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Could FinTech actually widen Africa's financial divide?

Africa , 04 Jun 2018

Could FinTech actually widen Africa's financial divide?

FinTech has been touted as a way of solving problems around access to financial services in Africa. However, is there a risk that the impact of these technologies could be negative and actually widen the digital divide between those who benefit from financial services and those who do not?

Speaking during last week's Finnovation Africa conference in Nairobi, Brian Richardson, CEO of mobile banking solutions firm WIZZIT International said FinTech had the potential to exacerbate the continent's digital divide because firms roll out solutions that only benefit those with internet connectivity and higher incomes.

"In Africa there are 700 million unserved people. 700 million people are excluded. If anything innovative comes, they don't have access to a payment system. That is wrong on so many levels," he said.

Though FinTech has the potential to bring these people into the formal financial space, and give them access to services such as loans, credit and insurance, Richardson said there was a chasm opening between those creating financial technological solutions, those that could deliver them to low income markets, and those currently unserved by banks and other traditional financial institutions.

"The MFIs are closest to the market we need to serve, but they are getting left far behind," he said. "We have to address fundamental things."

As an example of how many FinTechs are not addressing solutions at those most in need, Richardson highlighted recent developments in banking in South Africa.

"There are five new banks launching in South Africa. Four of these are launching app-only. Have we lost the plot? Seventy-five per cent of the market can't access that. Products are being designed for the top end of the market," he said.

With the sector increasingly moving to digital, there is also concern that the lower end of the market could suffer as physical bank branches disappear.

"Digital is the way forward, the cost of a branch network is just too high. But for every branch that is closed, it leads to a thirty percent decline in small business lending. So they do serve some sort of need, but they are too expensive," said Richardson.

Agata Szydlowska, senior business development manager at credit risk management company Creditinfo, shed light on the impact of increased prevalence of mobile loans services in rural areas.

"Regulators will have to look at lenders but also consumers and borrowers themselves. We have a situation where there is a risk of indebtedness of low income people. They suddenly have access to mobile money loans. The average person in Kenya has five or six mobile loans, and most don't understand the real interest rate they are paying on those loans," she said.

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