ECOWAS set up a unit called the "FinTech Committee" (Financial Technology) on February 18, 2020. This Committee's mission is to promote the harmonious development of "FinTech" in UEMOA, in particular through the adaptation of the regulatory framework in force. as well as the establishment of an Innovation Office (Innovation Hub) and a Regulatory Laboratory (Regulatory Sanbdo). The Innovation Office accompanies initiators of innovative projects, while the Regulatory Laboratory is in charge of supervising these initiatives - requiring specific authorization for the exercise of financial activity as a "FinTech" - under the conditions provided for by the regulations. Through these initiatives, the regulator seeks to regulate this booming sector without killing innovation.

Dossier produced by Seydou KA

Inventory

MicroSave Consulting, an international firm specializing in financial, economic and social inclusion, and the Mastercard Foundation published, on July 7, a study on the current state of FinTechs and the challenges of financial inclusion in French-speaking Africa. Here are the main lessons.

According to this study targeting Benin, Côte d'Ivoire, Mali, the Democratic Republic of Congo, Senegal and Togo), financial inclusion remains the main area of intervention for venture capitalists specializing in technology and digital within the continent, attracting 54.5% of total funding. “The general observation is that FinTechs continue to develop, that companies are ready to innovate. However, they need a boost in French-speaking Africa in particular, which is lagging behind English-speaking Africa,” note the authors of the study. In other words, if the market is “ripe for innovation”, it will take a collective effort to address the current gaps which include regulatory constraints, weak legal systems, lack of financial and digital literacy and lack of credit history to exploit the potential market.

In Senegal, a country that is among the pioneers of the region with Côte d'Ivoire in terms of growth and investment in the sector, the ecosystem consists of 24 FinTechs and 47 facilitators and funding partners, while applications mobiles are the main distribution channel used. “Incubators need support to bring value to the sector,” the study notes. Since 2014, FinTech startups in Senegal have seen steady growth and the majority of them are led by young people, especially men. Only 30% of the Senegalese ecosystem is made up of women. Thanks to a vibrant ecosystem of startups and growing access to investors, Dakar ranks ninth in the Global FinTech India 2020 African cities ranking.

Current trends include banks incubating FinTechs under the new Startup Law. The main business model is the B2B (business-to-business) model, closely followed by the P2P (person-to-person) and B2C (business-to-consumer) models. Most companies are developed by people who have significant professional experience and some of them are supported by innovation challenges and incubators.

Thanks to the rapid adoption of digital financial services, Senegal is on its way to becoming a leader within the region. According to the World Bank, 40% of adults (15+) made or received digital payments in 2017. As for saving and borrowing, almost half of the population (45%) do so. is employed in the past year, primarily through informal and semi-formal channels.

Informal savings and credit represent significant potential for FinTechs that can provide second-generation personalized digital solutions for financial inclusion.

Here too, the gap between men and women in terms of financial inclusion remains significant, although the use of mobile money facilitates access for women and young people. 47% of men had an account (including nearly 38% mobile money accounts) in 2017, compared to 38% of women (nearly 29% mobile money accounts). Despite the high level of awareness of DFS, their adoption rate is low due to the lack of strong value propositions and lack of usage through registered user accounts. Furthermore, micro, small and medium-sized enterprises (MSMEs) are at a crossroads since there is an urgent need to improve their access to financing, particularly in the agricultural sector which represents 2/3 of the population. Financial products are often poorly designed to serve rural areas and agriculture-based economies that are characterized by weather and commodity risks, as well as seasonal fluctuations in income. State support is needed to develop the capacities of FinTechs which are likely to play a key role in financial inclusion through digital financial services.

FinTech leique

FinTech is the acronym for Financial technology. Originally, it referred to Tpe (very small business) or Eti (medium-sized business) start-ups which made it possible to obtain innovative solutions in the financial sectors. We can cite areas such as mobile payments, consultation and use of online bank accounts, but also innovative solutions in internal management within financial structures, such as the development of certain algorithms in banks.

The Blockchain (or chain of blocks) is a distributed network which makes it possible to preserve, in a definitive and irreversible way, information which is, in our case, financial information. These are indelibly inscribed. They are tamper-proof and can be checked at any time. It should be noted that there can be a public blockchain when there are no restrictions on the number of miners. So it's open or private when the number is limited to a few people. The blockchain makes it possible to dispense with the trusted third party in transactions.

As for the Digital Currency, it is rather an etrapolation, because we often refer to the digital or electronic supports of the currency. Now we tend to generalize and consider that all forms of dematerialized money constitute digital or electronic money, including scriptural money.

Cryptocurrency is a bankless, digital currency created by a logarithm in the blockchain network. It circulates on the net, it is stateless and does not depend on any central monetary authority.

Further with Dr Mamadou Mbaye, Teacher at the University of Thiès

“FinTech is changing our relationship with money”

A teacher at the University of Thiès and a researcher at the Economic and Monetary Research Laboratory (Larem-Ucad), Dr Mamadou Mbaye is a specialist in FinTechs and cryptocurrencies. In this interview, he analyzes the issues related to these financial technologies.

Are these financial technologies changing our relationship to money?

Indeed, they change our relationship with money; they facilitate transactions, make financial products more accessible and contribute to the dematerialization of the monetary system. They offer possibilities for optimizing our relations with money in the broad sense and more generally with the banking system.

In your opinion, what are the main obstacles to the development of FinTechs in Senegal? In other words, what are the prerequisites for an ecosystem favorable to these financial technologies?

FinTech arrived in Senegal in the face of an emerging and dynamic digital ecosystem with a number of favorable variables. For example, a young population increasingly addicted to smartphones, a growing rate of urbanization, a continuous improvement in the penetration of the Internet with optical fiber, a rising rate of entrepreneurial activity, improvement and diversification technical training, popularization of computers and support from the diaspora which increases the purchasing power of the natives and contributes to the transfer of technology in this area. To enable its development, it is necessary to define an incentive and legal regulatory framework to oversee non-banking entities. The industry will need to be standardized with increased oversight of agents and transactions. On the other hand, it will be necessary to facilitate access to financing for start-ups. In a nutshell, a legal, institutional and regulatory, even technical, framework must be put in place to boost the sector.

What are the benefits and risks associated with these financial technologies?

They contribute to financial inclusion. Moreover, the initial clientele was essentially composed of the unbanked and informal population with payment and transfer systems on digital platforms and currency wallets without bank accounts. It contributes to the financialization of the informal economy like ours. It facilitates relations between customers and banks (almost all operations can be done online). For the bank, it facilitates the collection of information on the customer, thereby reducing the asymmetry of information, the risk of default and the costs of customer management. There are two major risks, namely cybercrime and non-transparency regarding the use of personal data collected.

Is the low level of banking in Africa an opportunity or a constraint?

It's more of an opportunity than a constraint because it will allow the emergence of new ideas, and therefore, innovations to facilitate relationships with money. It should be noted, however, that FinTech accompanies the development of the banking system, since most of its underlyings are made up of banking products.

What impact will these digital currencies have on trade and international relations?

The impact is positive because monetary media have been used in international financial transactions for a very long time. Tangible and central money has more local than international use.