By Afia Gyapomah TWUMASI
The traditional financial system, led by brick-and-mortar banks, has historically supported economic growth. However, it could not enable access for many to be financially included and was saddled with service inefficiencies.
Over the last decade, technological innovations like ATMs, online banking, and mobile banking were deployed to transformed financial services and address some of its challenges.
One such innovation is Financial Technology (FinTech) which has become a key driver, particularly in Africa, with companies like M-Pesa, Flutterwave, and MTN Momo solving the financial inclusion challenge with the traditional financial system. For instance, M-Pesa is reported to serve over 50 million users across multiple African countries.
In Ghana, FinTech’s impact is evident. According to the 2023 Bank of Ghana Fintech Sector Report, transaction volume grew by 35percent from 5.07 billion in 2022 to 6.8 billion in 2023, while the total value of transactions increased by 79percent, rising from GH¢1.072 trillion to GH¢1.8 trillion.
The amount of money available for interbank and mobile money transactions also grew by 79percent, reaching GH¢1.9 trillion. The number of registered agents on payment platforms increased by 17percent, and active agents rose by 21percent, totalling 608,000.
Equally, Fintech investments have also surged, with African fintech companies attracting US$1.3 billion in venture capital in 2021. While progress has been significant, central banks need to create an enabling environment to further drive fintech innovation and promote inclusive economic development.
The impact of fintech on Africa’s economy
FinTech has had a tremendous impact on Africa’s financial sector and other important sectors in the past decade. It has become a major force behind regional growth and a competitive alternative to traditional banking, both in urban and rural settings. Also, it has opened  up the financial sector’s value chain and promoted efficiency gains in Africa by fostering an enabling environment.
Fintech is enhancing financial inclusion and fostering innovation and productivity in key industries, including the small- and medium-sized companies (SMEs) and agriculture sectors, which are the backbone of the African economies.
This transformation is facilitated by factors such as high mobile phone penetration, the growth of internet connectivity, and a young population eager to embrace technological solutions.
Some specific impacts of fintech on Africa’s economy are highlighted as follows:
Financial Inclusion and Accessibility
One of fintech’s most significant impacts on Africa’s economy is expanding access to financial services for individuals who previously lacked such access. According to the World Bank, more than 66percent of adults in Sub-Saharan Africa did not have a bank account as of 2017.
Fintech platforms, such as mobile money services, have drastically changed this narrative. For example, M-Pesa, the mobile money platform launched in Kenya in 2007 by Safaricom, now serves over 51 million active users across Kenya and other African countries increasing access to financial services for millions of unbanked individuals.
According to the Central Bank of Kenya (CBK), M-Pesa transactions exceeded US$82 billion in 2022, accounting for a significant portion of the country’s GDP. This growth in mobile money services has enabled people in rural areas to participate in the formal economy, reducing poverty levels and improving livelihoods.
Another example of increasing financial access across the continent is Tanzania. The Bank of Tanzania reported that by 2021, there were over 35 million registered mobile money accounts, a massive jump from the 2015 figure of about 19 million. This rapid adoption of fintech solutions has empowered Tanzanians to engage in commerce and access financial services previously out of their reach.
Facilitation of trade and small business growth
Fintech has played a crucial role in fostering entrepreneurship and small business growth across Africa. Digital payment systems, peer-to-peer lending platforms, and crowd-funding services have enabled small and medium-sized enterprises (SMEs) to access capital and transact easily. With more than 80percent of African businesses classified as SMEs, fintech solutions are addressing financing gaps that traditional banks have not effectively catered to.
For instance, platforms like Flutterwave (Nigeria) and Paystack (acquired by Stripe) have been instrumental in helping businesses across Africa accept payments from customers around the world, thereby promoting cross-border trade. According to the Central Bank of Nigeria (CBN), digital payments in Nigeria accounted for N4.9 trillion (US$10.5 billion) in 2021, reflecting a growing shift towards cashless transactions.
Driving innovation in financial products
Fintech in Africa has also spurred innovation in creating financial products that are tailor-made for the continent’s unique needs. For instance, digital lending platforms have enabled consumers and SMEs to access loans quickly, without the need for lengthy approval processes from traditional banks. Companies like Branch and Tala use algorithms and mobile data to assess creditworthiness, making small loans accessible to those without formal credit histories.
