How Africa became the unlikely financial innovator

When we think of innovations and technological developments Africa rarely comes up as the leader in either of those fields. At least that was the case until the recent financial boom that has taken the continent by storm. It is easy to underestimate the region, considering its low-medium income economies but the scene if Africa has been changing rapidly for the last few years.

Partially the very fact that Africa has been falling behind in some other fields, has contributed to the recent development and has greatly changed the lives of many young Africans.

The financial shortcoming of a lot of traditional banks and financial institutions has urged young Africans to look for solutions elsewhere. The rise of fintech and all of its possibilities came just at the right time for Africa to latch onto the opportunity and become a leading force in the newly created industry.

It’s easy to say that the heart of the finance world is still in the west but a short look at today’s western financial institutions or the developments and innovations that come from the region will show that the west is not where it used to be in terms of development speed and introducing innovations. Africa has the drive and the talent to become the leader in financial innovations and it has proven time and time again that it won’t let this opportunity slide.

Financial scene in Africa

When we talk about financial institutions today one of the major drawbacks that are consistent across the world is that they require too much paperwork, are often time exclusive of big groups of people and the fees that they charge for mediocre services are far too high. This was the case for Africa as well and to a larger scale. In Africa the financial institutions were not up to par, to begin with, there was a lot of elitism, denial of services and the people were not getting much use out of these institutions. That is why democratizing financing was the best decision the countries across Africa could have made. It has been proven to elevate the everyday experiences of the African citizens and to give them access to services that were unavailable to them before and it has been extremely profitable.

This is part of why the African scene is so unique. The need for innovation and improvement hasn’t been as strong anywhere else, maybe in some cases in Southeast Asia, but Africa still stands out in this regard. Africa has embraced personal finance and has taken upon itself to improve the service and the access to them. And the rest of the world has noticed too.

Forex Trading

One of the biggest things that has prompted Africa towards financial development has been forex trading. While it was at one point pretty consistent across countries, no the regulations vary more greatly than they did for example 5 years ago.

When the regulations regarding forex trading changed across Europe many brokers started to look for alternative trading spaces. Africa offered them the safe haven of trading and slowly started to establish itself on the market as one of the biggest forex markets. At the time it provided young people in Africa with an opportunity to dive into something different and promising and it has since helped a lot of people to build their careers. It is important to know which forex brokers to trust which ones to avoid. There are service to help you choose the right one, where those interested in forex market in Africa can look up, for example itrader review, to to make the right decision.

This innovation to the country came with the cost though, there were a lot of fraudulent forex brokers wanting to take advantage of the liberal regulations. While this was an issue for a while, the government officials have been working harder to protect their citizens from these scams. Kenya and Nigeria are among the leaders in this direction. While these regulations mean that new brokers won’t be able to enjoy the same liberties this move was crucial to retain the name of a country where trading is safe and profitable. While the market is still fairly easy to enter, especially compared to other markets now it is more regulated and allows less room for fraudulent brokers.

Fintech

Africa really put itself on the map with its fintech startups. This also was prompted by the lack of necessary financial services that were inclusive of all groups and provided these services without extra fees. In this regard, Africa is years ahead of the rest of the world in some respects. They have been using multiple mobile payment apps for years and show no sign of stopping.

Afric has become a great place for those who want to innovate and can work with technology. It has allowed may young people to build their careers there, without having to travel to U.S or Europe to make something substantial. Kenya and Nigeria are also leaders in this category, but fintech startups are widespread across the continent. Africa has a substantial number of “unicorn” startups that are worth more than $1 billion, something Europe has been struggling to achieve for years.

The role of Africa on the international scene

Meanwhile, Africa has been gaining a lot of international attention with big tech companies like Google and Amazon wanting to work and set up offices in Africa. Microsoft has been present on the continent for decades now and it is still looking to expand its presence and will likely set up could more offices there. What’s important is that all of these companies are hiring local stuff, giving young developers and IT professionals a chance to excel in their careers. These companies usually offer some training programs as well to help young staff adjust faster and this has proven to be mutually beneficial practice over the years. The fintech scene is attracting billions of dollars to the African continent through venture capitals and investments. Everyone in the industry recognizes the potential that African countries and their startups hold so it's a race to invest first and to become a part of the next big thing. There is a lot of demand for these innovations in Africa which is also part of what sets us apart from the rest. While Europe and the U.S might have the potential to achieve the same adoption levels the demand seems to be way lower there compared to Africa. It is a combination of factors such as availability of all the necessary service sand the resistance to change, but the problem of the “unbanked”, those who don’t have access to traditional financial services due to lack of necessary documents is very prevented in both regions, the U.S especially.

