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Over the past couple of months, I’ve noticed an increased interest in African fintech and what traditional financial services players could stand to learn from what is being pushed out in these regions.

While it could be argued that there is nothing that is technically holding African fintech back, there are a number of factors that may be preventing the region from fulfilling its full potential in serving the millions of people that remain unbanked and underserved when it comes to financial services.

2016 was a transformative year for fintech in Africa and the continent experienced a number of milestones which at the time, were expected to alleviate this issue of financial exclusion. During this time, fintech startups intended to plug the gap that banks weren’t meeting with their services, rather than the collaborative attitude we are seeing in 2019. 

The U.K. and U.S. watched as African fintechs launched frictionless, scalable and efficient products that tipped the iceberg and ensured that making a payment was as easy as sending a text message. The perfect fintech example is M-Pesa: its success in Kenya led to 40 percent of the country’s GDP being transacted through the application just six years after the platform entered the marketplace.

That same year, Kenyan banks campaigned for increased regulation against the mobile money market but to no avail and the fintech industry became an enabler for the unbanked because of the increased convenience that came with the introduction of digital services. 

In addition to this, previously unavailable services such as credit and insurance were made available in areas where it would have been too expensive to establish physical bank branches. Around the same time as there were campaigns for increased regulation in Kenya, MoneyGram was recognized as a trusted money transfer provider in Nigeria after the Central Bank changed the policies of how remittance companies offer their services. 

What’s happening in 2019? 95% of transactions in Nigeria are still done in cash, and about 60 million adults do not have bank accounts. However, this week Aluko & Oyebode issued a statement advising how Nigeria should regulate its fintech industry. 

Despite recognizing that fintech could be an economic driver and create wealth and jobs for the country, the Central Bank of Nigeria have been cautious about the sector in the past, especially as a result of interest in cryptocurrencies in 2015 and 2016 which led to Nigerian banks being banned from engaging in cryptocurrency transactions. 

The statement read: “Nigeria’s regulatory framework can, at best, be described as ad hoc and is still dependent on regulations and legislation that were passed during the Third Industrial Revolution to regulate traditional financial services institutions and products.”

It continues: “The challenge with Nigeria’s existing regulatory environment is that most of the existing laws, regulations and licensing regimes that apply to fintech companies and their products and services were initially designed for traditional financial services and are not fit for the purpose for which they are now sought to be used.

“Thus, while the current laws offer some protection and regulatory guidance to consumers and market participants, they do not adequately cover legal issues that may arise from fintech products, such as crowdfunding, blockchain technology, cryptocurrencies and robo-advisers.”

Taking the U.K. as an example, updating regulatory policy can be beneficial for both fintech firms and traditional lenders. As well as advising a regulatory sandbox to “facilitate the necessary dialogue between market participants and regulators to develop regulatory actions that strike the right balance between facilitating innovation and mitigating new risks,” Aluko & Oyebode offer another approach: a self-regulatory organization (SRO), but state that Nigerian regulators are unlikely to pursue it.

“Where an SRO approach is adopted to regulate fintech, there is a risk that the regulations may be lopsided and favour fintech companies more than their consumers and counterparties. 

“Because these regulations will be formulated by key participants in the industry with a clear understanding of the various products and the associated risks, they will be better designed to formulate appropriate regulations that address issues such as cybersecurity, data protection and consumer protection.”

Although a SRO might not cover all bases, it would certainly help with cybersecurity and data protection. The South African Banking Risk Information Centre (Sabric) revealed this year that credit card fraud had increased by 18%, with Card Not Present fraud accounting for 80% of all fraud losses in the country.

Mobile banking is creating new opportunities for sophisticated financial crime to take over, especially now that data is being perceived as the new gold, or oil, or whatever the saying is now. M-Pesa was itself the target of a large-scale fraud this year and as a result, parent company Safaricom launched an anti-fraud intelligence solution. But was this step taken quickly enough?

Another interesting factor that has been brought to the fore is the lack of gender equality in Africa and the fact that gender parity has stagnated. According to a recent report by McKinsey ‘The power of parity: Advancing women’s equality in Africa’, this is a missing opportunity for growth for the region. 

Although the report does not specifically discuss the fintech industry, because recent statistics have revealed that a diverse workforce increases innovation and therefore revenue (Boston Consulting Group), embracing gender diversity would benefit the sector. 

McKinsey predicted that “parity could boost African economies by the equivalent of 10 percent of their collective GDP by 2025” and organizations should evoke change by investing in human capital to boost productivity, creating economic opportunities for women, leveraging technology, shaping attitudes and enforcing laws, policies and regulations. 

Although I haven’t discussed every country and every factor affecting the fintech industry in Africa, it is evident that changes to regulation is the first place to start. Nigeria is already making progress here and at the right time: according to the Financial Times, investors poured almost $400 million into payments companies in the country last week. 

