[Column] Tonny Tugee: Fintech in Kenya - an industry of innovation
Almost every industry across the globe is undergoing rapid digital transformation, and the world of finance is no exception. Technology advancements have given rise to new kinds of financial institutions and fintech companies that want to deliver the next generation of digital banking and payment services. Over the last decade, Kenya’s mobile money platform M-PESA has served to accelerate the transformation of African technology-enabled finance. And today, Kenya has one of the most developed fintech ecosystems on the African continent and is fast-becoming an international hub for fintech innovation. But, you might be asking yourself, how did we get to where we are today, and how can Kenya make the most of growth in this booming industry?
The rise of fintech
While there is no single definition of what financial technology (or fintech) includes, it generally refers to companies that use technology to improve products and services, processes, or business models within the finance industry. If you’ve ever paid for something with your phone, transferred money with an app, or checked your bank statement online, you’ve used fintech.
The term was originally used when established financial institutions began making a structural shift away from pen and paper to digital backend systems. One of the first examples was the first ATM that was installed as early as 1967, and in 1997, the first online banking service was launched. By 2010, most major banks provided online banking services.
Since then, fintech services have taken a more consumer-oriented approach and now focus more heavily on the improvement of customer experience in banking services, novel integrations of financial services across different industries, mobile and cashless payment platforms, personal wealth management and credit, and even the use of cryptocurrencies and blockchain-based transactions.
The advent of the Internet and advances in data science have been the biggest contributors to this paradigm shift in finance, with big data and AI paving the way forward for the future of the industry. Fintech is serving the needs of people who previously did not have access to traditional banking services, such as the 1.3 billion adults worldwide who do not have bank accounts.
Kenya’s legacy on the continent
Since Kenya’s homegrown mobile payment platform M-PESA was launched in 2007, the app has grown to host more than 24.5 million users – representing over 70% of the mobile money market in Kenya. The rapid growth of the fintech industry has driven significant economic growth across Africa and, according to IMF estimates, “four of the top five highest GDP growth rates in the world are in African countries benefitting from this boom”.
Kenya’s fintech revolution has not only had a positive impact on our economy but also society, helping Kenya and other countries achieve higher financial inclusion rates that would have been impossible with traditional banking models. Financial inclusion in Kenya has gone from 26% in 2006 to 83% today, which was largely accomplished by using mobile banking data to build personal credit scores. It's estimated that M-PESA alone lifted 2% of Kenyan households out of poverty by 2016 and helped thousands of women move out of agricultural employment to begin their careers in entrepreneurship or retail.
Driving growth for Kenyan fintech
Technological infrastructure is the most critical enabler of Kenya’s fintech ecosystem, and connectivity is the doorway. With an Internet penetration rate of 40%, it is clear that much more can be done to allow every Kenyan citizen to participate in today’s digital economy and, therefore, benefit from fintech services. It is also important for policymakers to recognise the socioeconomic impact of fintech and financial inclusion, modernise their financial regulatory frameworks, and incentivise nationwide technological adoption.
In 2020, venture capital funding for African fintech start-ups rose by 51% for virtual banking projects, consumer credit checks, and finance apps. It is therefore important that we foster the growth of Kenya’s start-up ecosystem through technology hubs and provide more aspiring entrepreneurs with the skills they need to develop fintech products and services.
Partnerships are becoming more important in the fintech space, as trust is essential to consumers in the industry. Fintech start-ups are often more agile than long-established companies, but if they want customers to entrust their finances with them, they sometimes might have to partner with and leverage existing infrastructure to deliver omnichannel experiences, bundled features, or more innovative services.
A hub for fintech innovation
It is said that the banks of the future will all be ones that embrace fintech, which comes as little surprise when we consider that almost every global industry is undergoing some form of digital transformation. In Kenya, it has lifted people out of poverty and will continue to do so as long as we improve our country’s access to connectivity and trust in technology. While China and India are the current global leaders in fintech, it may not be long before we enable every African to participate in the digital economy and unlock our continent’s true economic potential.