This was part of the reason why Uber decided to launch its own e-Wallet to help its drivers who were unbanked to get better services and access their money faster without having to pay huge fees.

What makes Africa different

In Africa, while the services do charge small fees, either per transaction or depending on the amount of money, they are very small compared to the fees set up by banks.

With the introduction of fintechs, we’ve seen that people now are less likely to pay a hefty price for making transactions through these traditional institutions. When there are cheaper, sometimes free services to perform the same. And this attitude is not exclusive to Africa. The fintechs have been slowly pushing the banks away from the spotlight. The traditional financial institutions are wary of these innovative startups since they’re threatening to diminish the importance of banks. While people expect top-notch services is they are paying the extra price for services, banks rarely deliver on that promise. But because fintechs are still new and they’re working on building a solid consumer base they usually provide excellent services and prioritize the customer and their needs. This hasn’t been the case for banks. Even at the beginning of their rise the banks were not seen as client-oriented. Fintechs offer the same services, sometimes faster and they charge way less or nothing at all for it.

Banks vs Fintechs

The only clear advantage banks have right nw is the exclusive license to conduct certain transactions and they know it. Considering all the things they have been trying to latch onto this advantage and to challenge the upcoming fintechs with all they’ve got.

While the majority of the experts would agree that we would get the best end results from the collaboration between these two, banks seem determined to stand their ground and not allow any room for the user-favorite fintechs in their industry.

The trust and legitimacy remains one of the challenging topics for fintechs across the world. Since the concept is pretty new for most of the regular people there is a lot of skepticism around it. That is why in order to flourish these startups would benefit from collaborating with banks who have the trust for the most part, of their customers. Banks have the chance to learn and improve through their partnerships with fintechs but it rarely goes that way. Banks refuse to see fintechs as holding an advantage over them and it affects the possibilities for partnerships as well.

In Africa people are limited in their choices, oftentimes having to choose fintechs because the banks just don’t provide these services for them. This practice proved to be very successful in the region but the west where the situation is a little different has failed to learn from this practice and to trust these fintechs to deliver on their promises.

In the U.S people do have more options and sometimes loyalty is what makes these customers stick with banks. And it doesn’t help that most of the companies wanting to offer financial services have previously been involved in some sort of customer information mishandling scandal. On top of that with Apple launching its credit system, some people were saying that it gave credits using a discriminatory algorithm that favored men over women, giving them higher credit scores. It is a complicated dynamic that is made up of multiple factors, both new and old.

The circumstance in which Africa began to thrive in the financial industry were not ideal. As mentioned above there were a lot of instances of forex frauds and there are still some concerns over fintech safety. But overall the industry started to flourish because at the time it was the best option. Whether or not the same can be said about the west is not clear at least to the consumers.

In the midst of what is often referred to as fintech revolution Africa is definitely at the front row. There’s a lot that we can learn from observing the financial technologies and approach local startups have taken. It is very demand-based and it is also customer-oriented. Many local businesses have been able to expand and grow through these technologies and also many big companies have managed to reinvent themselves thanks to the innovations coming from Africa.

The circumstances might have been a big contributor to the spike in financial services across the continent but Africa definitely made the best of the situation. If the rest of the world was to take make an example of Africa’s case it would in the end create more financially developed economies, but more importantly more financially innovative and cutting edge economies. That has been one of the major goals for China, so it’s not surprising that it is investing so heavily into these innovative financial institutions. It is hard to say whether or not the rest of the world will catch up with Africa in this regard but the region has provided a clear example of how to overcome the circumstantial challenges and turn it into something profitable.

The finance industry has created multiple opportunities for the young talent locally, which will make sure that these people stay there and pour all their skills locally as well.