Africa could potentially have a very successful fintech industry if it became more sustainable. Africa has many different types of economies, but this analysis focuses on the three “flagship” economies of Kenya, Ethiopia, and Ghana. These are some of the most important and influential economies on the African continent, and their successes or failures can have ripple effects throughout the region.
Africa is often seen as an untapped market with a lot of potential for economic growth. Developing countries are growing faster than developed countries. Africa’s growth is forecast to reach 3.9% in 2020 and 4.1% in 2021. Even though these numbers aren’t as high as they have been in the past, the situation is improving as economies focus more on investment from other countries instead of just relying on what is produced locally.
Africa is home to 21 of the 30 fastest-growing cities in the world. Jack Dorsey, the CEO of Twitter and Square, said:
“Africa will define the future (especially the Bitcoin one!)”
Africa’s tech industry is growing along with the continent’s economic expansion. Companies such as Facebook, Google, Microsoft and Huawei are continuing to invest in the region. Naturally, the competition for talent has become fierce. The African tech scene is growing rapidly and becoming more well-known.
Related: Crypto in Africa: Opportunities and Challenges, Explained
This new technology has the potential to be enormous in Africa. Managing director at Cryptovecs Capital, John Lombela, notes:
” “African countries should understand that the most money is made by investing in new technology early on.” You need to believe in something before most other people understand it in order to make a successful investment.
Related: Unpacking the Potential of Blockchain and Infrastructure in Africa
This is a difficult question to answer, as there are many countries who are all doing very well in the field of fintech. In Nigeria, payment gateway start-up Opay has raised a $120 million series B round from Chinese investors including SoftBank Ventures Asia and Sequoia China. This makes Nigeria a clear leader in this field. The money from this fundraiser will go towards expanding the company into Kenya and Ghana.
The new fintech frontier is in Africa, where a large population base continues to buoy expectations and emerging tech initiatives. The fintech ecosystem in these three regions is rapidly evolving. We can find out each country’s unique approach to fintech by looking at how they develop it, how much government oversight there is, and how decentralized it is.
The rise of financial technology in Africa
Since 2015, fintech companies in Africa have raised $320 million in funding, with ecosystem growth surging 60% in the last two years. Despite these figures, it is estimated that many African tech startups raised more money than what is indicated, due to the African Tech Startups Funding Report. This report suggests that 311 startups raised $491.6 million last year.
There is no denying that tech hubs have started to establish themselves throughout the region. Briter Bridges and GSMA released a report stating that the number of active tech hubs in Africa increased from 314 to 618 over the course of three years. The report claims that the recent increase in investment is due to multiple sources, including venture funds, development finance, corporate involvement, and innovative communities.
The figures show that there is an increase in tech development in Africa and that companies who are focused on technology are benefiting from this growth.
Kenya
M-Pesa has successfully established mobile banking in Kenya, making the country a top leader in mobile money. The value of mobile commerce transactions rose to $14.9 billion in the third quarter of 2018, with in-person transfers totaling $7.1 billion in the same quarter, according to recent data. At the end of September 2019, there were 218,495 mobile money transfer agents and 29.7 million subscriptions.
The Nairobi-based startup Sokowatch is developing B2B e-commerce supply chains between Africa’s informal markets and multinational giants like Unilever and Proctor & Gamble. The supply chains combine rickshaw delivery with SMS ordering. The business has been successful, delivering over 500,000 orders to 10,000 customers since 2016. After raising money from investors last year, the company is being praised as Africa’s Alibaba. This is similar to how Jumia, a giant company on the NYSE, has been called Africa’s Amazon.
Ethiopia
With a population of over 109 million people and a GDP growth rate of 8.5%, Ethiopia is the fastest-growing economy in Africa and the second-most populous country on the continent. This makes the country a significant stakeholder in the African fintech ecosystem. In March of last year, the country hosted a conference for over 200 financial tech innovators. The Fourth African FinTech Summit was held in Ethiopia last November with over 400 attendees from over 30 countries.
