How AI Can Boost Financial Inclusion In Africa

 The dynamism of businesses and other socio-economic activities is steadily gaining momentum.

Hence, it is difficult to imagine a time before the widespread adoption of mobile technology in Africa – par­ticularly where financial services are concerned, according to Lillian Bar­nard, president of Microsoft Africa.

For millions of unbanked people, transactions were limited to cash, postal services or even the barter system.

Now, in much the same way as mo­bile payments completely disrupted the status quo, AI has the potential to propel the fintech industry into a new era of financial inclusion.

And perhaps most exciting of all is that Africa is not simply catching up with AI-powered developments, but surging ahead with innovative solutions that have considerable im­plications for the underbanked.

Already, homegrown fintech com­panies have completely changed the way people in Africa transact, help­ing to reduce reliance on cash trans­actions.

Innovative payment solutions have revolutionised access to essen­tial services, such that millions of people can now afford everyday ne­cessities like airtime.

In fact, research from McKinsey has shown that these items are now available to lower-income households at up to 80 percent less of the cost as­sociated with traditional banking players.

And when one considers that half of Africa’s population is still unbanked or underbanked, we can begin to appreciate just how dramatic an impact the fintech sector has had on the very nature of financial ser­vices in Africa.

According to a PwC report, AI plays a strong potential in the wider global economy, whose contributions by 2030 could be as high as at least $15 billion.

Therefore, FinTechs in Africa are leveraging Artificial Intelligence (AI) technologies to excel across the digi­tal banking, digital payments, person­al finance, and investment sectors.

For instance, a Nigerian-based online payment gateway that of­fers businesses the ability to collect payments from customers on their websites or mobile apps, Paystack uses AI-powered fraud detection and prevention tools to protect against fraudulent transactions and leisure the security of users’ financial data.

Notably, Nigeria plays a promi­nent role in AI Fintech products, with numerous Nigerian banks using AI chatbots such as Zenith Bank, Fidel­ity Bank, First City Monument Bank (FCMB), UBA Group, Access Bank and Keystone Bank.

These chatbots are powered by AI and Natural Language Processing (NLP) technologies that enable them to interpret and respond to custom­ers’ queries in real time.

By leveraging AI, these chatbots provide customers with a faster and more convenient way to access banking services, such as checking account balances, making payments, and initiating transactions without the need to visit a physical bank branch.

The net result in Kenya, for ex­ample, is that the adoption of digital payment solutions helped increase financial inclusion by as much as 25% in just 15 years.

More recently, cloud technology has created a whole new realm of pos­sibilities for fintech companies look­ing to accelerate financial inclusion, helping them scale their operations, create operational efficiencies and spin up new innovations overnight.

African payment giant Flutter­wave is a case in point, having recent­ly shifted its legacy infrastructure to Microsoft Azure with a view to ex­panding its operations and process­ing high volume payments at scale.

As one of the continent’s safest and most reliable payment compa­nies, Flutterwave has been at the fore­front of Africa’s payment revolution.

Its multiple payment modes, in­cluding local and international cards, mobile wallets and bank transfers, continue to change the game for many African people and businesses on a daily basis.

Now, building on the progress en­abled by the cloud, the world is un­dergoing a new wave of technological transformation, driven by AI. Sud­denly, businesses don’t need vast data­sets or powerful computers to benefit from the technology, with most of the necessary compute power now avail­able through cloud providers.

And, as the barriers to AI adoption have fallen away, so new tools are giv­ing rise to substantive productivity gains and revolutionising industries such as fintech.

While AI is providing champions of financial inclusion like Flutter­wave with the tools they need to ex­pand their reach, it’s also helping to fast-track access to financial services in a vast number of different ways.

Traditionally, cost has been a sig­nificant barrier for local SMEs when it comes to the adoption of digital fi­nancial services.

In fact, it’s estimated that around 90% of transactions in Africa are still cash-based, and this is often because cash transactions don’t carry any fees.

However, the ability for AI to lower the cost of the entire ecosystem of financial services – from fraud detec­tion to risk management optimisa­tion and compliance improvements, can lead to substantial operational efficiencies and cost savings, which can ultimately be passed on to the end-user.

Banks, for example, can make their services more affordable to their customers by rolling out AI-powered chatbots to handle routine queries, at the same time sparing them from having to travel to a bank branch.

Already, fintech companies are helping their customers to improve their financial literacy by using these same chatbots as affordable advisors.

Drawing on the power of AI, these bots can produce personalised recommendations such as budgeting strategies so that the user can make a more informed financial decision.

Mosabi, a company, in Sierra Le­one has even gamified the process to help customers elevate their financial behaviours.

What’s more, AI tools can analyse data from client discussions, produc­ing legal documents in simple lan­guage and at a fraction of the cost of what it would typically take to draft a contract, extending access to these services in terms of both understand­ing and affordability.

Perhaps most important of all, many fintech companies have access to vast amounts of data, meaning that when AI is introduced to the equa­tion, they have formidable ability to offer real-time digital lending on a major scale.

M-KOPA, for example, leverages Microsoft’s AI services to manage lending risk and provide financial forecasting.

The company provides digital financial services to underbanked consumers by combining digital micropayments and IoT technology, drawing on cloud technology to pro­cess over 500 payments per minute, and making it possible for 3-million people across Africa to access essen­tial services such as solar power sys­tems, digital loans, health insurance and smartphones.

The use of AI has helped M-KOPA achieve significant increases in cus­tomer repayment performance – par­ticularly for the follow-on products and services that M-KOPA offers to customers once they have successful­ly repaid their initial loan.

In fact, more than 440 000 addi­tional credit lines have been made to customers following payment of their first product.

With the digital payments market maturing quickly in Africa and AI rapidly gaining traction among fin­techs on the continent, the implica­tions for accelerated financial inclu­sion are significant.

The question is: how do we ensure fintechs are able to fully realise the AI opportunity?

Much of the answer lies with ca­pacity building, from infrastructure to connectivity, skills and essential digital tools.

With improved internet access, fintechs have the potential to access more data, and with larger volumes of data available, they can provide more innovative services.

It’s for that exact reason that Microsoft continues to make sig­nificant investments to bolster the continent’s digital capacity – from new connectivity solutions through our Airband Initiative to essential cloud infrastructure through our enterprise-grade datacentres in the region. Through key partnerships, such as our collaboration with Safa­ricom, we’re upskilling hundreds of thousands of developers to build new entirely new digital ecosystems.

Regulation is another hurdle that must be overcome to acceler­ate AI-powered payments in Africa. Though more African countries are expected to introduce regulations to guide AI development and deploy­ment, relatively few have strategies and policies in place at a national level.

In fact, many FSI organisations in Africa view the risk of new safety and regulatory requirements as one of the biggest stumbling blocks to wider implementation of the tech­nology, hindering greater progress in financial inclusion.

Finding new ways of collaborat­ing across industry and government is critical to the advancement of AI in financial services. To this end, Microsoft continues to engage with the African Union and national gov­ernments in priority markets to help strengthen our collective role as re­sponsible stewards of AI.