The promise of mobile money and financial technologies (fintech) for Africa has long been touted. There are more than 326 million people on the continent who do not use formal or semi-formal financial services, according to McKinsey and Company, and addressing this unbanked or under-served population is a priority. Certain parts of Africa in particular excel at using new technologies to reach the unbanked and extend services to poorer communities.
According to the World Bank, Sub-Saharan Africa is the only region where on average more than 10% of adults report having a mobile money account. “In 13 countries, usage exceeds 10% and, among those, Cote d’Ivoire, Somalia, Tanzania, Uganda, and Zimbabwe have more adults using a mobile money account than an account at a financial institution,” according to the 2014 Global Findex report.
While disruption in the form of automation and artificial intelligence (AI) has changed the way financial institutions operate around the world, few examples of this form of innovation exist in Africa. In fact, MyBucks claims to be the only African fintech company that provides a range of financial services through technology, including AI.
Tim Nuy, Executive Director of MyBucks, explained that the product offering encompasses short-term single payment loans and instalment loans, as well as insurance products and online savings accounts, mobile transactions and transaction cards.
The company uses AI for prescriptive credit scoring, fraud detection, and operational optimisations. The use of fintech technology and AI algorithms has enabled MyBucks, which has operations in nine African countries including Uganda, Kenya, and Malawi, to distribute its products at a highly competitive cost, rapidly scale up its business, and effectively manage its credit risk.
Fintech is allowing Africa to innovate to meet its unique needs. Willem Van Der Post, Managing Partner at the Deloitte Centre for the Edge Africa describes fintech in Africa as booming. “Africa is proliferated with momentum-generating mobile devices and connectivity is growing exponentially. As a consequence, many tech entrepreneurs are seizing the opportunity to capitalise on the fintech theme,” he said, adding that, interestingly, there are very few investment and corporate banking fintech plays. “Entrepreneurs seem to focus on the retail/direct to consumer opportunities.”
Pillsbury counsel Tina Blazquez-Lopez, who co-leads the law firm’s Africa initiative from its London office, believes that the rise of fintech in Africa and the use of AI in the financial services sector will continue to revolutionise the way that money is sent, received and spent in Africa. Global investment in fintech projects has tripled over the past five years, Blazquez-Lopez said, and according to a recent report by Accenture and the Partnership Fund of New York City will double again to an estimated $6 billion by 2018. According to Disrupt Africa, close to 30% of the total venture capital investments into the continent have been in fintech, amounting to nearly $50 million in 2015.
“Fintech innovations such as prescriptive analytics and credit technology are being used in Africa to provide a simplified and more direct approach to banking allowing greater integration of the traditionally un-serviced or under-serviced customer into the banking system,” she said, adding that the pace in the use of AI is being set by MyBucks, the African focused fintech company, which recently listed on the Frankfurt Stock Exchange.
MyBucks has recently entered into a first of its kind partnership with Opportunity International to acquire four banks and two micro-finance institutions operating in sub-Saharan Africa, adding Ghana, Tanzania and Mozambique to its country portfolio. “This partnership will inevitably bridge the gap between the virtual and real worlds of banking and will work to reach some of the poorest communities in Africa,” Blazquez-Lopez said.
Africa’s size – 54 countries – means that regional differences are abundant. Each country has different maturity curves as regards technology, economics and politics, which makes it difficult to create a one-size-fits-all solution. It also means that there is a great deal of opportunity to leverage the benefits of AI to meet financial needs.
Globally, AI is being used in fintech innovations mainly in the area of data collection and analysis. Blazquez-Lopez said that systems are being developed to collate and process large amounts of data that would be impossible for a human to analyse in real time. AI is also being used to provide invaluable information on customer behaviours and patterns. The technology is being used to assess creditworthiness, predict spending patterns and most importantly determine the probability of payment default.
Using artificial intelligence in credit scoring is a significant part of this process. The algorithms look at historic loans, employment and behavioural data and are able to determine creditworthiness. “This will allow credit providers to extend the depth and breadth of their due diligence and automate the credit decision making process with greater speed and accuracy,” she said. One particularly powerful method, prescriptive analytics, is being used to compound data from the sensors in smartphones, which can be used to anticipate what a customer may require at a particular time and to offer appropriate suggestions and solutions.
