Money! We all need it, and it never seems to be enough to meet our expenditure demands. (At least that is how I feel!) We work, we earn, we receive the money to our banks, we spend it, either wish cash or card. Well that has been the way for a long time, but innovation in the financial sector is beginning to make things look very difficult. The working, and earning hasn’t changed, but for some of us, especially in Africa the way we receive and spend money has changed drastically.
Innovation in the African financial sector is changing entire cultural norms. People are paid to their phones, rather than a bank account, which many across the continent don’t have, and they use their phones to purchase anything from food, to transportation across the city. In many cases there is no more need for cash, and with cryptocurrencies now trying to find their way turbulently there is more change on the way.
All this has meant that there are more ways for people to use their money with online purchasing gaining traction across the continent. But, this also means there are more ways for people to find crooked ways of stealing from others. Whilst there is more freedom of purchasing, there is also a perception of risk, with regular stories of people losing money in online transactions. In my short time in Kenya I heard of a couple of stories or people losing money through M-Pesa. In one case, a gardener allegedly lost his entire Christmas bonus to M-Pesa fraud, although his claim was not proved before I left the country.
So, how can people be certain that at least their online purchases are safe. In the commodities industry often investors use certain mechanisms to keep their money safe in escrow until delivery of the commodity. Well now, that is also possible for purchases at lower level. South African firm TradeSafe enables a third party service in which they keep the buyers money safe until they have received their goods or services, and they are satisfactory. After agreeing on the deal with the trader, a contact is locked in, and the funds are only released to the trader when the order is received. If it is not satisfactory, the buyer is refunded their money.
This system can be used for anything, from small purchases online like mobile phones or hiring a tradesman or larger purchases such as houses, art or even a business! TradeSafe are offering a service that will offer the consumer protection against online fraud and should boost online trading further. My hope is that this service can be pushed out across the continent, enabling small businesses to give assurances to their customers that they are offering the best possible products or services.
Financial innovation has the possibility to bring a new level of trust to a continent that has been plagued by negative stories of corruption. It is not only at the consumer level that Fintech can help to clean up. The political sphere and civil service could also receive a financial rejuvenation by adopting new financial technologies and innovating. Removing cash from economies, and going entirely digital is a good starting point.
I have heard first hand of many incidents with people leaving large amounts of money on the desks of politicians and high ranking officials in the sporting world in Africa. In a digital cash society, this is very difficult to do without a digital record of the transaction. (Although, in Kenya I also saw one shop keeper accept a payment to his personal M-Pesa account rather than the shops account, which means the government wouldn’t receive their VAT.)
It is a case of putting hurdles between those that would accept a crooked payment and those that would give it, and mobile money is a big hurdle. It would be easy to monitor who policemen and women have received payments from, or whether politicians have received any strange payments. Even payments at lower level can reduce leakages by making payments digital. For example, national parks in Tanzania have increased income by 40% because due to this.
Removing cash from the economy is a step towards reducing fraud significantly, but there will still need to be further innovations to ensure that it is reduced to the bare minimum. Fintech should not just be seen as a way to enable the consumer, and bring the unbanked into the system, but also a way of creating a fair system. Innovators need to keep this in mind!
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