Moreover, fintech companies have begun offering insurance products to underserved populations through platforms like Brolly Africa enabling smart insurance premium payments and BIMA in Ghana, leveraging mobile phones to provide low-cost health, life, and agricultural insurance are some great examples. According to the Bank of Ghana, mobile money has attracted more than US$250 million worth of insurance premiums by the end of 2022.
Job creation and economic growth
The fintech industry has created millions of jobs across the continent, particularly in the technology and financial services sectors. This has helped African economies diversify beyond traditional industries like agriculture and natural resources. Fintech is driving demand for skilled labour, particularly in software development, data science, and cyber security.
Countries such as South Africa, Kenya, and Nigeria are becoming hubs for fintech startups, with South Africa’s fintech ecosystem contributing significantly to the economy. According to the South African Reserve Bank (SARB), the country’s fintech industry generated over US$4 billion in revenue in 2023, positioning it as a leading player in the African fintech space.
Potential for growth and future outlook
The potential for fintech in Africa is enormous, particularly as the digital ecosystem continues to mature. According to the African Development Bank (AfDB), Africa’s fintech market is projected to grow to US$150 billion by 2025, up from US$40 billion in 2020.
Key areas that are poised for significant growth include Blockchain and cryptocurrency with countries such as Nigeria and South Africa exploring the potential of blockchain technology to provide alternative financial systems, reduce transaction costs, and enhance transparency.
Also, Central banks across Africa are adopting sandbox environments to foster innovation while managing risk. The Bank of Ghana, Central Bank of Nigeria, and SARB have launched regulatory sandbox initiatives that allow fintech startups to experiment with new technologies under regulatory supervision, paving the way for greater innovation.
The role of central banks – the Ghanaian example
At independence, the Bank of Ghana (BoG) had an initial mandate was to issue and redeem currency, manage reserves, maintain monetary stability, and advise the government on financial matters. Over the years, several legislative changes, have enabled it to play other major roles in driving financial innovations, both as a regulator and a facilitator of technological advancements in Ghana’s financial sector.
Some of specific FinTech interventions include:
Regulatory framework development: One of the key roles of BoG is to create and enforce regulations that both support and govern fintech operations. The enactment of the Payment Systems and Services Act, 2019, was a significant step in defining the legal framework for mobile payments, electronic money, and other fintech services. Through this framework, the Bank ensures that fintech companies operate in a regulated, secure environment, balancing innovation with the need for financial stability and consumer protection.
Promoting financial inclusion: A major focus of the Bank’s fintech agenda is improving financial inclusion. With a large portion of Ghana’s population being unbanked, fintech provides an avenue for expanding access to financial services. BoG has supported initiatives such as mobile money services and digital wallets, which have made banking accessible even in remote areas. By endorsing these innovations, the Bank helps bridge the gap between traditional banking and underserved populations.
Facilitating a regulatory sandbox: To encourage experimentation and innovation, the Bank launched a regulatory sandbox that allows fintech startups to test new products and services under regulatory supervision.
This initiative reduces the risks associated with launching new technologies, providing innovators with the flexibility to refine their solutions before full-scale commercialization. The sandbox also enables BoG to adapt regulations to evolving technologies, ensuring the fintech ecosystem remains dynamic and responsive.
Ensuring consumer protection and security: BoG is tasked with protecting consumers in an increasingly digital financial landscape. It enforces strict standards on cybersecurity, data protection, and anti-money laundering practices to safeguard users from fraud and data breaches. Through these measures, the Bank fosters trust in fintech platforms, which is crucial for the widespread adoption of digital financial services.
Collaborating with stakeholders: BoG actively engages with financial institutions, fintech companies, and international bodies to promote innovation. This collaboration fosters a holistic approach to fintech development, combining the resources of established financial institutions with the agility of fintech startups. By facilitating industry-wide dialogue, the Bank ensures that fintech innovations align with broader economic goals and regulatory frameworks.
The Central Bank plays a key role in fostering fintech innovation by creating a regulatory framework that balances innovation with consumer protection. Its efforts to promote financial inclusion, support emerging technologies and ensure security have positioned the Bank as a driving force in Ghana’s fintech growth. With ongoing collaboration and flexible regulation, it is set to further enhance fintech’s influence on the country’s financial sector.
