Digital disruption in the financial services sector is likely to gain further momentum and lead to exciting new business models that will facilitate financial inclusion in Africa, says advisory services provider Deloitte Africa financial services industry leader Roger Verster.
Deloitte and financial services provider Mastercard released a joint report in May – titled ‘Leveraging digital to unlock the base of the pyramid market in Africa’ – reviewing the transformative power of technology in the African financial services industry. The report focuses on the waves of digital innovation affecting financial services and reinforces the notion that digital technology has the ability to financially empower Africans.
Focused on lower-income earners, referred to as the base of the pyramid (BoP) market, the report looks at how best to facilitate financial inclusion by providing financial solutions, products and services that focus on affordability, reach, access and trust.
“Half of South Africa’s workface falls into the BoP income bracket, with this share likely to be much higher in the rest of the African continent . . . Although BoP consumers represent the majority of African consumers and spending power, their low income has been seen as a hindrance to gaining access to products and services through traditional distribution models,” says Verster.
However, the widespread reach of digital technology across sectors in Africa has spurred the introduction of new market entrants and solutions that aim to disrupt those traditional models and accelerate financial inclusion. A key enabler and catalyst for digital disruption in the financial services sector has been the rapid adoption of mobile phones, which play an important role in delivering digital services to those still unbanked or underbanked at more affordable prices.
Mastercard Middle East and Africa president Raghu Malhotra adds that developing a more inclusive Africa will take a combination of strong partnerships, relevant financial solutions and a willingness for governments to move beyond cash. He identifies several trends impacting on financial inclusion, such as mobile devices as a payments acceptance tool, the digitisation of key value chains, the growth in online cross-border money transfers and electronic identity solutions.
He notes that partnerships with mobile network operators, in particular, enable new entrants to tap into an existing customer base and gain access to solutions such as mobile wallets that help to streamline credit extensions, the collection of premiums and the overall claim payout process.
As part of identifying innovative ways of unlocking new markets and providing more affordable and accessible solutions to the BoP, the report identifies three waves of digital disruption across Africa. The first wave involves financial technology (fintech) companies disrupting the banking sector by developing digital banking and payment solutions, started mainly in collaboration with telecommunication companies. The most well-known example is mobile network operator Safaricom’s mobile wallet, m-Pesa, which is now available in ten countries and has a customer base of about 30-million active users.
Companies that successfully leverage mobile technology – often through partnerships, cloud computing and advanced data analytics – are able to bring down costs, improve their market reach and increase trust. HomeSend, a remittance solution developed by Mastercard, for example, allows affordable cross-border money transfers and payments, mobile money accounts, payment cards, bank accounts or cash outlets, helping to displace cash in Africa and globally.
Additional mobile solutions are changing the face of the financial sector, and Malhotra points out that applications such as Masterpass QR – introduced in Africa in 2016 – is a “game changer” for merchants, removing the need for traditional point of sale terminals. He highlights in the report that access to these type of solutions is having a significant and positive impact on all Africans, resulting in stronger economies on the continent.
“A glimpse into the future shows that platform companies will emerge as key industry players creating marketplaces for a host of financial services and blurring the lines between financial services and technology providers,” says Verster.
Following in the footsteps of fintech companies, insurance technology (insurtech) companies have started to shake up the insurance market in a second wave of disruption by leveraging some of the technologies from the first wave, such as mobile payments systems, to develop insurance products targeted at the BoP. By adopting innovative approaches to risk assessment, distribution, payments, administration and product design, these insurtech companies are able to achieve the scale required to service the low-income mass market.
According to Verster, much of the success of enterprises in the first two waves of digital disruption can be attributed to the fact that engagement and distribution channels, pricing and premium structures as well as payment channels are aligned to the needs and circumstances of low income consumers in their respective target markets.
“Mobile’s power in enabling citizens to make and receive payments more seamlessly, simply and securely makes it imperative for businesses and governments to collaborate on and invest in developing solutions that harness the power of digital and drive inclusive growth for Africa’s citizens, particularly at the base of the pyramid,” Malhotra concludes.