Blazquez-Lopez noted that AI can be used in the area of fraud prevention on the continent. “There are significant leakages in the inter-bank transfer system with numerous phantom transactions being made on a daily basis. There are also a number of ghost workers who live on the continent and receive payments through a flawed banking system,” she said, indicating that AI can be used to tackle those.
Africa is a good place to innovate in these areas because of its large and growing population, many of which do not have access to traditional banking services. “Africa is the youngest continent in the world and will therefore soon have the world’s largest workforce,” she said. “Furthermore, there is a growing middle class providing a ready consumer market. A continent with more than a billion people is a fantastic opportunity and fintech companies recognise the greenfield platform offering almost unlimited potential and opportunity.”
Van der Post said that on the one hand, the efficiencies and cost reduction associated with AI and bots is consumer friendly, but the consequential risk of decreasing employment figures does cause debate in this arena, especially in a region where unemployment remains high.
Nuy said: “Africa is a major challenge for traditional financial services channels, for bricks and mortar, because of poor infrastructure, poorly functioning national identification systems and credit bureaus. However, the growth of mobile and smart phone penetration has opened the door for fintech innovators not only as customer interfacing channel, but also as a source of alternative data.”
For Nuy the core challenges to the implementation of AI in fintech in Africa, are ensuring data quality and integrity through sound data governance strategies, as well as addressing the scarcity of data science/ AI skills.
The challenges to doing business in Africa vary depending on the country, but can slow the speed of progress and therefore innovation. Blazquez-Lopez points out infrastructure challenges such as a lack of appropriate supporting institutions as well as bureaucracy and red tape.
She added regulation as a significant challenge for the use of AI in fintech. “As the industry is relatively new, the regulatory framework is under developed and non-existent in many jurisdictions and regulators will have to develop sufficient knowledge of the potential and pitfalls of the use of artificial intelligence before they can effectively regulate it,” she said.
Other legal risks and challenges related to the use of artificial intelligence relate to the area of data protection and privacy. “Corporate liability could also arise if unsound investment decisions are made based on incorrect analysis of data,” she said. Other risks include liability stemming from incorrect decisions about individual credit risk, intellectual property ownership and control issues, disputes relating to issues of malfunctioning algorithms and system and programming errors, and cyber security issues. “Undoubtedly as the technologies evolve more risk areas will become apparent,” she said.
Locally based entrants to the market might also be constrained by the high upfront costs associated with such fintech.
In order for AI to truly have an impact on banking the unbanked and for its use to drive fintech innovation on the continent, providers need not only to be aware of the diversity of Africa but leverage it to its advantage. “AI in Africa will have to take cognisance of the multitude of cultures, languages and customs in single territories. Machine learning will have a role to play in helping bots adopt to local perspective and nuances,” van der Post said.
While MyBucks has pioneered the use of AI in fintech in Africa, other innovators are following suit. Branch.co is using AI algorithms for credit scoring. Barclays Africa has recently announced an artificial intelligence chatbot for financial services that will be able to conduct an intelligent conversation giving feedback on the bank and IT services. “For those customers, perhaps the older generation, who prefer spoken format rather than text messaging, this may be advantageous,” Blazquez-Lopez, adding that RBS has also successfully trialled this technology.
The recent announcement by pan-African Fintech company MFS Africa of a partnership with Wari for the digital transfer of money within Africa is also very exciting news for the industry, in Blazquez-Lopez’ view. “This much enhanced platform will undoubtedly enhance the process for money transfers and remittances on the continent as well as increasing services such as micro-lending, micro-savings and micro-insurance products,” she said.
While there is still scope for much growth in fintech in Africa and in the use of AI in particular, innovations are already emerging and have the potential to significantly address core African problems. Van der Post added: “In my view, AI will be able to not only reduce costs through fintech process applications, but also converge with needs like education and financial literacy to liberalise consumers across the continent.”
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