Banks, with their established customer bases, substantial balance sheets and regulatory expertise, can provide a robust foundation for innovation. On the other hand, fintechs, with their agility, cutting-edge technologies, and customer-centric approach, can drive innovation and expand access to financial services for the unbanked.
Ike.S Anison, country director, Ghana/Liberia/Gambia at payment firm Onafriq, addresses the transformative power of collaboration between traditional banks and fintechs, emphasising their ability to reenergise and redefine financial services across Africa.
It’s no secret that access to formal financial products has long been, and continues to be, low across the African continent. While there are obvious exceptions (81 per cent of adult South Africans, for instance, have access to a formal bank account), there is still a long way to go before widespread formal financial inclusion on the continent is achieved.
In fact, figures from the World Bank show that 350 million adults in sub-Saharan Africa don’t have access to formal bank accounts. That’s approximately 17 per cent of the world’s two billion-strong unbanked population.
In part, that’s because many of the low-income earners who make up most of Africa’s population feel that they don’t earn enough or have enough savings to warrant using formal banking services. But it’s also down to a lack of formal banking infrastructure and the perceived cost of financial services.
But formal banking services are only part of the financial picture in Africa. As connectivity and digital technologies have become cheaper and more ubiquitous, the continent has also built a thriving and dynamic fintech sector.
Startups in the sector, which account for the vast majority of the continent’s unicorns (tech companies valued at over $1billion), cover everything from payments to savings, investment and insurance. Factor in the nearly 700 active startups in the space and it’s easy to see why Africa is poised to become the fastest-growing fintech region in the world.
This fintech explosion has helped provide millions upon millions of ordinary Africans with financial tools they wouldn’t previously have had access to. Critically, it’s done so in ways that cater to the lived realities of most people on the continent.
However, both the traditional finance and fintech sectors are at an inflexion point in Africa. The former is struggling to overcome long-standing challenges such as high operating costs and legacy infrastructure. These obstacles make it difficult for them to provide the kind of affordable, flexible products that African customers demand. At the same time, fintech companies often struggle to deal with complex regulatory regimes across the continent.
Those concurrent challenges don’t just present obstacles to the organisations involved either. They’re also impediments to Africa’s progress around financial inclusion. There is, however, a solution and it involves significantly higher levels of collaboration between fintechs and traditional banks.
Benefits of partnerships
Implemented effectively, such partnerships could help both parties overcome their weaknesses while also leveraging their respective strengths. For banks, partnerships with fintechs can help unlock previously unseen levels of agility and innovation. These partnerships would also put banks in a better position to digitise outdated systems and meet their customers’ needs. Banks are starting to realise the benefit of such partnerships too. Several major banking players across the continent, for example, either have in-house fintech incubators and accelerators or support ones run by third parties.
Fintechs, meanwhile, can benefit from banks’ customer bases and the trust and credibility they’ve built up over decades of operation. Equally critically, however, banks can help fintechs navigate the complex worlds of regulation and compliance.
That’s especially important in Africa. The continent is home to a wide array of financial regulatory regimes. The differences in regulation from country to country have helped create a highly fragmented payment ecosystem. As a result, every merchant or company has to integrate with each different payment service provider individually to cater to the broadest possible range of consumers.
Stronger collaboration, both between companies within the same countries and those working across borders, would help ease that fragmentation. It would also help create and evolve payment ecosystems to the point where they enable transactions, payments, and other financial services that are omnichannel in nature and which offer consistently seamless experiences across platforms and borders.
Advantages to Africa
Such unified ecosystems will have significant benefits for banks, fintechs, and financial inclusion in Africa. The sector would, for example, be better positioned to build products that match the needs of ordinary Africans while also facing lower transaction costs. Meanwhile, both individual and business customers would be better positioned to save money digitally and access financial instruments such as micro-loans thanks to the data provided by fintech services.
Making it easy for traditional banks, fintechs, and other adjacent organisations to come together for partnerships and collaborations is something we’ve long been passionate about at Onafriq. At present, we’re connected to over 500 million mobile wallets, covering over 1300 live payment corridors in 40 African countries, with over 200 payment schemes connected, positioning Onafriq as a truly pan-African omnichannel payment enabler.
It’s the kind of collaborative spirit we believe every organisation within the financial sector – whether they’re an established player or a disruptive fintech – should aim for too. Not only will doing so enhance financial inclusion in Africa, but it will also demonstrate to the world exactly how much of a financial leader and innovator the continent can be.