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Over the past couple of months, I’ve noticed an increased interest in African fintech and what traditional financial services players could stand to learn from what is being pushed out in these regions.

While it could be argued that there is nothing that is technically holding African fintech back, there are a number of factors that may be preventing the region from fulfilling its full potential in serving the millions of people that remain unbanked and underserved when it comes to financial services.

2016 was a transformative year for fintech in Africa and the continent experienced a number of milestones which at the time, were expected to alleviate this issue of financial exclusion. During this time, fintech startups intended to plug the gap that banks weren’t meeting with their services, rather than the collaborative attitude we are seeing in 2019. 

The U.K. and U.S. watched as African fintechs launched frictionless, scalable and efficient products that tipped the iceberg and ensured that making a payment was as easy as sending a text message. The perfect fintech example is M-Pesa: its success in Kenya led to 40 percent of the country’s GDP being transacted through the application just six years after the platform entered the marketplace.

That same year, Kenyan banks campaigned for increased regulation against the mobile money market but to no avail and the fintech industry became an enabler for the unbanked because of the increased convenience that came with the introduction of digital services. 

In addition to this, previously unavailable services such as credit and insurance were made available in areas where it would have been too expensive to establish physical bank branches. Around the same time as there were campaigns for increased regulation in Kenya, MoneyGram was recognized as a trusted money transfer provider in Nigeria after the Central Bank changed the policies of how remittance companies offer their services. 

What’s happening in 2019? 95% of transactions in Nigeria are still done in cash, and about 60 million adults do not have bank accounts. However, this week Aluko & Oyebode issued a statement advising how Nigeria should regulate its fintech industry. 

Despite recognizing that fintech could be an economic driver and create wealth and jobs for the country, the Central Bank of Nigeria have been cautious about the sector in the past, especially as a result of interest in cryptocurrencies in 2015 and 2016 which led to Nigerian banks being banned from engaging in cryptocurrency transactions. 

The statement read: “Nigeria’s regulatory framework can, at best, be described as ad hoc and is still dependent on regulations and legislation that were passed during the Third Industrial Revolution to regulate traditional financial services institutions and products.”

It continues: “The challenge with Nigeria’s existing regulatory environment is that most of the existing laws, regulations and licensing regimes that apply to fintech companies and their products and services were initially designed for traditional financial services and are not fit for the purpose for which they are now sought to be used.

“Thus, while the current laws offer some protection and regulatory guidance to consumers and market participants, they do not adequately cover legal issues that may arise from fintech products, such as crowdfunding, blockchain technology, cryptocurrencies and robo-advisers.”

Taking the U.K. as an example, updating regulatory policy can be beneficial for both fintech firms and traditional lenders. As well as advising a regulatory sandbox to “facilitate the necessary dialogue between market participants and regulators to develop regulatory actions that strike the right balance between facilitating innovation and mitigating new risks,” Aluko & Oyebode offer another approach: a self-regulatory organization (SRO), but state that Nigerian regulators are unlikely to pursue it.

“Where an SRO approach is adopted to regulate fintech, there is a risk that the regulations may be lopsided and favour fintech companies more than their consumers and counterparties. 

“Because these regulations will be formulated by key participants in the industry with a clear understanding of the various products and the associated risks, they will be better designed to formulate appropriate regulations that address issues such as cybersecurity, data protection and consumer protection.”

Although a SRO might not cover all bases, it would certainly help with cybersecurity and data protection. The South African Banking Risk Information Centre (Sabric) revealed this year that credit card fraud had increased by 18%, with Card Not Present fraud accounting for 80% of all fraud losses in the country.

Mobile banking is creating new opportunities for sophisticated financial crime to take over, especially now that data is being perceived as the new gold, or oil, or whatever the saying is now. M-Pesa was itself the target of a large-scale fraud this year and as a result, parent company Safaricom launched an anti-fraud intelligence solution. But was this step taken quickly enough?

Another interesting factor that has been brought to the fore is the lack of gender equality in Africa and the fact that gender parity has stagnated. According to a recent report by McKinsey ‘The power of parity: Advancing women’s equality in Africa’, this is a missing opportunity for growth for the region. 

Although the report does not specifically discuss the fintech industry, because recent statistics have revealed that a diverse workforce increases innovation and therefore revenue (Boston Consulting Group), embracing gender diversity would benefit the sector. 

McKinsey predicted that “parity could boost African economies by the equivalent of 10 percent of their collective GDP by 2025” and organizations should evoke change by investing in human capital to boost productivity, creating economic opportunities for women, leveraging technology, shaping attitudes and enforcing laws, policies and regulations. 

Although I haven’t discussed every country and every factor affecting the fintech industry in Africa, it is evident that changes to regulation is the first place to start. Nigeria is already making progress here and at the right time: according to the Financial Times, investors poured almost $400 million into payments companies in the country last week. 

(Excerpt) Read more Here | 2019-11-30 18:52:56

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