Driving Through Africa By Alex Fork, CEO of Humaniq

On the one hand, Sub-Saharan Africa is the continent with the highest fraud-related crime rates, where the vast majority of the adult population suffers from lack of financial inclusion, and whose nations are affected by the lowest incomes and highest illiteracy rates. On the other, the surprising fact is, Africa has six of the world's ten fastest growing economies in 2018, according to the World Bank. This list of growing economies is headed by Ghana (8.3% of GDP), Ethiopia (8.2%), Côte d'Ivoire (7.2%), Djibouti (7%), Senegal (6.9%) and Tanzania (6.8%). The World Bank also forecasts growth of 3.2% in Africa for 2018, up from 2.4% in 2017. I strongly believe that both these reasons make Africa a key market and even the worldwide market driver for FinTech solutions.

What Makes Africa Different

Traditional financial behavior in Africa stems from very different institutional logics of financial management to those found in mature markets. It is based on three main principles. The first is a high level of distrust towards financial institutions in Africa. People simply do not believe governments, banks and loan sharks will not deceive them.

The second principle is that until only a few years ago, money circulation in Africa meant only cash circulation. This mindset was supported by centuries of consciousness deeply entrenched in the its populations and cultural codes. Even affluent Africans, such as engineers, teachers, doctors, street traders, and other small business owners operate only with cash. The latter, meanwhile, are the backbone of economic development. Firstly, because they have money, secondly – their business entails regularly making transactions, and thirdly, these "hustlers' usually do not have a bank account, since their business is not registered anywhere and traditional banks are not interested in them.

The third principle is the rapid growth of mobile adoption in the region in recent years. According to GSMA Intelligence, overall subscriber penetration reached 44% in 2017, up from just 25% at the start of the decade. These numbers are impressive, even in comparison with the global average of 66%.

These circumstances, enhanced by access to mobile connectivity which is so vital to empowering consumers and driving economic growth, create a uniquely favourable environment for the application of truly innovative FinTech solutions. I mean mobile solutions, excluding traditional financial services, which brings value both for individuals and small businesses by offering them new ways of investing resources and multiplying savings through the digital financial market. The combination of mobile-app based solutions to many issues people face in developing regions, coupled with increasing rates of mobile phone and internet penetration, are now approaching a convergent inflection point, whereby developing nations can leapfrog developed nations facing numerous systemic and infrastructural bottlenecks to improving quality-of-life and financial equality through the power of modern IT technologies.

How to Change the Environment

Meanwhile, the age of digital finance has begun for emerging economies as well. Some large market players around the world have already realised that financially excluded people are a vast new market. They are now trying to embrace this opportunity by offering new FinTech products. In the US, Walmart's GoBank offers low-cost current accounts targeted at people who do not use traditional bank accounts. Amazon launched Amazon Cash, which allows customers to go into retail stores and put cash into their Amazon accounts so they can shop online without even using a credit card. In Mexico, Banco Azteca sends its agents to the homes of borrowers to take an inventory of stereos, TVs and other appliances they possess to support loan applications. In the United Kingdom, three local banks — Atom Bank, Monod, and Tandem — got official permissions in 2015 to fully switch to mobile technologies to meet their clients' needs.

Africa has already made this switch. Taking into account the number of money transfer services, Africa has probably the most advanced financial market globally. Starting from Western Union and the huge amount of its local competitors and ending with the South African Shoprite supermarket network, where a customer can give some cash at a supermarket cash desk and a payee will immediately receive this at the cash desk of another supermarket.

However, one of the most successful African innovations is mobile money. This kind of financial service appeared in the region in the late 2000s and in ten years, without any exaggeration, revolutionised the economy of many African countries. In Kenya, for example, the mobile money service was launched in 2007. Today, the entire adult population of the country, including nomads in remote areas and illiterate residents of urban slums, has a mobile wallet. By the way, the same trends are obvious in Southeast Asia, where even citizens of the two lowest-income economies – Myanmar and Cambodia – have a mobile wallet included by default in every SIM card.

The annual turnover of the largest Kenyan operator of mobile money – Mpesa – is more than 500 billion US dollars, a huge amount for a middle-income country with a population of 40 million people. Safaricom, Kenya's dominant telecoms operator, that offer Mpesa services on the market, is the flagship of the Kenyan economy, bringing up a huge contribution to the national GDP (e.g. 43% in 2013). And still, there are some competitive mobile money services on the market proving that there is significant room for growth.

The ability to send, receive, lend money, and even open bank accounts solely by using basic SMS has elbowed such financial service giants as Visa and Mastercard out of the premium segment. The vast majority of the population uses mobile money and has no reason to apply for bank cards.

Mobile money has demonstrably transformed the African economy, granting access to core financial services in seconds. The region is ready for a brand new market of FinTech solutions. However, the main question that remains is how to convey to people with their historic reliance on physical cash the idea of virtual money (including tokens and cryptocurrencies) and to instil in them a habit for sophisticated financial strategies, such as investing.

When Financial Behavior Matters

Despite the growth of FinTech solutions in Africa, there has been very little research into financial behaviour in the region. This is why Humaniq, aiming to identify the characteristics and logic behind the behaviour of individuals lacking financial inclusion in Africa, launched a research project with the specialists of the International Methodological Association. The purpose of this research was to explore the character of the contexts that digital currency was operating within and to create adequate mechanisms to incorporate it into people's everyday activities.

More than 1,800 people in Nigeria, Tanzania, Kingdom of Lesotho, the Republic of South Africa, the Republic of Cameroon, Botswana and Uganda took part in experimental games as part of this research. These were organised in open, crowded places, such as local markets, bus stations, and public squares with participants attracted from passers-by – men, women, even children. The aim of the games was to collect as many "game" tokens as possible during a certain amount of time in order to win a prize. Players could choose any method for this purpose – ask other people to donate, exchange, team up to achieve the maximum effect, etc.

The results prove that it is enough for participants to spend 1.5 hours each to master practically the entire game space and its token-integrated possibilities, and to come up with creative financial strategies. These experiments therefore demonstrate that it is possible to create an ecosystem where new financial behaviour can be initiated and expanded. This example shows that it is necessary to stimulate people's imagination, to expand and elaborate their financial behaviour so that they can acquire new patterns of value augmentation different from those they have been accustomed to.

Of course, economic growth in Africa started at the bottom of the ladder. However, this is the best position for FinTech companies to start from - when the full range of financial services is not already established.