Removing Roadblocks For A Digital Financial Ecosystem

Financial inclusion has been identified as a key factor in the economic development of African countries, with fintech playing a crucial role in driving this agenda. Fintech has transformed traditional banking models, allowing for the provision of financial services to underserved and unbanked populations. However, for fintech to deliver on its promise of financial inclusion, data plays a vital role in driving ecosystem development.

To develop this fully inclusive and sustainable fintech ecosystem on the continent, there are certain roadblocks that must be addressed, including the lack of digital literacy, increasing fraud in the digital transaction ecosystem and feeble policy and regulation of the same. Data from the United Nations Economic Commission for Africa (UNECA) estimates that more than US$84bn is lost in illicit financial flows from Africa each year, nearly equivalent to the amount the continent receives in remittances annually. This includes the proceeds of corruption, money laundering and fraud.

These illicit financial flows have adverse effects on the developmental situations of Africa countries with further data from a UNECA report titled ‘Counting the Cost: defining, estimating and disseminating statistics on illicit financial flows in Africa” highlighting the impact. The report indicates that those countries with the highest illicit cash flows spend 58% less on education and 25% less on health that those who have been able to curb this vice.

The use of data can help to seal these loopholes by providing regulators with actionable information to help identify fraudulent transactions within the ecosystem in real-time. Additionally, the same information can advise the development of policies that can foster the development of the ecosystem, whilst adequately prescribing the scope of the fintech ecosystem to protect both the fintechs and customers from overexploitation.

The importance of data for inclusive fintech ecosystems in Africa cannot be overstated. Data is the lifeblood of fintech, providing insights that drive innovation, improve decision-making, and enable the delivery of customized financial products and services to a wide range of customers. Data enables fintech companies to identify gaps in the market, tailor products to customer needs, and design more efficient delivery models.

According to the World Bank, more than half of the adult population in Sub-Saharan Africa (SSA) lacks access to formal financial services. Fintech companies have been at the forefront of addressing this gap by leveraging technology to provide innovative financial products and services. For example, mobile money platforms like M-PESA have revolutionized the way money is transferred and accessed in Kenya, enabling millions of people to access financial services for the first time. The value of Africa’s mobile money transactions edged up 39% to US$701.4 billion in 2021 from US$495 billion in 2020, accounting for 70% of the world’s US$1 trillion mobile money value.

However, the success of fintech in promoting financial inclusion hinges on the availability and quality of data. Without data, fintech companies are unable to identify customer needs, develop tailored products, and assess the impact of their interventions. Data is also critical in enabling regulatory oversight, ensuring that fintech companies operate within a sound regulatory framework. The absence of high-quality data on Mobile Money services challenges the banking and financial authorities’ capability to oversee this fast-growing market and make informed decisions.

The importance of data is further highlighted by the rapid growth of fintech in Africa. According to a report by the African Fintech Network, the number of fintech startups in Africa grew by 60% in 2020, with over $160 million in funding raised. This growth presents an opportunity to leverage data to build more inclusive and sustainable fintech ecosystems.

Data-driven fintech ecosystems can unlock enormous potential for economic growth in Africa. The McKinsey Global Institute estimates that a fully inclusive financial system in Africa could add $300 billion to GDP by 2025, with fintech playing a crucial role in driving this growth. By leveraging data to build more inclusive fintech ecosystems, African countries can unlock the full potential of fintech and drive sustainable economic development.

In conclusion, data is essential for building inclusive fintech ecosystems in Africa. Without data, fintech companies are unable to identify customer needs, develop tailored products, and assess the impact of their interventions. The rapid growth of fintech in Africa presents an opportunity to leverage data to build more inclusive and sustainable fintech ecosystems, unlocking enormous potential for economic growth in the continent. Policymakers, regulators, and fintech companies must work together to build robust data infrastructures that enable the development of inclusive fintech ecosystems in Africa.

This article was written by the CEO of Global Voice Group (GVG) James Claude