Regulating fintech in Africa: what central banks must do
Fintech is reshaping Africa’s financial ecosystem, offering innovative solutions and increasing financial inclusion across the continent. However, this rapid growth presents regulatory challenges for central banks, which must balance fostering innovation with ensuring financial stability, consumer protection, and security. Using Kenya, Nigeria, and South Africa as case studies, I will explore the specific challenges each country faces and propose solutions that central banks must implement.
Challenges in regulating fintech in Africa
In Kenya, the financial system has been significantly shaped by innovations such as M-Pesa, one of the world’s most successful mobile money platforms. However, as fintech services expand, the regulatory environment has become fragmented.
The Central Bank of Kenya (CBK) and the Communications Authority (CA) oversee mobile money services separately, leading to inconsistencies and overlaps in regulation. Furthermore, consumer protection has emerged as a significant concern, with users facing issues related to scams, hidden fees, and limited recourse for disputes.
Nigeria presents its own set of regulatory challenges. The Central Bank of Nigeria (CBN) has struggled to keep pace with the rapid growth of fintech, particularly in areas like cryptocurrency and blockchain technology.
In 2021, the CBN’s ban on cryptocurrency transactions created friction between regulators and fintech innovators. Additionally, the lack of coordination among various regulatory bodies, including the CBN, Securities and Exchange Commission (SEC), and National Information Technology Development Agency (NITDA), has resulted in regulatory overlaps that hinder the seamless growth of the industry.
In South Africa, where the fintech market is relatively mature, the South African Reserve Bank (SARB) faces the challenge of balancing innovation with risk management. The rapid growth of digital banking and payments raises concerns about financial stability, particularly in relation to fraud, cyberattacks, and money laundering. There is also a tension between extending financial services to underserved populations and ensuring that regulatory frameworks do not stifle fintech innovations.
Proposed solutions and what central banks must do
To address these challenges, central banks in Africa must take decisive action in four key areas:
First, establishing comprehensive and unified regulatory frameworks is essential. Central banks should create a regulatory environment that encompasses all fintech operations, including mobile money, digital lending, and cryptocurrencies.
In Kenya, this could involve integrating the oversight of the CBK and CA into a single supervisory body. Similarly, Nigeria could benefit from a centralized authority to harmonize regulations across various agencies, thereby resolving fragmented oversight.
Second, enhancing consumer protection mechanisms is vital. Central banks should develop guidelines that ensure transparency in fees, prompt resolution of disputes, and robust privacy protections. For example, in Kenya, the CBK can require mobile money providers to disclose transaction fees upfront, while in Nigeria, the CBN could enforce consumer protection standards for digital lending platforms to prevent predatory practices.
Third, promoting cross-border regulatory collaboration is crucial in a region where fintech markets are increasingly interconnected. Central banks should work together to establish standards for cross-border payments and interoperability. In this regard, Kenya, Nigeria, and South Africa can engage in initiatives to streamline transaction standards and reduce fees, making it easier for users to conduct cross-border transactions.
Finally, enhancing cybersecurity and anti-money laundering (AML) protocols is essential to safeguarding financial systems. Central banks must set stringent cybersecurity standards for fintech platforms, requiring regular audits and robust AML guidelines tailored to the risks associated with digital transactions.
For instance, the CBK in Kenya could mandate cybersecurity audits for mobile money providers, while the CBN in Nigeria could strengthen AML requirements for blockchain platforms to align with international standards.
Conclusion
The regulation of fintech in Africa is a dynamic and ongoing process that requires central banks to address various challenges while fostering an environment conducive to innovation.
By establishing unified regulatory frameworks, enhancing consumer protection, promoting cross-border collaboration, and bolstering cybersecurity measures, central banks in Kenya, Nigeria, South Africa and Ghana can effectively regulate the fintech industry. Such proactive measures will not only enhance financial stability but also promote inclusive economic development across the continent.
>>>the writer is a legal intern at Sustineri Attorneys PRUC and a law student at the Faculty of Law, University of Cape Coast with interests in Financial Technology and International Law.
