Leading Ivestment Company in Africa

Digitalisation: A Revolution in Financial Services

Financial Services, Chiugo Ndubisi

– Chiugo Ndubisi, Executive Director, Heirs Holdings


Africa is poised to enter into a new era and one thing is sure; the current wave of digitalisation will be the biggest catalyst of an inclusive economic growth. The African Development Bank’s (AfDB) 2021 white paper on entrepreneurship and free trade, gives a detailed review of the impact of the emergence of business opportunities as a result of digital adoption. It goes without saying that the continent’s youthful population estimated to reach 2.4 billion by 2050, will also play an influential role.
Investment for digitalisation of business activities have been in no short supply, with the establishment of about 650 tech hubs including accelerator and incubator programmes, university-linked start-up support labs, and even co-working sites. Countries like Egypt, Nigeria, Kenya, and South Africa have become regional hubs and account for more than a third of these establishments.


Banking the Unbanked
Between 2020 and 2024, the number of start-ups in Africa tripled to over 5,200 enterprises and just a little less than half of these are in financial technology. This introduction of rapid digitalisation in financial services has made considerable inroads, with estimated revenues of between $4 billion and $6 billion USD In 2020 alone. By fundamentally altering how people save, invest, make payments, access fiduciary services, move and borrow money, these innovations are unquestionably revolutionising the financial system in many ways.

Several services such as Payment Terminal Service Providers (PTSP), Payment Service Solution Providers (PSSP), blockchain-based financial solutions, and Digital Investment platforms have been successfully introduced, however, Mobile Money seems to have become the most well-liked and frequently utilised financial technology in Africa. They dominate the fintech segment in more than 40 countries, especially in countries like Kenya and Tanzania. An example of this remarkable success is Safaricom and Vodacom’s M-Pesa. M-Pesa currently has an active use base of approximately 28 million customers, 248,000 agents and over 200 billion unique transactions – valued at almost two times the Kenyan GDP. One socioeconomic impact that is easily observable in the M-Pesa story is that its adoption has led to an increase in per capita consumption levels, lifting several families out of poverty in both countries.

Other examples of impactful fintech solutions across the continent include Simba Pay, another digital bank operational in Ghana, Nigeria, Uganda, and Kenya; and Pan-African telecommunication giants, MTN Group’s MoMo. MTN has also collaborated with Orange Money in Côte d’Ivoire, Botswana, and Cameroon, to develop a mobile wallet interoperability system called ‘Mowali’.


Telcos Are Leading the Charge
One curious observation is that the biggest champions of digital solutions driving financial inclusion across the continent – ‘banking the unbanked and underbanked’, are companies within the telecommunications industry or who have partnered up with telcos. It raises the question of why other financial services institutions such as insurance companies, are not adopting a similar model to push insurance penetration.

Perhaps it has to do with the revenue model. The end users for digital payment solutions such as mobile money would typically conduct transactions around the clock, making payments ranging from grocery shopping to cable subscriptions. This results in multiple transaction fees which generates revenue for the telcos. However, with insurance, the pattern of policy subscription is usually periodical, which drastically reduces the number of transactions initiated per user. With a comparatively lower revenue generated from transaction charges, it might appear to be a less profitable venture for the telcos.


Innovation Across Other Financial Services
Although, most digital investments in financial services have been skewed towards banking and payment solutions, a recent movement of technological innovation has begun to hit the insurance space. The introduction of USSD (Unstructured Supplementary Service Data) and mobile self-service apps, virtual cards for custom products and AI, are helping customers make instant purchases, renew policies, and report claims. Another trendy inward-facing tool is the financial advisor app which incorporates AI to recommend cross-selling opportunities to insurance sales agents.

Organisations like the Heirs Insurance Group have taken it further by adopting deploying self-service portals that allow customers receive claims in less than 24 hours, solving a problem which has been the bane of the insurance industry in Nigeria. In fact, insurance is growing to become its own segment – InsurTech.


Getting Past Hurdles
Solutions for financial services technology in Africa are expanding rapidly, yet the ecosystem is still in its infancy. This predisposes it to several challenges, the core of which will be tackled by achieving scale, navigating uncertain regulatory environments, managing scarcity, and building robust corporate governance foundations.

Scaling up, perhaps through capitalisation, is just one step in a successful growth process. Finding strategies to reduce client acquisition costs is essential, since lower disposable income and poorer customer loyalty in Africa makes it more difficult for businesses to develop successful sustainable models through consumer monetisation, even with a large customer base.

Financial service businesses that will be successful will need a plan to entice, nurture, and keep their best talents. Around 50% of African software engineers, according to estimates, are concentrated in only five nations – South Africa, Nigeria, Morocco, Kenya, and Egypt. Furthermore, this talent concentration is in high demand not just in Africa but also internationally, resulting is loss of talents through massive emigration and global remote job opportunities. For these businesses to effectively traverse this fragmented landscape, it is essential to establish robust retention incentives, such as tailored career development programmes and mentorship initiatives.


The rapid penetration and success of digital innovation, especially in financial services attests to the fact that Africa’s large population is financially underserved. Financial technology solutions are advancing quickly as an emerging market in Africa. Considering the impact the budding industry continues to create, every effort must be taken to implement enabling regulations and to nurture businesses throughout the continent that will draw talent, encourage innovation, and spur economic progress.


Originally published by Business Insider Africa