According to a World Bank research report on financial inclusion in Africa, less than one adult out of four on the continent (about 25 percent) has access to an account at a formal financial institution (like banks, for example). In other words, over 500 million Africans still do not have a bank account today. Sadly, these people are excluded from the financial services industry. If this segment of the market could be captured, it would increase the amount of money that could be made, increase investment and support more businesses.
One of the biggest innovations in banking on the continent is mobile banking. It‘s a unique way of banking that avoids the hassle, transport costs and inconvenience of visiting a physical bank. With the world‘s fastest-growing mobile phone market, Africa is on track to hit one billion mobile phones by 2015. Mobile phones have become quite a useful tool for introducing more Africans into the formal financial system.
M-Pesa is currently Africa‘s biggest success story in the mobile banking revolution. This mobile banking service, which was first introduced in Kenya, allows millions of users to transfer, deposit and withdraw money, and pay for goods and services. As a result, millions of Kenyans who previously had no access to formal banking services have been captured‘. Today, up to 70 percent of Kenya‘s adult population uses M-Pesa and a quarter of the country‘s economy flows through this mobile-money service.
M-Pesa is spreading across the continent and has been rolled out to other countries in East Africa and beyond (India, Eastern Europe, etc). Its success in transforming the banking and payment services landscape proves how existing platforms can be used to develop simple solutions to huge and complex challenges on the continent.
Your concept should target the lower-income segments within a particular country. Poorer and less-educated people in Africa usually have no access to conventional banking, and when they do they do not understand or trust it.
As a result many still store their money under mattresses, bury it in the backyard or leave it with relatives. They are also too poor to qualify for traditional bank loans. This is why you will find a huge market gap here – and this is where your business comes in. Offering mobile banking or micro-credit options that are both easily accessible and understandable has immense potential.
Micro-credit for women, farmers, and traders
Short-term loans (1-3 months) for shop owners and traders
International merchant payment platforms (like a PayPal for Africa)
Payday loan schemes
Top Countries & Policy Guidance
This business concept will work across Africa, but if you choose to set up a business in mobile banking it may be wise not to start in a country like Kenya, where strong and popular competition is already present.
Here is a special tip: The capital Kinshasa (DRC) is a huge business hub in Africa with hardly any traditional banking systems in place. Your revenues stream made of high interest rates providing short-term loans for shop owners and traders or micro credit schemes would simply sky-rocket. In fact we know from contacts we have on the ground: this is exactly what happened within a few weeks.
Action & Tips
Setting up a bank or any kind of financial company usually requires that you register with a government ministry, Central Bank or financial services regulator. You need to find out the legal and regulatory requirements before you start up.
Success Story Simeon Ononobi, Simple Pay (Nigeria)
Simeon Ononobi noticed that it costs merchants in Nigeria almost $3000 to be able to accept online payments from debit cards. At that time, Paypal, the world‟s biggest payment platform was still unavailable to users in Nigeria, and most of Africa. In January 2013, Simeon launched SimplePay, a localized payment platform that costs $1 to sign up and significantly reduces the hefty costs of payment gateways and the unsafe exposure of personal debit card details on multiple websites.
Today, SimplePay has more than 10,000 registered users (who are mostly merchants) and more than 30,000 unregistered users. In a country with the ninth largest population of internet users (over 60 million), the growth prospects for SimplePay are breathtaking. It‟s no wonder that a string of local and international investors are outdoing themselves to have a stake in what is likely to become Africa‟s PayPal. SimplePay raised over $10 million in a Series A funding round in early 2015.