Chijioke Dozie of Carbon: Exploring Africa’s fintech success story
Chijioke Dozie is the CEO and co-founder, Carbon. Here, Dozie takes a look into the dynamic African fintech landscape, as well as the opportunities and challenges that abound.
Exploring Africa’s fintech success story
For those that are not too familiar with financial systems in Africa, if I told you that one of Africa’s biggest problems is money, you may think I was talking about poverty. Although that would not necessarily be incorrect, I am actually talking about the challenge of effective and efficient access to money and the wide range of issues that beset financial services across the continent.
For starters, it costs money to use money. Across the continent, using an ATM, whether to withdraw cash or check your bank balance, costs money. You are also charged for bank-to-bank transfers and remittances. People are effectively taxed for accessing and using their own money.
There is also the issue of access to credit. For a variety of reasons, many African countries do not have the infrastructure that allows financial systems in develoAped markets to ascertain credit-worthiness. As a result, there is very limited access to loans and those that do get access are charged exorbitant interest rates.
African fintech is booming
It is in the context of these and other challenges that African innovators and entrepreneurs are developing fintech solutions. From payment solutions that don’t charge users for using their money to platforms that facilitate easy-to-access short-term loans, the African fintech scene is booming with a wide range of solutions. All hoping to address at least one of the challenges that face the continent’s financial service sector.
Even established global brands are getting in on the action. Mastercard recently announced that it has teamed up with telecoms provider Vodacom to launch VodaPay Masterpass, a digital payment platform that enables consumers to load any bank card into a secure digital wallet downloaded as an app on their smartphone. This allows them to pay for their needs and wants to match that same “always on” mindset using their smartphones.
Using a combination of technology, an understanding of unique needs and a knowledge of longstanding financial traditions, new platforms that are made by Africans for Africans are springing up all over the continent. For example, there is a Nigeria-based startup using machine learning to calculate the credit-worthiness of consumers who don’t have a credit history, opening the door to marginalised groups in the financial community. In many cases, female entrepreneurs are most affected by lack of access to financial services. Many of these women have been consistently overlooked but now have access to advisory services, loans and other financial services to help them scale their businesses.
Startups are receiving more funding
If the stats on startup funding in Africa is anything to go by, it looks like the boom is set to continue for a while. Of all the African startups that received funding in 2018, almost a third (32.6 percent) were fintech businesses - a greater percentage than any other sector. In Nigeria, African’s biggest economy, the dominance of fintech funding is even more pronounced. Over 80 percent of total funding raised by startups in Q1 of 2019 was raised by fintech. A financial service provider also got the highest amount of funding.
According to the Finnovating for Africa 2019: Reimagining the African financial services landscape report, Africa’s fintech companies have grown from 301 in 2017 to 491 (at the last count). African fintech ecosystem has grown by 60 percent in the last 24 months and fintech companies have raised more than $320 million in funding since 2015. In 2018 alone, $132.8 million was raised, making it the best year the sector has ever had.
There is growth across the continent
From Nigeria to Kenya and from Morocco to South Africa, fintech solutions are springing up, providing unique solutions to many longstanding issues as well as introducing new and innovative ways to address previously unidentified challenges. The rapid adoption of mobile phones has also created a golden opportunity to deliver a range of tailored solutions that will connect the hitherto unbanked with the benefits of the mainstream financial system.
When you consider that these solutions are being built and honed in some of the most hostile business markets in the world, and seeing incredible traction, you have to ask how soon we should expect to see these solutions in markets outside Africa.
The African fintech story is indeed one of the biggest success stories coming out of the continent. As the story develops, it will be very interesting to see what other successes lie ahead of this vibrant and innovative scene that some of us have the huge pleasure of being a part of.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.