AFRRI 2017 Financial Services in Africa: Disruption vs Leapfrogging

The 2017 African Financial Retail Readiness (AFRRI) Report looks at the relationship between technology and financial retail services in Africa.

Produced by Calleo, a South African based marketing consultancy, in consultation with iVeri Payment Technologies, a leading global payment solution provider, the report gives a thorough analysis of the key metrics that are required for a country to have a robust financial services sector.

Looking at factors such as demographics, economics, literacy, infrastructure, and existing banking footprints the report gives a ‘AFRRI score’ to each of the countries profiled, indicating how ‘ready’ the country is to support large scale retail banking operations.

One of the key areas that the 2017 report focused on is the idea of ‘leapfrogging’ as it pertains to financial services in Africa. This is particularly relevant when looked at in the context of digital disruption in the financial sector.

In the financial services sector globally, banks are having to respond to a rise in disruptive fintech start-ups that provide niche financial services online, to a digital customer base.

The standard model for disruption is to draw people away from a traditional incumbent service, while changing the nature of how the service is provided. In Africa, however, this model is slightly different because the biggest market is also the underserved one.

In Africa, it is estimated that up to 80% of the population lack access to formal financial services. This means that the majority of customers are unclaimed, and any disruptive financial service will not draw them away from traditional incumbents, but rather provide them with services for the first time.

Banks have consistently failed to reach low-income consumers in informal markets, and even consumers served by traditional banking infrastructure often lack credit services as the banks do not have enough information on them to confidently extend credit.

Many consumers in poor and rural areas are not even targeted by banks as potential customers as they could not afford even the most basic of traditional financial services, or would not be depositing significant enough amounts of money.

But the same thing that makes fintech so disruptive in developed financial service sectors, makes it ideal for proving services to low-income, previously unbanked populations.

  • Low cost
  • Low infrastructure
  • Mobile first
  • Location, security and identity are all attached to the phone
  • Low transaction amounts offset by high volume
  • Scalable without being inhibited by location or infrastructure

Fintech in Africa therefore has the opportunity to build the financial services industry in a whole new way, essentially ‘leapfrogging’ the need for traditional incumbent banks in many places. It is fintechs that will decide what financial services will look like in Africa.

With the high mobile penetration in Africa, Fintech provided through mobile phones cannot only offer services to these customers but also build up an identification profile for each account and a customer history that would aid credit decisions in the future.

Globally, digitalisation is seen as a disruptor, but in Africa digitalisation has become an enabler of development. Innovation comes out of necessity and the solution must fit the needs of the people it serves.

To explore this idea further please download the full AFRRI 2017 report, available at iveri.com.

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