The Ethiopian government has made a lot of progress in the last 20 years in terms of infrastructure and economic reform. They have just announced that they are going to privatize the telecom and finance sectors. All of these events happening together has created an opportunity for investment in fintech.
Ghana
Ghana has had a long history of supporting financial technology since 1997 when the Social Security Bankintroduced the “Sika Card.” The card allowed cashless transactions, as an alternative to banknotes and checks. The nation is still open to integrating technology. The number of mobile money accounts in December 2018 was 32 million, an increase of 17.32% from the 23.9 million accounts in 2017.
In May of 2018, the country launched an interoperable payment system, which allows transactions between different mobile service providers. As of March 2019, interoperability payments have totaled $57 million. Ghana is continuing to lead the way in introducing payment solutions with the E-zwich biometric card. This card makes it easier to identify and use payment methods.
The regulatory ecosystem in Africa
In Africa, the response to fintech, cryptocurrency and blockchain regulation is primarily regional. Each country has its own unique approach to the broader ecosystem.
Kenya
The Kenyan central bank issued a public notice in December 2015 called “Caution to the Public on Virtual Currencies such as Bitcoin.” Cryptocurrency and blockchain remain unregulated in Kenya. The announcement means that virtual currencies are not legal tender and because they are not regulated, provide no protections.
President Uhuru Kenyatta has said that the country should explore the use of blockchain technology, despite the central banks’ response. In response to the increased exposure of blockchain technology, companies like Finterra are establishing a presence in the country.
Ethiopia
As mentioned, the Ethiopian government has agreed to work with global blockchain company IOHK in using blockchain technology for government services. The Ethiopian government has no official stance on blockchain or cryptocurrency, although the technologies remain unregulated in the country There are no formal notices that tell people not to use cryptocurrencies or associated technologies.
Ghana
Although blockchain and cryptocurrency are unregulated, the Bank of Ghana issued a notice in January 2018 advising against the use of “virtual currencies.” The central bank states that cryptocurrency transactions are not licensed under the Payment System Act.
Decentralization in Africa
The use of cryptocurrency and its blockchain architecture is increasing globally. This figure suggests that 5.5% of internet users worldwide own some digital currency. Perhaps unsurprisingly, three African nations lie above this average. Decentralized networks have become increasingly important in the region, as they allow for transactions that would otherwise be impossible.
As Forbes mentioned:
The technology ecosystem in Africa can improve by taking what works in existing equity crowdfunding systems and making more blockchain-powered markets that allow for more local early-stage investors to get involved.
This is an overview of decentralization in three countries.
Kenya
Despite the central bank’s warnings about cryptocurrency volatility, many businesses in Nairobi have begun to accept Bitcoin payments. The Blockchain Association of Kenya said that Bitcoin transactions in Kenya are worth about $1.5 million a day.
The country is also trying out blockchain-based “local currencies” in poor communities as a way to address the lack of physical fiat currency. Emerging solutions in Kenya are not using Kenyan shillings, but are instead leveraging mobile payment networks similar to M-Pesa. The system allows people to earn credit by providing goods and services, and also makes it easy to buy things using a mobile phone.
Ethiopia
The Ethiopian Ministry of Science and Technology is collaborating with blockchain development firm Iohk to launch Atala. This project is designed to help governments in developing countries create systems for managing payments, digital ID information, and supply chains. Iohk has set up an office in Ethiopia in order to support and train developers to implement blockchain projects. Ethiopian ministers are looking to work closely with entrepreneurs and startups in the country in order to develop blockchain applications for coffee shipments and other agricultural purposes.
Ghana
The Ghanaian central bank has been investigating the feasibility of issuing a digital version of its currency. First, the bank governor, Ernest Addison, wants to try a pilot project in a sandbox. The countries involved have not given any clear indication that the new currency will be blockchain-based.
