Statistics show that 1.7 billion adults remain unbanked globally, without an account at a financial institution and access to proper financial products. Africa, with about 350 million unbanked adults, accounts for 17 per cent of the global total. However, mobile money penetration in Africa has grown rapidly making it the highest of any region in the world. Thus digital technology is transforming Africa financial landscape and shows enormous potential and possibilities to bring the unbanked into the Financial System.
The Financial situation landscape in Africa
Many reasons are being cited by the African population which acts as barriers to connect them into the financial system. A lack of financial literacy, low-income levels, political instability and weak judicial systems have created a constrained in Africa banking system. Moreover, traditional banking models of branch networks, expensive technology, inadequate systems and a limited talent pool makes the unbanked difficult to join the financial system.
Adding to that unbanked population, the micro, small and medium entrepreneurs, in particular, are disadvantaged when it comes to access to financial systems. Entrepreneurs are critical to the growth of an economy as well as job creation, however limited access and low level of trust in the banking system hinders the economy to grow to new levels. The fees charged to open and maintain a bank account, favouring cash and mobile money options.
- Lack of enough money is the most commonly cited reason: could not afford the fees charged to open and maintain a bank account
- Distance to financial institutions is the second most commonly reported barrier. Bank branches are not always conveniently located, often meaning travel costs, long wait times and intimidating bureaucratic processes.
- Lack of trust in financial institutions can be common where there is a history of bank failures and currency devaluations.
- Receive wages or government transfers in cash–
What unbanked and unserved customers need:
- Easy access: Because physical banking infrastructures are expensive to develop, alternative distribution approaches are emerging. The most powerful of these may be mobile financial services.
- Appropriate products: Available financial services also means available at the right price and design—affordable for low-income customers and relevant to their needs.
- Attractive to use: Products and services that effectively address the dormant tendencies of low-income consumers.
The role of FinTech in Financial Inclusion
The power of financial technology to expand access to and use of accounts is demonstrated most persuasively in Africa. With the rapid growth of mobile money, digital payments help Africans to move up the “financial services value chain.” From mobile phones, customers in Africa are gaining access to mobile banking, digital wallet and other digital financial services with a few touches of their mobile phone.
The challenge now is for the continent to leverage the success in mobile payment and transition to other fintech services and a digital economy. Greater digital inclusion and innovation will not only spur economic growth but a growth that comes with new opportunities.