If you ask the average person to imagine where fintech startups are based, most will assume that Silicon Valley is the exclusive hotbed of this activity. Thus, you might be surprised to learn that Africa is actually home to numerous fintech startups. Most of these companies focus on offering payment services that help people send and receive money more efficiently.
Most customers use these services to save time and boost productivity. However, in Africa, they’re also serving an arguably more important function: offering financial services to people who normally have limited access to such things. This not only benefits the people using the services, it also helps the overall African economy.
According to Finnovating for Africa, a recent report from the Disrupt Africa organization, although African fintech startups are primarily based in the southern and western regions of the continent, companies throughout Africa are seeking to participate in the fintech revolution. Gabriela Mulligan, Disrupt Africa’s co-founder, believes that this burgeoning industry will greatly benefit the continent’s citizens. “The sad fact is many of Africa’s citizens still lack access to basic financial services, with traditional financial service providers being unable to reach the most needy on the continent. The heavy work to connect these unbanked populations is being done by the continent’s fintech innovators, meaning the space is of crucial importance and impact,” Mulligan said.
There are numerous reasons why people might not have access to typical banking services. Sometimes, they lack the proper education to take advantage of financial institutions. In other instances, geographic barriers limit people’s ability to make consistent use of financial services. Others have abandoned conventional financial services in recent years because they believe that such institutions are no longer trustworthy. As such, Fintech startups, rather than leading users away from traditional financial institutions, may eventually serve to introduce unbanked and underbanked populations to them.
On the one hand, no one will deny that the ongoing fintech revolution has disrupted—and will continue to disrupt—the world of financial services. Traditional banks and institutions will have to adapt if they are to survive. On the other hand, if someone hasn’t made use of traditional financial services due to limited access or knowledge, fintech companies may offer them the opportunity to take the first step towards making greater use of them.
Either way, it’s clear that fintech startups offer unique benefits to unbanked individuals and the overall economy of a region. A person who has greater opportunities to make financial transactions will find that many doors open for them. For example, they can more easily start a business now that the process of purchasing necessary materials, investing in resources, and paying employees is simplified. With budgeting apps, these people will be more successful at managing their funds and saving for major investments. In the short run, these benefits primarily serve the person using a given fintech service. In the long run, however, they may contribute to rapid economic growth within a given region.
This scenario is particularly evident in Africa, where substantial portions of the population remain unbanked or underbanked, but the effects will be global. Even in the United States, a surprising number of people make limited use of traditional financial institutions. Many don’t use them at all, although the reasons for this vary on a case-by-case basis. However, fintech startups will generally help any unbanked people take greater advantage of financial services, which, in turn benefits the economy.
That’s why it’s important for investors to understand the essential value of fintech companies. According to the leaders at Disrupt Africa, investment trends within the continent indicate that many Africans realize how beneficial fintech services can be, not only to individuals, but also to the entire economy of a region. They’re not simply funding these companies in the hopes of making a profit. In fact, it’s highly likely that many investors are seeking to contribute to companies and organizations that will have a positive impact on all of Africa.
Investors across the globe should keep this principle in mind. When looking into which fintech startups are worthy of major investments, it’s necessary to identify those that may offer the most substantial benefits to people who otherwise may not have access to financial services. In doing so, they’ll be promoting a better economic environment for everyone. While the surge of fintech activity in Africa reflects the needs of many living there, it also serves as an example for the rest of the world.