Adrian Pillay, VP of Middle East & Africa at Provenir
Fintech in Africa is coming into its own. According to KPMG data, there was a record $1.6 billion in fintech investment across the continent in 2021, across 153 deals, and at two times the value of 2020, which hit US$800M. From East to West and North to South, countries are seeing sizable deals surpassing anything that came before, and while Nigeria, Kenya, and South Africa are leading the way, new markets, like Egypt, are also catching up.
Africa’s financial penetration is relatively low compared to other emerging markets like Latin America. According to The Global Economy, LatAm markets like Chile, Venezuela, and Brazil see 80-90% of their population with bank accounts. This is in stark contrast with Africa, where in 2017, only 35% of the continent’s population had access to banking services, though this figure was projected to increase to 48% in 2022 (Statista data). These metrics highlight Africa’s poor access to financial services but also reveal an opportunity.
According to data from McKinsey, consumer spending in Africa is $1.4 trillion. Africa’s population is young, fast-growing, and increasingly urbanized, while rapid technological adoption makes the region ripe for innovation. When looking at Sub-Saharan Africa, the region boasts the highest digital payment usage in the world, leapfrogging many other developing economies. This has been achieved by innovative new players in the market, like M-Pesa, completely bypassing existing payment rails and instead relying on the latest technology available to bring new services to African consumers.
All this presents an opportunity for the same to be achieved in the credit space in the world’s next big growth market.
Disrupting the credit market
The credit card industry is valued at an estimated $8 trillion worldwide, but its market share is gradually being undercut by the growth of point-of-sales financing offerings that combine installment lending with the convenience of card payments. And this is even more pronounced in the African continent. Despite being a relatively new concept in Africa, the advantages of Buy Now Pay Later (BNPL) are undeniable and well-suited for the region’s consumers.
Particularly, for many consumers that are categorized as ‘thin file’, meaning they have little or no credit history, BNPL helps them access to credit for essential items. This alternative financing offering promises the ability to easily access sustainable credit for non-banked and underbanked consumers, including the sought-after Gen Z population, and providers are lining up to take a bite out of the market.
The use of alternative data is greatly enhancing the effectiveness of BNPL in Africa by providing lenders with a more comprehensive understanding of a consumer’s creditworthiness. For individuals with thin credit files or no credit history, traditional credit reports typically do not provide enough information for lenders to make informed lending decisions. Alternative data, such as mobile wallet activity, utility payment history, rental history, or social media activity, can be used to improve risk assessment and increase access to credit and underwriting for BNPL.
Unlocking opportunities
SMEs are the engine that drives economies around the world, employing the vast majority of the population and contributing the most to GDP. However, lending to SMEs can be inherently risky and
incredibly time-consuming. Traditional financial institutions often require a paperwork-heavy application process and may find it difficult to execute credit risk decisions without human intervention. There’s also the issue of businesses not having an adequate credit history and often having to rely on the founder’s credit, leading to significant delays in the approval of funding.
All of these challenges combined can quickly be the difference between a business flourishing and floundering. So what are the options?
Increasingly, innovative lenders, including fintech and neobanks, are popping up all over the globe to help ensure that SMEs get access to credit when they need it. And in order to thrive in this competitive space, lenders in Africa need to deploy the technology and processes that support easy access to alternative data, power real-time onboarding, and give them the ability to rapidly adapt to evolving legislation.
There are three main ways that lenders can get SME approvals into the fast lane. Firstly, the application process needs to be substantially simplified and digitized. Online forms mean no office visits, no tedious phone calls, and no paperwork. Creating an online portal lets applicants conveniently track progress, submit supporting details, and access loan repayment terms. Moreover, enhancing lending decisions with automated technology pulls in the right information about applicants, completes fraud and identity checks, and determines optimal pricing.
Secondly, lenders need to deploy real-time risk analytics. Using risk decisioning technology to access, orchestrate and process business financial data, like accounting documents and tax returns means that lenders can stop relying on personal credit scores to decide on business loans. Real-time risk analytics can offer lenders an immediate, accurate view of business health so they can take an application from data to the decision in under a second.
And finally, lenders need to lower the cost of approvals. Automating the application process and using real-time data to make instant decisions allows firms to save time and money when lending to SMEs. This also means that teams can oversee numerous decisions at once, instead of manually processing each individual loan application.
Through alternative data sources, lenders can evaluate thin-file customers and help to create a bigger picture of an SME requesting credit. This will allow lenders to evaluate financial risk levels by applying alternative scoring for a more holistic view of a business’s ability to pay, creating a great opportunity to serve those that are left out by traditional financial institutions.
Africa offers exciting and new opportunities for fintech looking to address issues around financial inclusion and unlock new streams of revenue. Being on the brink of a fintech revolution, an influx of credit would see millions gain access to better financial services.
Related posts
Brit Awards | Asake, Burna Boy And Other ‘New Cats’ Get Nominations
Nigerian singers Burna Boy, Asake, and Rema have been nominated for the 2024 Brit Awards. The nomination list for the annual music awards show was released on Wednesday 25, January 2024. Burna Boy and Asake made the ‘Best International Artiste’ category, while ‘Calm…
Brit Awards 2024 | The Full List Of Artist(e)s
This year’s Brits nominees have been revealed ahead of the ceremony in London in March. Dua Lipa is the first star confirmed to perform at the event – but how many awards is she up for? Musicians including Raye, Central Cee, J Hus and Blur are also…
The Miss Universe-Greatest Celebration of Women
-SOFIE ZERUTO The Miss Universe Organization is a global, inclusive of organizations that celebrates all cultures, backgrounds and religions. It creates and provide a safe space for women to share their stories and drive impact personally, professionally, and philanthropically. The women who participate in this…
All Africa Music Awards; Categories and Regions
-MUSIC IN AFRICA All Africa Music Awards (also referred to as AFRIMA) is an annual awards event. The awards event was established by the International Committee AFRIMA, in collaboration with the African Union (AU) to reward and celebrate musical works, talents and creativity around the African continent while promoting…
Top 10 Cryptocurrencies To Invest in January 2024
-Michael Adams From Bitcoin and Ethereum to Dogecoin and Tether, there are thousands of different cryptocurrencies, making it overwhelming when you’re first getting started in the world of crypto. To help you get your bearings, these are the top 10 cryptocurrencies based on their market…
The Risk And Reward Of ChatGPT In Cybersecurity
Juan is an experienced CTO with a demonstrated history of working in the computer and network security industry. He is an information technology professional skilled in SAP and Oracle applications, computer forensics, vulnerabilities research, IPS/IDS and information security. Unless you’ve been on a retreat in…
Explained – History Of Money From Fiat To Crypto
What is money? Money as a concept has been a cornerstone of human civilization and economic development. To start with the latter, money is a method of storing value and worth, and it also functions as a medium of exchange that allows individuals to exchange…
Studies Show That Nigerian Crypto Foreign Investment Is At A Record Low
Foreign direct investment in Nigeria fell by 33% last year due to a severe shortage of dollars, which discouraged crypto companies from expanding into the country. The largest economy in Africa has a foreign investment problem despite exponential growth in crypto adoption. The National Bureau…