By Bolaji Onibudo, Founder and CEO of XendBit
“Financial inclusion,” is a major buzzword in sub-Saharan Africa right now. As it should be, the unbanked in sub-Saharan Africa – developing countries like Nigeria, Kenya, Zimbabwe and Tanzania – are a significant number of the roughly 1.7 billion “unbanked” individuals around the world.
The most recent World Bank Global Findex report found that roughly 62 percent of sub-Saharan Africans do not have a bank account. Though traditional banks have made efforts to improve these numbers of the unbanked in sub-Saharan Africa, a multi-generational culture of poverty, financial illiteracy and political unrest create serious challenges for achieving that goal.
Many economists believe that the ability to save, borrow and exchange money is the key to helping Africans not only escape poverty but have access to financial tools that allow them to pay, be paid and improve their quality of life. Increased penetration of traditional financial institutions, like in western economies, would help resolve this problem.
Or would it?
Banking The Unbanked in Sub-Saharan Africa
While the number of “banked” Africans increases at a snail’s pace every year, another number is skyrocketing: smartphone ownership.
A new Pew Research study reveals that, while basic “flip-phones” are most common in sub-Saharan Africa, smartphone ownership—allowing access to the internet and apps—is increasing every year.
To be clear, compared to usage in America (where smartphone ownership is at 77 percent), sub-Saharan Africa still lags behind. Globally, it has the lowest numbers of smartphone ownership.
However, since 2013, the region is playing a serious game of catch-up: Smartphone ownership in South Africa, Nigeria, Ghana and Kenya is surging. In Senegal, for example, smartphone ownership went from 13 percent in 2013 to 34 percent in 2017. This increase in adoption is having a major impact on internet usage throughout the continent. An annual report by We Are Social and Hootsuite discovered that internet penetration has witnessed its fastest growth in Africa, increasing 20 percent since 2018. Specifically in Niger, Sierra Leone, Benin and Mozambique internet usage has doubled in that timeframe.
So, what do smartphones have to do with financial inclusion in Africa?
Access to smartphone technology is allowing sub-Saharan Africans the ability to manage their money without having to open a bank account. Increased technological usage is paving the way for companies to develop allowing individuals to bypass traditional banks in their pursuit of the ability to pay bills, save money and access financial services like loans and insurance.
According to the 2017 Global Findex report, a whopping 21 percent of sub-Saharan Africans have mobile money accounts—that’s double the number from 2014 and the highest number in the world. Not only that, just 10 global economies have more adults with mobile money accounts than bank accounts, and they all are in Africa: Burkina Faso, Chad, Côte d’Ivoire, Gabon, Kenya, Mali, Senegal, Tanzania, Uganda and Zimbabwe.
A number of African companies are developing mobile money solutions, including Kenya’s Safaricom and Nigeria’s XendBit, which is developing a blockchain-based financial services platform taking advantage of this cutting-edge ecosystem that includes smart contracts, crypto-currency, crypto-loans and tokenization.
Where traditional banks are shackled by issues like inaccessible (for rural people) branch locations, high fees and a preference for cash over digital transactions, mobile money accounts provide simple, intuitive accessibility to anyone with a smartphone. Remittance fees, i.e. fees people overseas pay to send money home to loved ones, remain the highest in the world for Africans. Mobile money accounts, especially in a highly competitive marketplace, minimize those fees significantly.
The ease with which mobile money accounts allow Africans to save money is also a game-changer. The 2017 Global Findex report found that found that Malawi farmers who deposited earnings into savings accounts spent 13 percent more on farming equipment and saw their crop values increase by 15 percent. Mobile systems, by their accessibility and transparency, could also help reduce financial illiteracy and corruption in the region.
Mobile money accounts are saving Africans a lot more than money: They’re also saving time.
The 2017 Global Findex report found that, during a relief program in Niger, switching the disbursement of government social benefits from cash to mobile phones saved recipients an average of 20 hours in travel and wait time to get paid.
Will banks go away in Africa? Not necessarily. Though these figures might suggest that smartphones will do away with traditional banks in Africa, some African economists believe that mobile money accounts will increase the financial power of traditional institutions that embrace the technology and form friendly partnerships with mobile financers.
Considering the ubiquity of western-based mobile payment solutions like PayPal and Venmo, such friendly partnerships could be beneficial to financial institutions not just in sub-Saharan Africa but around the world.