The Fintech Revolution: Transforming Financial Services in Emerging Markets
Introduction to Fintech
Fintech, the harmonious blend of finance and technology, is reshaping financial services across the globe, particularly in emerging and developing nations. The journey of financial tools has evolved from the minted coins of ancient Greece to the modern-day digital transactions we rely on. Historically, these tools have aimed to facilitate economic growth and societal development. Today, digital technology holds the promise of making financial services more inclusive than ever before.
M-Pesa: A Case Study in Transformation
A standout example of fintech’s transformative power is M-Pesa in Kenya. Launched in 2007, M-Pesa began as a mobile money service primarily for airtime transfers. However, it quickly evolved into a comprehensive financial tool that has had a profound impact on the Kenyan economy. By 2021, M-Pesa transactions accounted for an astonishing 87% of Kenya’s GDP, lifting approximately 2% of households above the poverty line. This remarkable success story illustrates how fintech can drive financial inclusion and economic growth.
The Importance of Financial Inclusivity
The evolution of financial tools has always aimed to facilitate the exchange of goods and services, fostering financial inclusivity and societal progress. Societies with advanced financial systems tend to thrive, as inclusive financial transactions lead to higher incomes, increased demand, and innovation. In contrast, societies with limited financial access often stagnate, struggling to achieve economic growth. This trend is particularly evident in emerging and developing countries, where financial inclusion remains a critical challenge.
Historical Context: The Legacy of Colonialism
Post-independence, Africa’s financial systems largely remained unchanged, still designed to serve colonial interests. This historical context has resulted in a significant portion of the population being excluded from mainstream financial services. In the 1970s, around 90% of Africans were unbanked, and today, 52% still lack access to banking services, relying heavily on cash for transactions. This exclusion poses a significant barrier to economic growth and development.
Fintech: Filling the Gaps Left by Traditional Banks
The 2008 financial crisis prompted traditional banks to adopt a more conservative approach, paving the way for digital innovations to emerge. With the expansion of the internet and mobile technology, fintech companies have stepped in to fill the gaps left by traditional banks. Services like M-Pesa allow individuals to pay bills, transfer money, and purchase goods using their mobile phones, showcasing fintech’s potential to drive financial inclusion and stimulate economic growth.
The Infrastructure Advantage of Fintech
One of the defining features of fintech is its ability to operate without the traditional banking infrastructure. Unlike conventional banks, fintech requires no physical branches, cards, or chequebooks—only a smartphone and a telecom ecosystem. This simplicity has enabled fintech solutions to flourish in regions with limited banking infrastructure. For instance, in Kenya, M-Pesa expanded financial access from 26% to 83% of the population between 2006 and 2021, highlighting the potential for inclusive financial systems.
Empowering Small and Medium-Sized Enterprises (SMEs)
Fintech is also playing a crucial role in supporting small and medium-sized enterprises (SMEs), which are vital to developing economies but often face barriers to traditional financial services. Fintech platforms provide SMEs with access to loans, enabling them to expand their operations and contribute to economic growth. Digital-only banks, such as South Africa’s TymeBank and Nigeria’s Kuda, offer services at a fraction of traditional banking costs, democratizing financial access and empowering entrepreneurs.
The COVID-19 Catalyst for Digital Banking
The COVID-19 pandemic has accelerated the adoption of digital banking across Africa. In response to the economic strain, African banks have begun collaborating with fintech startups to offer a broader range of financial products tailored to a tech-savvy population. With mobile phones accounting for approximately 75% of all online traffic in Africa, digital platforms are increasingly designed for mobile users, driving innovation and expanding access to financial services.
Promoting Gender Equality through Fintech
Fintech is also making strides in promoting gender equality by providing women with access to financial services. Women, who often manage SMEs and agricultural activities, face significant barriers in traditional banking. A recent FinScope report from Rwanda indicates that women’s access to formal and non-formal financial services, including fintech, has increased significantly from 73% in 2020 to 90% in 2024. This progress underscores fintech’s pivotal role in bridging the gender gap and empowering women economically.
Empowerment through Cooperative Financial Solutions
Fintech applications used by cooperatives and mutual support groups are empowering women by facilitating access to loans and other financial services. Research shows that companies with more female employees tend to perform better financially, highlighting the importance of gender-inclusive financial systems. In Africa, where 40% of SMEs are female-owned, fintech is effectively closing the funding gap and enabling women to contribute more significantly to economic growth.
The Inclusive FinTech Forum: A Global Platform for Change
The inaugural Inclusive FinTech Forum held in Kigali exemplifies fintech’s transformative potential in Africa. Co-organized by the National Bank of Rwanda, Elevandi, and the Kigali International Finance Centre, this global platform for financial inclusion attracted nearly 3,000 attendees from 65 countries. The forum emphasized shared experiences and best practices that drive financial inclusion and sustainable development. The presence of high-profile participants, including Rwanda’s President Paul Kagame, underscored the significance of fintech in shaping Africa’s economic future.
The Role of ACFTA and PAPSS in Economic Integration
The Africa Continental Free Trade Area (ACFTA) is poised to enhance intra-African trade, and the fintech-based Pan-African Payment and Settlement System (PAPSS) represents a significant step in this direction. By harmonizing national payment systems, PAPSS will facilitate seamless trade transactions across the continent, promoting economic integration and growth.
Bridging the Technological Divide
Fintech is also instrumental in reducing technological inequality between advanced and developing nations. A McKinsey study indicates that nearly half of Africa’s 5,200 tech startups were involved in disrupting or augmenting traditional financial services between 2020 and 2021. The fintech sector is projected to grow by 19% annually through 2025, reaching a valuation of $150 billion. This growth is fueled by increasing smartphone ownership, declining internet costs, expanded network coverage, and Africa’s youthful population, which is adept at navigating the digital landscape.
The Future of Fintech in Emerging Markets
Fintech represents a significant milestone in the evolution of financial technology. By dismantling traditional barriers and opening financial services to the masses, fintech has the potential to drive unprecedented economic growth and prosperity in Africa and other emerging markets. Embracing this digital revolution paves the way for a more equitable and prosperous future for all.
About the Author
Leila Rwagasana is the FinTech Lead at Rwanda Finance Limited. With a decade of experience in business development and partnerships across Rwanda and Africa, she is passionate about leveraging technology to enhance financial inclusion and economic growth. You can connect with her on LinkedIn.