helping Advance the African Payment Infrastructure
Here are the different ways fintech startups are helping advance the payment infrastructure in Africa:
Increased Mobile Payments
The increase in mobile payments has been a transformative force in Africa, and fintech startups have played a crucial role. By providing innovative, seamless payment solutions and integrating them with the existing mobile money market in Africa, FinTechs are orchestrating a shift from traditional payment solutions in the region.
Fintech startups are developing mobile payment solutions that give people from underserved communities access to premium financial services even without having an official bank account. This has also led to the increased adoption of smartphones as more people look to get involved in the financial system. According to GSMA, there are 287 million mobile internet users in sub-Saharan Africa in 2023, indicating a 25% penetration rate.
With the increase in smartphone adoption and the resultant increase in mobile payments, the African payment infrastructure is likely to see a more significant advancement in the coming years.
Improved Digital Payments Systems
Fintech startups are enhancing digital payment systems to make financial services more accessible, efficient, secure, and affordable for Africans. Payment systems like QR codes, payment links, and embedded payments streamline the payment process, giving customers a great shopping experience.
By developing and enhancing these systems, fintech startups in Africa broaden the African payment infrastructure and economy, enabling increased participation in the financial system, especially from those in previously excluded locations. Furthermore, it’s playing a vital role in the growth of e-commerce in Africa, as businesses can now provide their customers with secure and convenient payment options, increasing their trust in the digital economy.
Online Payment Gateways
Developing efficient and convenient online payment gateways is another crucial way Fintech startups are advancing the African payment infrastructure.
Companies like FlutterWave, Kora, PayStack, and VoguePay have developed many innovative payments gateway solutions, giving businesses various options to accept customer payments. These solutions include debit and credit card payments, QR codes, payment links, bank transfers, etc.
With online payment gateways, e-commerce and cross-border payments have been simplified and made more affordable, encouraging online transactions in Sub-Saharan Africa.
Credit Scoring and Lending
The role of fintech startups in Africa’s credit and lending sector is revolutionary, as individuals and businesses initially exempted from taking loans now have access to them. Before now, people needed to undergo a rigorous documentation process and present valuable collateral to access credits from banks.
However, fintech companies have massively transformed this process, as people can now access credits from the comfort of their homes in a matter of minutes. These companies use alternative data sources and machine learning algorithms to assess the creditworthiness of individuals and businesses before giving them loans, even without collateral. Traditional banking systems would consider most of these people too risky or ineligible to access credits.
According to Data Bridge Market Research, the Middle East and Africa digital lending platform market is expected to reach $2060.16 million in 2029.
With access to quick loans, individuals and small businesses can actively participate in the financial system, further strengthening the African payment infrastructure.
Enhanced Cross-Border Payments
The improved cross-border payment capabilities in Africa indicate the advancement of the African payment infrastructure. Fintech startups are playing a vital role in making this possible, as there are significant improvements in the rate of international trade, remittances, and financial inclusion across the continent.
According to the World Bank’s Migration and Development Brief, diaspora remittances inflow to Sub-Saharan Africa in 2022 totaled $53 billion, indicating a 6.1% increase from 2021. Many African countries with improved cross-border payment systems had significant increases in their remittance inflows. For example, Ghana, Kenya, Tanzania and Rwanda witnessed a remittance growth of 12%, 8.5%, 25%, and 21% respectively.
Furthermore, there’s been a significant improvement in Africa’s participation in global trade. This is evident in the 20.9% increase in Africa’s total merchandise in 2022, as the African Export-Import Bank reported.
Overall, one of the reasons for these improvements in remittances, global trade, and financial inclusion is the cost-cutting capacity of fintech solutions. Money transfer operators (5.4%) and mobile operators (4.5%) recorded the lowest cost of sending money in 2022.
Increased Partnerships
Fintech companies are partnering with other companies and traditional banks to facilitate the integration of digital payment solutions into the broader financial ecosystem. The partnership helps traditional banks save operational costs while fintech companies gain from their huge customer base and knowledge of the regulatory framework.
Financial Inclusion
The biggest role of fintech startups in advancing the payment infrastructure in Africa is seen in their contributions to the growth of financial inclusion in the region.
A 2014 Global Findex Report from the World Bank showed that Sub-Saharan Africa had about 350 million unbanked adults, accounting for 17% of the world’s unbanked adult population. However, within the past decade, the activities of fintech companies have contributed to a significant amount of this unbanked population having access to financial services. This is evident in the 2021 Global Findex Report, which indicated that mobile money drives financial account ownership, especially in Sub-Saharan Africa, where 33% of adults have a mobile money account.
Conclusion
Fintech startups have played a transformative role in advancing payment infrastructure in Africa, leading to improved financial conditions for individuals and significant economic development in the continent. They’ve led to the proliferation of digital payments, digital wallets, online payment gateways, and cross-border payments, all of which have positively affected individuals and businesses.
The role of FinTechs in Africa has promoted financial inclusion, accelerated economic growth, facilitated international trade and remittances, and reduced the cost of financial transactions.
FinTechs are bridging the developmental gap between Africa and the rest of the world, and this transformation is expected to yield better results in the coming years.
