Nikki Kettles, Executive: Licences and Payments Regulation at Mukuru
Financial inclusion is vital to bringing millions of unbanked and underserved communities in Africa into the mainstream economy.
This doesn’t just benefit the communities; it has a knock-on effect on economies, regions, and the continent. Financial services are tightly regulated, and this presents a challenge for fintech—how do you innovate while working effectively within differing regulatory frameworks on the continent? While these frameworks may differ substantially, there are common barriers fintech needs to overcome.
Before we get there, it is essential to start at the beginning. Not many people understand what financial inclusion means. There is a misconception that financial inclusion means giving someone access to a bank account. Nothing could be further from the truth. Imagine someone being paid $100 into a bank account and drawing out all the cash minus the bank charges the second they’re paid before engaging with the informal economy. That’s not financial inclusion.
Financial inclusion is bringing marginalised people into a formal financial services environment.
This is the best chance at breaking the cycle of poverty. When underserved people start using formal products, their income is protected, which is the opposite of having no security in the informal sector. They can also incrementally start using more digital financial services.
Each country and region on the continent has its own set of regulations, frameworks, and implementation requirements. These are designed to protect the financial system’s integrity. Grey listings in the region have also naturally impacted regulations.
In this context, Fintechs need to craft solutions to address the regulatory hurdles that limit access to financial services for low-income populations. At Mukuru, we are passionate about constructively working within regulations, which is why we sponsored a recent Fintech Association Botswana Power Breakfast to unpack, as an industry, regulatory barriers faced by fintechs. It was rewarding to see that everyone, from the central bank to the investment community, the country’s innovation hub and all the banks, are aligned on the importance of fintech in driving meaningful financial inclusion.
At a high level, central banks want to ensure two pillars: the integrity of the financial system and the protection of customer funds. We all want this because it benefits customers, businesses, the economy, trade, the country, regions and the continent. Ask yourself this question: Why would I give my cash to any institution not looking after my money? That cannot give me my money when I need it?
It is essential to appreciate regulators’ mandates when looking at regulatory barriers, which aren’t new and certainly not something only fintechs face. The first is onboarding. This is an expensive exercise and needs to follow a risk-based approach. The second is protecting customer funds. This includes trust accounts and safeguarding the money in the system. Again, this carries a cost burden, especially as a fintech scales. Then, there is significant complexity in data protection, control, and processes. Many countries demand in-country data storage and processing. A multinational business needs to navigate this effectively and compliantly.
Regulatory sandboxes drew great debate at the breakfast. They support innovation. Fintechs need them to test value propositions, new products, new solutions and new ways of engaging with customers in a live but ring-fenced environment.
However, sandboxes need solid business cases because a fintech can only run in a pilot long term if it is formally licensed and pays the licence fees. And licences, as we know, come at no small cost. Mukuru has 49 licences in 15 countries, enabling send, store, and spend functionality for our customers and providing international money transfers, wallet solutions, and insurance offerings. Each regulator has different pain points, which is a complicated terrain to navigate.
So what can fintechs do to make navigating regulation more accessible and efficient? The first is understanding that customers don’t care how fancy or flashy a solution is. They want to know they are getting the service they need. They don’t want to be told what they should need. They want the right product at the right place, at the right time, and at the correct cost, and it must solve a challenge for them and improve their lives. Always put the customer first with simple products and simple customer interfaces. Then, grow with the customers as they incrementally need more sophisticated products.
This directly affects navigating the often complex landscapes of different countries. It’s also why sandboxes need to be very carefully designed coupled with solid business cases. Working with regulators, you can arrive at a reasonable place of what needs to be done, and how to develop new products.
Relationships with regulators should be mutually beneficial. Aren’t all relationships the same? At Mukuru, we work closely with regulators in good faith because we genuinely want to understand the challenge and why the regulations are drafted so that we can implement them accordingly.
Finally, if all this innovation is to drive financial inclusion, then we, as an industry, need to benchmark ourselves—enough with the talking. We need to be able to show how our products are genuinely bringing neglected and underserved communities into a formal financial services environment.
