In Gandanzara village, about 330km from Zimbabwe’s capital, Harare, 60-year old Edna Kufakunesu is in a jovial mood as she pushes a wheelbarrow with an assortment of basic goods.
BY NDAMU SANDU
It is hot but the heat cannot steal her mood. Her son had just bought her goods at a local grocery shop. The son is one of the millions of entrepreneurs eking out a living in the business of commodity broking, a euphemism for buying and selling.
“He told me to go to the shop and select the products I wanted. The shopkeeper gave him a merchant code and he paid using EcoCash [Zimbabwe’s leading mobile money service],” Kufakunesu said, adding her son had used the option to cut costs if he had transferred to her EcoCash account.
Before the advent of EcoCash, her son used to send money via a bus operator that plies that route.
The staff would give her less than they would have been given. In others, they would profess ignorance that they were given the money.
“This technology has made things easier,” Kufakunesu said, wiping off sweat on her forehead.
The advent of financial technology (fintech), new tech that seeks to improve and automate the delivery and use of financial services, has changed the landscape on the continent.
From mobile money services M-Pesa in Kenya to EcoCash in Zimbabwe, there has been a growth of fintech on the continent aided by the gaps in the financial services sector.
McKinsey estimates that between 2020 and 2021, the number of tech start-ups in Africa tripled to around 5,200 companies. Just under half of these are fintechs, which are making it their business to disrupt and augment traditional financial services, it said.
An analysis by McKinsey shows that African fintechs have already made significant inroads into the market, with estimated revenues of around US$4bn to US$6bn in 2020 and average penetration levels of between 3 and 5 percent (excluding South Africa).
Kenya has been dubbed Silicon Savannah, attracting global technology giants following the launch of M-Pesa mobile money service in 2007.
Kenya has lured global tech giants with Microsoft opening an office in Nairobi while Chinese telecoms firm is developing the Konza Technopolis, a world class city powered by a thriving ICT sector.
The growth in Africa’s fintech comes as funding has been channelled into the sector by venture capitalists.
Data from Crunchbase shows that fintech companies headquartered in Africa raised US$$2bn last year up from US$230m in 2020.
Fintech experts say the sector needs regulation to remove the chaos that would arise “when one wakes up and starts issuing their currency”.
“It would lead to chaos. People won’t be able to measure value accurately and it would be impossible for an integrated financial world,” said Wiza Jalakazi, VP Global Merchant Business at Chipper Cash, a cross border payments company.
He said fintech still requires banks “because they are the ones that can meet the regulatory requirements at a scale which is satisfactory to the regulatory authorities”.
Fintech has simplified lending with Branch International in Kenya making it easier to access loans on demand on the phone, based on financial history and contacts.
Early this year, Branch became the first digital lender in Kenya to acquire a majority stake in a banking institution after it snapped up an 84.89% stake in Century Microfinance Bank.
M-Pesa’s overdraft facility, Fuliza, allows subscribers to complete transactions when they have insufficient funds.
Long live King Cash
The existence of cash-based transactions has created a lopsided outlook for fintech. Will cash maintain its stranglehold in future? Fintech experts say cash and digital finance are going to co-exist for some time and eventually “we might see some cash disappearing”.
Experts say cryptocurrencies, if unregulated, will threaten central banks as they provide private money. They say fiat money inherently relies on the central bank as it is not backed by mineral deposits but is backed by the Government which issues it. Cryptocurrencies on the other hand are created on a server and recorded in a publicly available ledger.
This means that if people transact using cryptocurrencies, a central bank cannot exercise its regulatory power on such transactions, a Zimbabwe-based law firm Mawere Sibanda said in its analysis of digital currency.
CBDC gaining momentum
Central banks have moved in by advocating a central bank digital currency (CBDC), an electronic form of central bank money that citizens can utilise to make digital payments and store value.
Experts say the CBDC will hold sway over cryptocurrency as it is backed by a government and is less volatile compared to the cryptocurrencies. It can be used by anyone as it can be issued as legal tender making it universally accessible, they say.
“In the context of Zimbabwe, the use of digital money has been done by companies and the central bank has been having the burden of cracking down on them with penalties owing to non-compliance. Having a CBDC might be advantageous to the Government because it is a digital currency within their control and the profits realised can be used for the good of the public,” Mawere Sibanda said.
But the CBDC affects the main business of domestic banks of taking deposits and then lending will become a casualty if the central bank issues a digital currency and puts interest.
This means banks have to change their operating models, the law firm said.
The CBDC comes in handy as the central bank will no longer incur costs of printing and transporting notes and coins.
The fintech revolution has led to customer service chatbots that become popular especially during the Covid-19 lockdown period when access to banking halls was restricted.
The revolution has affected the brick-and-mortar model of banking as one can access services on the mobile phone, triggering retrenchments in Africa’s banking industry.
Kufakunesu is not moved by the changing nature of banking.
“Banks ignored us and mobile money service came to our rescue,” she said.