Partnerships for Progress: Collaboration Between Banks and Fintechs is the Future of Banking in Africa

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By Ike.S Anison

Historically, the formal banking sector’s penetration in Africa has been relatively low. And, while there has been significant improvement in this area in recent years, there is still a significant portion of the population on the continent who are unbanked or lack access to financial services.

According to the World Bank, approximately 350 million adults in sub-Saharan Africa are still unbanked, accounting for 17% of the 2 billion global unbanked population. This has largely been due to a struggle to tap into the continent’s low-income segment, the widest proportion of the population. Consumers within this market feel they don’t have enough money to warrant using a financial institution, that it is too costly to do so, or that they simply don’t have access to financial infrastructure such as bank branches and ATMs due to limitations of geographical reach and lack of proof of identity.

However, the introduction of digital technologies is completely changing the financial services landscape on the African continent. Not only are these new and cutting-edge technologies helping to renew the traditional banking sector, but they have also led to a boom in financial technologies such as the rapidly growing mobile money market and digital payments landscape, with the continent now poised to become the fastest growing FinTech region in the world, with revenues rising by 13x against the global average of 6x.

This has led to significant growth in the number of people who have access to financial services across the continent, as barriers to access have been significantly lowered. But the continent has reached a crossroads in its mission to drive financial inclusion.

Traditional banks are struggling to overcome challenges such as relentlessly high operating costs and legacy infrastructure that introduce complexities in their efforts to become more flexible and digitise. Meanwhile, FinTechs are still encumbered by the complexities of regulatory and compliance challenges while also faced with difficulties in building trust as many people on the continent are still not comfortable with technology.

These challenges are making it difficult to sustain the current financial inclusion trajectory in Africa and to deliver increased value. But, there’s a light at the end of the tunnel. Collaboration between these two sides, who have been pitted against one another as competitors, offers substantial potential to help make it as easy as possible for people to perform transactions and access financial services in a way that is both affordable and reliable.

Revolutionising, re-energising, and redefining financial services

A robust partnership between banks and FinTechs would ensure that both parties are able to offset each other’s weaknesses by sharing their complementary strengths with one another.

For FinTechs, banks are able to bring their well-established customer base and substantial balance sheets to the table, alongside significantly high levels of trust generated through years of tried and tested relationships with customers. Additionally, banks bring substantial expertise and experience in the regulatory environment, facilitating greater levels of compliance.

Meanwhile, FinTechs can help inject agility and innovation into traditional banks, which would enable them to offer products better suited to the unbanked and give them access to a whole new customer base. By leveraging the cutting-edge financial technologies of FinTechs, banks will be better positioned to modernise and digitise legacy infrastructure while being able to identify and meet customer needs in real-time.

Such partnerships would also see banks and FinTech players align business rules and regulatory frameworks, among other measures, resulting in a less fragmented payments landscape on the continent.

Much like the continent itself, the payments environment in Africa is highly dynamic and diverse. Across individuals and countries, payment types can vary significantly, resulting in a splintered and disconnected payment ecosystem. This means that, currently, each merchant or company has to integrate with each different payment service provider individually in order to cater to a wide range of consumers. The World Economic Forum notes that the varied technical standards, laws and regulations that span countries contribute to the fact that many digital payment methods are closed loops and not interoperable with one another.

But stronger collaboration within Africa’s financial services sector would reduce this disconnect and create ecosystems wherein transactions, payments, and other financial services are omnichannel in nature and able to easily take place across platforms and borders.

This would better position Africa’s financial services sector to solve problems for both individuals and businesses on the continent through the development of more innovative financial products and services uniquely tailored to Africa’s needs while also reducing the cost of financial transactions and expanding access to financial services. For example, enabling both individuals and businesses to save money digitally, facilitating access to micro-loans by using financial data from fintech apps, and increasing access to global markets for small and medium-sized enterprises.

Essentially, their collaboration will ensure that they’re able to continue making inroads in driving innovation to create an environment that guarantees seamless delivery of financial services for everyone while fostering economic growth across the continent.

That desire to foster economic growth across the African continent is the core “reason d’etre” of Onafriq. We are currently connected to over 500 million mobile wallets, covering over 1300 live payment corridors in 40 African countries, with over 200 payment schemes connected. This puts us in a unique position of being a “one stop shop” to entities that want to collect or disburse funds as well as issuing and processing prepaid cards in Africa. We have done the hard work of connecting to the multiple schemes and networks so you don’t have to.

Ike.S Anison is the Country Director for Ghana/Liberia/Gambia at Onafriq

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