Although the Ghanian Securities and Exchange Commission and central bank have taken a position against using blockchain technology, many people think it is still possible that the project will go ahead with using it. currency The rapid expansion of mobile payment users in the country gives the impression that it would be a perfect place to test a central bank digital currency.
FINTECH START-UPS IN CAMEROON
The term fintech has been used since the 1970s to refer to the use of technology to improve financial activities.
The fintech ecosystem consists of the following five elements.6
- fintech start-ups: in Cameroon, these firms are primarily involved in electronic payments, lending, insurance, crowdfunding, and to some extent capital asset management, especially for cryptocurrencies
- technology developers: including blockchain, data analytics, and cloud computing developers
- financial customers: individuals and enterprises
- traditional financial institutions: such as conventional banks, insurance companies, venture capitalists, and wealth managers
- government officials: financial regulators and legislators
This text looks at how fintech startups have made sure their digital systems are secure and how this makes consumers trust them more.
In 2017, 31 percent of the total registered mobile money accounts (5.4 million) were held in Cameroon, compared to the 1.7 million people who held a traditional bank account. The adoption of fintech solutions in Cameroon has been massive compared to the figures for traditional bank accounts. While fintech accounts were originally adopted to help those who were unbanked, the coronavirus pandemic has made them more popular.
Although Cameroon has a high literacy rate of 77 percent, fintech startups were not initially able to participate in the digital financial services boom because only banks and microfinance institutions were allowed by law to provide payment services. A regulation on payment services in the CEMAC redefined payment service providers to include nonbanking institutions like digital platforms and fintech start-ups, changing the landscape in 2019.
The government of Cameroon is working to increase digitization and access to financial services across the country. However, they admit that there is still a lot of work to be done to secure digital systems and to build trust among citizens regarding digital technology.
Based on research conducted by the MasterCard Foundation, trust is the primary driver of fintech service adoption in Cameroon. Fear of new technology and volatility are two primary barriers to adoption.
CYBERSECURITY IN FINTECH START-UPS IN CAMEROON
Cyber attacks that lead to financial losses, including those caused by negligence or human error, can cause significant volatility. The MasterCard Foundation report found that people’s fears of new technology were related to network outages or similar bugs in technology systems.14 Therefore, it is paramount that fintech infrastructure and systems are secured from attacks.
Strict laws and regulations around the cybersecurity of large banks and other financial institutions have been in place for a long time, with hefty fines for those who don’t comply. In Cameroon, operators of information systems are required by law to take all necessary measures to ensure the security of the services they provide. This law applies to fintech startups. However, fintech companies are often small, young, and budget-constrained. Because they invest few resources in cybersecurity, fintech startups are easy targets for criminals who can exploit their vulnerable software.
Fnew technologies, such as cloud computing, artificial intelligence and machine learning, big data analytics, robotic process automation, and blockchain are revolutionizing the financial services industry in Cameroon. As fintech companies grow more popular, they become more of a target for cybercriminals. This is because the way these companies operate is different from traditional banks, making them more vulnerable to attack. Start-ups in Africa, especially in Cameroon, often have small budgets which can limit or prevent access to financing. This can cause some fintech start-ups to see security for their systems and applications as a burden instead of an opportunity.
While fintech start-ups in Africa are seeing a surge in funding, most of this investment is focused on only seven out of the fifty-five countries on the continent. Nigeria, Kenya, and South Africa make up 87.9 percent of this investment.
currency.
Leapfrogging to the future
Fintech has allowed Africa to bypass the developmental mistakes of developed nations. However, in a region that is seen as an opportunity for growth and advancement, many people live without basic financial infrastructure. Despitesetbacks, financial innovation continues to drive a narrative of hope and potential — development is accelerating. Interswitch is an African digital payments firm that Visa acquired a 2% minority stake in for $200 million last year. More and more venture capital firms are discussing the possibility of opening offices in Africa, and this trend is only going to continue.
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