What are our Future FinTech Champions learning at the moment? And what are their thoughts on the current development of FinTech? Read through this submission from one of our FFCs, Mthulisi Inacio Khumbula, currently studying a Bachelor of Commerce (Accounting & Finance) @ Curtin University.

What is going on?

It is hard to recall the last time the world was in such a frenzy and saturated with a bounty of new and mysterious developments and information. Of all these new developments, the one that I believe should be at the forefront of all young people’s minds is Fintech – otherwise known as financial technology. Not so long ago, I had no clue what this space was all about. There is still so much to learn but my goal in writing this article is to shed some light on this area of mystery, and to demystify it for you, the reader.

Did You Know?

The first step in learning about anything new is to understand what it is in its most simplest form. At its core, fintech is used to describe any technology that seeks to improve and automate the delivery and use of financial services. That would be the textbook definition of the term. However, let us add a human aspect to it. The best way to fully grasp the importance and relevance of fintech today within the African context, is to become aware of a few realities:

• Africa is the ‘poorest’ continent in the world
• One in three Africans live below the global poverty line. They furthermore, make up 70% of the world’s poorest people (source: Compassion)
• According to Statista, as of May 2021, Africa’s total population amounted to over 1.37 billion
• Africa is now the world’s fastest growing region after Asia (AFDB)
• Less than one adult out of four in Africa have access to an account at a formal financial institution (AFDB). This is known as the unbanked population, as opposed to the underbanked – those who have a basic account but still lack access to products and services. 

This issue is so grand that the first item on the United Nation’s list of Sustainable Development Goals (SDG’s) is to end poverty in all its forms everywhere. Poverty steals the hope that every child is born with, the hope that is needed to simply try. The hope that has the potential to metamorphosize Africa into the giant that it is.

As said by the World Bank, “Financial inclusion is a key enabler to reducing poverty and boosting prosperity.” Financial inclusion entails all people having access to relevant and affordable financial services that address their needs in a sustainable manner. The African Development Bank believes that, “Broadening access to financial services will mobilize greater household savings, marshal capital for investment, expand the class of entrepreneurs, and enable more people to invest in themselves and their families.”

Real Life Stories

I am Zimbabwean, and currently the unemployment rate in the country is sitting at above 90%. Although this number sounds absurd, of which it is, how are all these people who are ‘unemployed’ able to survive? Well, the economy is largely sustained by the informal sector. People who are doing whatever they can to make ends meet, be it as a vendor, or as small scale farmers. The list is endless. However, majority of citizens rely on the support of family. Particularly, relatives in the diaspora. Their upkeep is made available to them through the use of remittances (a sum of money sent for a particular purpose). This function or process falls under fintech, as these platforms are made available through digital mediums, i.e. technology. Some of the common platforms used are Mukuru, Western Union, World Remit, and more.

However, whilst traditional remittance services like banks or WesternUnion technically are forms of financial technology, they are not fintechs in the modern sense. True fintech really describes players offering services which are disrupting the traditional models by offering services direct to consumers through mobile technology platforms. Fintech’s have revolutionized the remittance space because they can offer services faster and at a much lower costs than traditional players (for example banks or WesternUnion, who utilize old wire transfer systems to move cash through intermediaries who all take a cut).

These companies enable individuals living across the world to send money home to their loved ones in a matter of hours or days! Upon receival of the funds, the individuals are able to pay for their basic living expenses,  invest in their businesses and more . How would these people survive if it wasn’t for such platforms? To further prove the extent to which these platforms are used, in 2020 the finance minister announced that remittances to Zimbabwe were in excess of a whopping USD$1 billion! This was around the early days of the COVID-19 pandemic. This goes to show how fintech was probably the reason for a large portion of Zimbabweans’ survival – not only during the pandemic – but before, and after its arrival. What more around the continent? What more around the world?

Fintech is not restricted to remittances alone. Simple payments processing and provision of mobile banking services have revolutionized economies. Small businesses are able to transact with people around the country on their mobile phones! By dialling a particular code along with the intended recipient’s contact number, people are able to send money as if they were sending a text message. This again falls under the category of fintech. The impediment that traditional banks had, and still have, is their inaccessibility. Individuals who live in remote parts of the country should not be left out simply because there is no bank branch close to them. By doing so, entire communities and livelihoods are excluded from all the benefits that financial services bring about. For example, EcoCash is one such fintech based in Zimbabwe which has seen massive success. It allows individuals to send money to each other, to transact, and to pay for expenses such as utilities and more. By being able to do this, individuals save time and the cost of commuting to branches to process these same transactions.

Therefore, fintech increases financial inclusion by reducing the barriers that lie in front of people in need of financial services. It allows people to earn a living, to save and to plan for the future. Spill-over effects that arise from this include the opportunity to send their children to school, and to afford much needed health care services. These are the foundations of economic growth and prosperity of nations.

If you thought that was all, you would be very wrong. Another important aspect of fintech is the crowdfunding and peer-to-peer (P2P) lending facilities that some of these businesses provide. In Mauritius, FinClub is one one such fintech which has killed two birds with one stone with its peer-to-peer lending service. On one hand, people are able to invest by lending to individuals who need the money, and on the other hand the borrowers are able to receive these loans which they otherwise would not have had access to, due to rigorous requirements on credit history and other information from banks. In some cases the loans may be used for things such as education, home renovations, and the like but in other cases it can be especially useful for people in need of urgent medical attention. Therefore – in this case, it is observed how fintech can be used to create access for small retail investors who can earn good returns whilst helping those who need the capital. Traditional banks are more risk averse and lend much larger amounts, whilst companies such as FinClub lend to those less catered for, thus increasing financial inclusion in the economy. These loans can also be made available to small businesses which dramatically increases their odds of success by providing them much needed working capital and funds to invest and grow their ventures, from which they can pull themselves out of poverty and even send their children to school. The benefits are there in abundance.

Conclusion

The purpose of this article was not only to raise awareness to the importance of fintech, but to demystify the concept to all young people. Do not complicate it. People are turned off and frightened when they hear of blockchain technology, machine learning, API’s, coding, and all the technical jargon. And though It is important, at its core it is about the people. If there is one thing you take away from this article, let it be this:

Fintech improves lives. It improves livelihoods. And as the heirs to the current generation, we all have a part to play in contributing to the inclusion and upliftment of our brothers’ and sisters’ lives.