Identity, Fintech, and Inclusion in Africa

The following is an example Weekly Principal Column drafted by OWI’s Principals for OWI Members. Join over 30 organizations as OWI Members today and unlock market intelligence, insights and analysis, as well as special events. Learn More


Identity, Fintech, and Inclusion in Africa

Kaelyn Lowmaster, Head of Research

This week, I was fortunate to be invited to moderate a digital identity panel as part of the 2019 Africa Fintech Summit held at the U.S. Institute of Peace. Since identity is a critical enabler of financial development and inclusion initiatives, I’m encouraged that there was a dedicated forum to discuss the unique challenges and opportunities in the various country-level markets on the continent. I’d like to share a few major themes in particular from the event as a whole:

  • Identity as fintech ecosystem infrastructure

I am, admittedly, biased toward the idea that the roots of effective fintech ventures are planted firmly in effective digital identity processes. But what struck me immediately about the conversations throughout the event – on topics spanning regulation, remittances, investment, and more – was that they all explicitly touched on the necessity of reliable identity creation, verification, and authentication. The fintech space is waking up to identity as a fundamental infrastructure component. This is particularly apparent in various African countries where major national-level identity systems, many of which involve advanced biometrics, are in active development. Success of emerging fintech ventures, then, will depend on the degree to which private sector players are able to communicate and partner with national-level authorities to access these data sources in compliant, privacy-preserving ways.

  • The African regulatory rift

Multiple presenters also addressed the unexpected ways in which the continent’s colonial legacy still endures. In this context, it has produced a stark contrast in regulatory approaches between Francophone and Anglophone Africa. In the simplest terms, Francophone Africa tends toward a “positive list” approach – unless a particular process or technology is explicitly “legal,” it’s presumed to be illegal. The opposite, Common Law approach is more likely to be true for Anglophone Africa – unless explicitly marked “illegal,” entrepreneurs tend to assume a green light. That rift has led to divergent outcomes for fintech innovation in each region. With more room for experimentation, the digital financial services sector in Nigeria, for example, has expanded significantly in recent years. Striking that regulatory balance – constructing robust enough legal frameworks to deter fraud and misuse without stifling innovation – is a theme that transcends regional markets.

  • Let’s hope the best solution doesn’t exist yet

We know that technological development tends to outpace regulation. Unfortunately, that also means that our regulators tend to put rules in place to govern yesterday’s technology. In the quickly evolving identity and fintech worlds, that can be an impediment to the development of even better solutions.

“We don’t know what the best blockchain will be or what the next biometric will be,” said ChangeinEx CEO Stephen Hollingshead. Instead, regulators should prioritize flexible legal frameworks that focus on curbing bad behavior, without trying to pin down the minutiae of particular tech tools. The more tech-agnostic a regulation, the better, he argued. “Don’t let the perfect be the enemy of the good.”

Again, the lesson holds for U.S. markets as well. We’ve seen numerous legislative moves to either encourage or rein in particular aspects blockchain development, for example, while we still struggle to legally define privacy and consent.

We should always hope that the best technology doesn’t exist yet, and build our platforms and regulations to capitalize on innovation as it emerges.

OWI Recommendations 

There are some real opportunities here to integrate new digital identity solutions in markets on the continent. M-Pesa’s success in Kenya is a great case study on the power of identity innovation to fuel financial inclusion, but that success so far hasn’t been replicated in other countries throughout the region. With high mobile penetration rates, early-stage national-level identity programs, and real political will to address inclusion, though, it’s a thriving fintech frontier worth exploring.