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Current outlook, challenges and policy options for the Fintech sector in Kenya
The digital transformation of financial services is gathering pace due to increased adoption and usage of technologyenabled innovative digital financial services also known as Fintech. This transformation is largely driven by new technological disruptors that leverage digital innovations to develop new business models, applications, processes and products. These have increased access to financial services for the underserved, thereby posing a serious challenge to traditional financial models such as money transfer, legacy banking, wealth management, brokerage services, insurance and lending. The innovations have radically transformed how consumers and businesses experience and engage with financial services including money transfer, settling payment, borrowing and saving, allocating capital, and risk sharing.
While the financial services sector has a long history of early adoption when it comes to new technologies – from the telegram, to high frequency trading, to automated teller machines and credit cards, the technological basis for new Fintech business models and services rests on the development of some digital innovations developed in recent decades. These include but not limited to distributed and cloud computing, open-source software, Application Program Interfaces (APIs), artificial intelligence, big data, cryptography, smart contracts, and mobile internet access. Taken together, these innovations have enabled the ability to collate and analyze vast amounts of data, develop more robust security systems, and connect economic agents through multiple types of platforms on a real-time basis.
By changing the way the financial markets operate across the globe, Fintech has opened up the financial services value chain, leading to increased access, better services, and gains in efficiency. This has triggered deep changes to the existing market structure and financial market infrastructure for the provision of these services. The promise of hefty returns, as well as the potential to be at the forefront of a disruptive development, has seen considerable investment into the sector. Since 2010, more than US$376 billion has been invested in almost 2,500 companies worldwide. In 2018 alone, a record USD 111.8 billion was invested in Fintech, and the sector garnered extensive media coverage and
interest.
In Sub-Saharan Africa (SSA), Fintech presents opportunities that were hitherto unavailable as most SSA countries have a shallower financial system than those in other developing regions of the world. In terms of financial inclusion, only 20 percent of the population has a bank account compared to 92 percent in advanced economies and 38 percent in non-advanced economies. Underinvestment, poor infrastructure, and comparatively low levels of financial literacy have contributed to the region being underbanked.
The sector is growing rapidly in the East Africa region particularly in Kenya where it has had tremendous impact on
deepening financial inclusion by enabling the underserved population to overcome constraints to access of financial
services.