Boris Grozev's Blog

Future of finance and Africa, why?

This post will share few ideas on how the future of finance can look like. As you know, I meet and work with an incredible amount of interesting and savvy experts. Most of their stories are worth telling, like for example the continuing story of mindset shift driving innovation in finance.

Many of the projects I participate are highly innovative and somewhat ground ground breaking. Adding contractual and time constraints, it is not easy to share as much great ideas as I would like.

During the unprecedented phenomenon of Covid19, I felt there can be a think or two that we can all learn from what is happening in Africa. Why you can ask? First and foremost, because each and every time I write a post, I aim to provide value and save you time so that you can thrive. You can find more about why you should read this blog here. Lets go back to our subject – Africa and the future of finance. Yes, there are so many reasons why we can learn from the continent. Please remember, that African countries have successfully fought Ebola. At the same time, some of them surprised the world with posting unprecedented economic growth figures. Lets add the fact that they have lead the world with many payment innovations. This in my view deserves some credit and attention.

Africa, data and facts

As you know, I love numbers. So look at some of the key numbers describing Africa’s economy, geography and fintech landscape. Today, there are more than 1.2 bln people living on the continent. Median age is just 19.7 years, which makes it the youngest population worldwide. Urbanization levels are still low, which is why there is a lot of internal migration. Economic growth has been consistent, according to the World Bank. At the same time many challenges related to poverty remain. According to African Development Bank, about 15% of the population has got a bank account. The bigger chunk of the population does not have a bank account.

As a result, mobile payments have flourished, with Mpesa, being the most recognizable name. Also, the African continent is the world’s leader in the sector. This however is the pre-smartphone age. The arrival of the below 100 USD smartphone to the market, has unlocked incredible potential. As McKinsey Global institute wrote in 2013 lions go digital. The smartphone multiplier effect already starts to change both the economy and the financial industry on the continent.

Industry changes or future of finance?

As mentioned on the African continent there was little legacy financial infrastructure. As a consequence, banking was for the privileged. With the rapid development of technology, it became much easier to solve existing challenges for previously un banked population. It became easier and cheaper for people to send value over the mobile, as opposed to go, open a bank account, go to a banking branch to make a payment. With the growth of mobile payments every kiosk and mini-mart started accepting cash in exchange of mobile money. Telecom operators like Safaricom saw huge inflows of cash deposits. As a result, they became significant players on local financial markets moving money market rates and challenging banks.

In that situation no bank can compete with telecom providers for the retail customer. The reasons are many. For example, imagine the cost of operating a branch network with employees competing for customers with retail stores and kiosks. Also, imagine running on old legacy system footprint against scalable modern cloud technology in an environment where mobile internet and smartphones are widely available. It is simply laughable.

Future of finance made in Africa?

The pressing regulation and lack of existing branch and account infrastructure on the top the mobile operators threat has pushed the banks to innovate. At the same time mobile operators have backed start ups and created incubators. The lack of traditional banking infrastructure has unleashed creativity. VC funding has grown 74% yoy in 2019, with fintech retaining its first position. The continent wide young population adopts quickly new technology.

Some of the companies are really innovative patascore for example uses GPS, mobile data and AI and to produce high quality credit ratings. Their technology also encourages responsible borrowing through education. Pazesha has developed in house credit scoring model and started addressing the 18 bln USD SME funding gap. Smartteller, is allowing cooperatives and mini banks go digital.

Few take aways

I guess the most important one is that a disadvantage can always be turned into advantage. Example: lack of banking infrastructure has encouraged mobile payment innovation, which has cut transaction costs and benefited the customer. Furthermore, thinking outside of the box and the current model has benefited both customers and companies. Leveraging mobile data can improve accuracy in credit risk modes. All these are concepts, many institutions worldwide can learn from African companies.

More on Dubai lessons

This little post is based on a podcast that I did with my friend Mark. It is about thousand words long. The entire conversation is much longer and there is a lot more insight that can be leveraged on your daily work. You can hear it on Dubai Lessons, the link is below.

Remember, sharing is caring. Spread the word around. You can help other discover interesting ideas. As usual thoughts and comments are welcome. Thanks for reading.

About the author

Boris Grozev is a seasoned fintech executive. Moreover, he is an entrepreneur by heart. Boris has helped number of businesses. He has created and implemented business development and product enhancement strategies. In addition, his advisory work in emerging and frontier markets has resulted in culture and technology change. Above all, it has fostered innovation and lead to tangible results. He also invests in variety of asset classes. Boris is a fast learner. His stamina, attitude and passion to succeed helps others to achieve common goals.