Fintech in Kenya: FinTech solutions are revolutionizing the world as a whole. However, there are places where their impact is more visible than in others, and Kenya is one of these places. That’s because the entire continent of Africa struggles with the lack of effective banking coverage. Moreover, the banking system as it is now is becoming outdated in the globalized digital world of today.
In light of this, it’s not a surprise that fintech solutions and challenger banks that appear in Kenya and other parts of the world are growing extremely fast. They are imperfect yet and require regulation. However, they are advancing beyond mobile payment solutions, which is essential for advancing the progress of the entire economy.
The Importance of FinTech and Bank Alternatives for Africa and World as a Whole
The world is going global, which creates innumerable opportunities for small businesses to start dealing internationally. This is a fantastic change for developing countries because their economies can get a huge boost from these businesses. However, the problem for these countries is that they often lack an efficient banking system.
How to send and receive money via Western Union, Money Gram in Kenya
This is a big problem for Africa, where the majority of the population can’t reach banking services. And even if they can, their opportunities are restricted by the fact that banks here are few and they rarely offer competitive services. As a result, people simply cannot start businesses that can help them thrive.
Even receiving money as remittances is a problem for the local population. And remittances are a major contributor to many African economies.
The improvement is needed, everyone can see that. And it’s happening slowly with the help of multiple sources. World Bank is playing a major part in Africa’s finance digital transformation. It has recently announced that over the next ten years it will invest $25 billion in the development of digital fintech and associate4d solutions in Africa.
The goal is to make the continent connected bringing banking services to every person who needs them.
However, traditional banking, as it is today, is inefficient and unsustainable in these conditions. Therefore, the banking industry itself has to undergo a major transformation. And it’s already happening worldwide.
A variety of fintech solutions and banking alternatives is already here and they are evolving and becoming more complex by the day. Eventually, they can turn into full-fledged bank alternatives with all the necessary functions and licenses.
We can see this transformation happening now in some of the developed countries. Judo, which is an up-and-coming challenger bank in Australia, now can offer loans up to $5,000,000 both secured and unsecured. This alternative to regular banks is transforming Australia, which has a notoriously low rate of bank trustworthiness (2.5 out of 10). Judo offers financing to small businesses, which are unable to secure a loan otherwise and they provide an influx of funds into the economy. And it all started with a rather small digital startup in 2018. Yet the need for the service has been so great, Judo collected $140 million in financing right away.
This is the kind of challenger bank that Kenya, and other parts of Africa, so desperately need. Banking made affordable and available is what can help the economies of the continent grow.
Other fintech solutions that evolved into major world-changing services are already making great contributions. For example, TransferWise is now busy developing its network coverage in Africa. This service alone can make a difference for millions of people because it makes remittances simple and affordable. Kenya is among the top countries in Africa in the volume of remittances, which means that services like TransferWise are vitally important for the country’s economic growth. And these services are increasing because TransferWise is one of the leaders of an extremely fast-growing industry and where it turns, its competitors follow and do their best to offer better terms.
One also shouldn’t forget that many fintech companies that have started with limited functions are now turning into real banking alternatives. Some of them are even offering certified bank-grade services, these include financing, money transfers, and deposits.
Digital Transformation of Kenya: How Is FinTech Doing Here?
At the moment, Kenya, like the rest of Africa, mostly has smallish fintech startups that are allying with mobile operators to offer mobile payments and some basic mobile services. This is progress, which is testified by the success of the M-Pesa platform. It’s a result of a collaboration between Safaricom (telecom operator) and several banks.
However, even this example shows that there is still a long way to go until mobile banking can become universally available throughout the country. This is evident from the example of M-Kesho, a mobile banking app also created by Safaricom, but in collaboration with Equity Bank. That project didn’t turn out too good, but its problems brought to light one of the biggest issues that are stopping fintech solutions and bank alternatives from growing in Kenya. The lack of proper regulation.
M-Kesho went down because the main players behind it couldn’t come to an agreement on how to share revenues. And it’s not surprising because a partnership between a licensed bank and anything is bound to be extremely complex.
The heart of the problem is that any kind of an efficient fintech solution must be closely connected to a traditional bank. Without this, it will simply be impossible for these solutions to be efficient. That’s because crucial financial services are only provided by licensed banks.
Yet, becoming a licensed bank means falling under a variety of regulations, in essence, remove what makes fintech startups efficient in the first place.
So, without banks they cannot function, but working with banks or getting a license in performing banking services robs the fintech company of the flexibility it needs to offer cheap and efficient services. This kind of problem can only be resolved by changing the laws and regulations on the state level, but governments are reluctant to make the necessary reforms.
However, the appearance of new fintech companies and their attempts to circumvent the red tape through more efficient partnerships shows promise. Worldwide, even some governments are starting to change in order to help banking alternatives to thrive. This has not happened in Kenya yet, but the progress in the fintech sector gives one hope.