How collaboration between banks and fintech drives financial inclusion in Africa

While cash and mobile money remain the dominant payment methods in Africa, they face significant challenges. Cash is inefficient, insecure and expensive, while mobile money services often lack the necessary regulatory support to operate independently.

However, key emerging trends in the sector are helping to drive meaningful financial inclusion across the continent, notes Mark Dankworth, President of Business Development Africa at leading Banking as a Service and embedded finance enablement partner, Ukheshe.

One of the most important trends in the African payments sector is the growing collaboration between banks and fintech companies. Banks, as regulated entities, play a critical role in processing funds, which then flow into digital wallets where fintechs are best positioned to provide digital services.

There is room to offer even more functionality and convenience that responds to specific market challenges and pain points, including bill payments, airtime top-up or payments for public transport, among others. By incentivizing users to keep their money in these wallets and use it for digital payments, the use of digital payments can increase rapidly and reduce dependence on cash on the continent.

Closer collaboration between banks and fintech companies is a positive development and has the greatest potential to drive financial inclusion in Africa.

In many African countries, regulators pay more attention to new players in the sector. While fintech companies often lack the necessary licenses to operate independently, banks can provide the necessary regulatory support with the ultimate goal of offering a wider range of services to their customers. By working together, banks and fintech can help promote financial inclusion and make digital payments more accessible and, crucially, more reliable.

Another trend driving the growth of digital payments in Africa is the explosion of cross-border remittances along with the urgent need to improve these. South Africa to Zimbabwe is one of the largest corridors for cross-border remittances globally, and a staggering 84% of these transactions are still cash-based.

According to the World Bank, remittances to low- and middle-income countries grew to $626 billion by 2022. These remittances are also an important source of foreign exchange for many African countries, helping to support economic growth and development.

To facilitate cross-border transfers, many companies are developing pool accounts that allow for instant transfers of funds. Associations are also putting in place regulatory frameworks that promote innovation and protect consumers, and these developments will help sustain the growth of the industry and make it more accessible to all Africans.

QR payments are also gaining traction in African markets, offering merchants an affordable and convenient way to accept digital payments without expensive hardware. This payment method has been hugely successful in markets such as China, where QR is widely used for everything from buying groceries to paying for public transport.

In Africa, QR payments have been slower to take off, but their potential is significant. Visa and Mastercard are investing heavily in SME support to drive acceptance and create more opportunities for digital payments. Obviously, QR offers several advantages compared to traditional points of sale. For merchants, QR payments are affordable and easy to use, requiring only a smartphone and an internet connection.

For customers, QR payments are convenient and secure, allowing them to make payments without the need for cash. Once again, acceptance is largely a function of the underlying trust and general convenience of the payment method.

Ultimately, the prevailing dominance of cash in Africa will only be truly reversed when payment models are immediately effective and provide immediate value. In the unique African context, customers need to be in full control of their money with seamless, interoperable and user-friendly solutions – this is where Ukheshe, and its strategic partnerships, can have the greatest impact.

This article was written by Mark Dankworth, President of Business Development Africa at Ukheshe