By Andy Jury
Digital payment and financial tools enabled by mobile internet are becoming a powerful force to expand access to financial services in developing economies in Africa to reach the unbanked population.
Developments in technology provide access to a wide range of financial services such as savings accounts, money transfers, and loans that make a positive difference in the lives of people in developing economies. Digital financial services are becoming a potent force that brings more people closer to a financial inclusion goal.
400 million adults in Africa lack access to financial services
The World Bank Global Findex database showed that there are 1.7 billion unbanked adults globally, of which 75% own a mobile phone that could give them access to financial services.
The Women's Digital Financial Inclusion in Africa reported that at least 400 million African adults lacked access to formal financial tools. Barriers to financial inclusion include the inability to prove one’s identity, cited by 20% of the unbanked, 22% said they live far from financial institutions, and about 16% claimed they distrust the financial system.
When informal cash-out services become less accessible to communities, for instance, people could rely on intuitive digital financial services platforms to conduct basic banking transactions like sending and receiving money during unprecedented times. Moreover, after using digital channels for the first time many first-time users discovered that they can also fulfil their other financial needs simply by following the user journey and providing ongoing feedback.
Remittance flows in Africa
The United Nations Economic Commission for Africa said one out of five people in Africa sends or receives international remittances. Remittance flows have nearly doubled since 2009, with migrant workers sending about $85 billion to their relatives in the continent in 2019. Remittances account for 3% of the African gross domestic product.
In Nigeria, remittances are equivalent to the size of the budget of the federal government. Forecasts suggest that remittances will soon exceed the total development assistance and foreign investment combined in Africa. Despite World Bank's predictions that global remittance flows would dramatically decline amid the pandemic, countries such as South Africa, Zimbabwe, Malawi, and Zambia have seen that formal remittance flows across African borders have actually increased.
Remittances are only the beginning of a digitised and customer-led journey to financial inclusion and improvement of people’s lives in many of these economies. Fintech banking platforms provide multiple channels such as USSD app, WhatsApp, and live chats for customers. The ability to sign up without having to physically interact in a bank or branch gives the opportunity for self-empowerment and financial stability is further amplified.
This is about going beyond fintech and providing an ecosystem that empowers users on a gradual but progressive journey to financial inclusion. When customers made self-sign-up and digital onboarding, they build up financial transaction profiles. Over time, diaspora remittances and the increasingly robust digital footprint can be harnessed as an indicator of creditworthiness. These profiles could be leveraged to avail credit for capital growth rather than just for consumption.
Closing the digital divide
According to the Global System for Mobile Communications (GSMA) research ‘The Mobile Economy,’ nearly 800 million people in the sub-Saharan region do not have access to mobile internet. There were 272 million mobile users recorded in 2019, comprising 26% of the sub-Saharan population. This is expected to grow to 475 million (39% of the sub-Saharan population) by 2025. Sub-Saharan Africa is also home to the 10 economies worldwide where more adults now have mobile money accounts than deposit accounts.
The sub-Saharan African adults with mobile money account nearly doubled from 12% in 2014 to 21% in 2017. They use the accounts to pay bills, move money, and buy goods. This has triggered a surge of innovative digital tools and services across the continent.
GSMA said remittances are expected to retain or even exceed their current levels of importance with foreign direct investment flows into lower middle income countries expected to decline by as much as 35% in 2020.
Meanwhile, the customer-led innovation supported by technology will take users on a journey towards greater financial inclusion through continuously introducing processes such as self-service onboarding, mobile wallets, and self-driven know your customer protocols. When users engage using an app, they feel empowered to make decisions.
Today, it is these seamless and increasingly digitised user journeys, supported and driven by incremental, customer-led fintech innovation, that are disrupting the financial services ecosystem. They are effectively banking the unbanked and elevating financial literacy where it is most needed.
Andy Jury is the CEO at Mukuru, a mobile and web-based remittance company with offices across Africa and Europe.