Artificial Intelligence is having a profound impact on the financial services industry, across a wide range of countries and markets.
PayU Africa’s CEO, Karen Nadasen, writes for Payment Expert on how the emerging tech can prove crucial to elevate financial inclusion in the continent, bolster a flurry of fintech sectors, and personalise the user experience.
From Morocco to South Africa, fintech companies are driving access to financial services through innovative solutions that offer convenience and lower costs.
As a result, fintech is Africa’s fastest growing start-up industry, and is expected to be worth more than $230bn by next year. This is due to rapid technological advances, as well as high mobile penetration, low data costs and a young, rapidly urbanising population.
One significant success in Africa is mobile money. Companies like M-PESA in Kenya have let millions access financial services through their phones at very low cost – with transactions costing approximately 80% less than those enabled by traditional banks. Adoption is now so high that Africa accounts for almost 70% of the world’s $1 trillion mobile money market.
Notably, in Sub-Saharan Africa, mobile money accounts now surpass the number of traditional bank accounts in the region, and by 2025 there will be more than 600 million unique mobile money subscribers, covering over half of the population.
But the rapid growth of fintech has come with a unique set of challenges. Any fintech looking to operate in Africa must navigate a complex and rapidly evolving regulatory environment designed to mitigate fraud and data privacy risks. Furthermore, many countries face infrastructure challenges, with unreliable power supplies, weak mobile and internet penetration in rural areas, and digital and financial literacy issues hindering progress.
In other markets, limited payment rails – the backbone of all digital money transfers – have created hurdles in fintechs’ journeys to scale and reach profitability.
How Artificial Intelligence can spearhead economic growth
Mobile money has already played an instrumental role in Africa’s fintech boom and I see artificial intelligence (AI) driving further change, helping to overcome some of the challenges outlined above.
For instance, in the case of financial literacy, AI can help to augment mobile money apps with automated financial planning, spending analytics, and personalised advice based on the user’s profile and activities.
Our own data showed that during Black Friday 2023 across Kenya, Nigeria and South Africa, 58% of shoppers purchased items on their phones, up from 7% in 2022. As smartphone ownership continues to rise in Africa, mobile banking apps with AI stand to offer customised financial services to millions who currently lack access, helping to unlock financial inclusion in the region, and increasing sales via this platform.
This customisation is key. Across the continent, there is immense diversity in income levels, financial literacy, and accessibility to banking services. One-size-fits-all financial products offered by traditional banks fail to address these varied needs. AI and machine learning can analyse data on customer demographics, behaviours, and preferences to create tailored financial services.
For example, digital banking apps powered by AI can provide personalised savings and credit plans, customised education on financial concepts, and targeted recommendations on financial products to each user. Through adapting to individual contexts, AI-enabled services can promote inclusive finance.
AI can also help fintechs overcome a fragmented and complex regulatory environment. For instance, strict know-your-customer (KYC) rules often create barriers to accessing banking services for those without formal identification. AI-based identity verification using biometric data can enable remote, real-time customer onboarding to reduce this friction.
For institutions, AI-driven onboarding cuts down operating costs and resources otherwise spent on manual verification. By simplifying the entry process, AI can help expand the reach of financial services to un- and under-served communities.
Collaboration will unlock fintech’s full potential
To maximise the promise of AI in accelerating financial inclusion, full multi-stakeholder networks are required. Regulators must develop enabling policies, for example by updating licensing requirements, implementing digital KYC regulations or creating fintech sandboxes. The latter allows both fintech companies and traditional banks to create responsible and ethical AI applications without running the risk of breaching regulations.
Fintechs have a unique ability to be agile and scale quickly, while banks have a greater market reach and higher level of trust among consumers. With the right models of collaboration, and leveraging these respective strengths, as well as coordinating efforts between key public and private stakeholders, AI can be developed to bridge the systemic gaps in fulfilling the financial needs of all citizens.
The fintech revolution has made huge strides in expanding financial access across Africa, but AI solutions can help overcome many – but not all – of the systemic barriers that still exclude many. With coordinated efforts between regulators, institutions, and fintechs to build and implement AI responsibly, its potential to accelerate inclusion and spearhead economic growth can be fully realised.
