In recent years, Africa has experienced a digital revolution that has transformed its financial landscape. The proliferation of mobile phones, improved internet connectivity, and innovative fintech solutions have enabled the adoption of digital financial services empowering millions of Africans to access financial services and participate in the formal economy. However, with this digital revolution comes the need for robust transparency and compliance measures to ensure the sustainable growth of the sector.
The potential impact of data collection and aggregation in the digital financial ecosystem by regulators and governments, as emphasized in our recently published whitepaper titled ‘Data-Driven Transparency and Compliance in the Digital Financial Ecosystem in Africa,’ are profound. However, for any data backed mechanisms to achieve their full potential, strides need to be made in data protection and sovereignty.
Sub-Saharan Africa leads the world in Mobile Money use with data from GSMA’s State of the Industry Report on Mobile Money 2023 showing that the region has 218 million active accounts. This is roughly half of the global total, which stands at 401 million. Further, when one looks at the number of transactions made via mobile money platforms, Africa has seen growth of 600% in the last five years.
The next step needed to cement this growth and ensure it has a significant impact on financial inclusion numbers in the region is to enhance the application of data technologies in the sector by regulators. Data is a valuable asset in any financial ecosystem. It has the potential to empower consumers, policymakers, and financial service providers alike by fostering transparency and informed decision-making. By harnessing the power of data, regulators can effectively monitor the activities of financial institutions and detect irregularities, safeguarding against fraudulent schemes and ensuring fair business practices.
Countries like Rwanda and Tanzania have seen success through the implementation of systems that actively collect data on transactions made within the ecosystem in real-time and furnish the regulators with actionable data. This has helped them to improve their oversight of the sector.
Improving compliance by players in the digital financial ecosystem will also go a long way in helping Africa unlock its future. Traditional compliance mechanisms can be cumbersome and time-consuming, posing challenges for startups and smaller players. However, data-driven compliance offers a streamlined approach that is not only efficient but also cost-effective.
Through data analytics, compliance processes can be automated, reducing the burden on financial institutions while improving accuracy and effectiveness. This not only facilitates smoother operations for service providers but also ensures a safer and more secure environment for consumers.
One of the most significant advantages of data-driven transparency and compliance is its potential to advance financial inclusion across Africa. In 2018, Ghana launched the Mobile Money Interoperability (MMI) system. This platform was one the first of its kind in Africa, allowing users to transfer funds across different mobile money platforms seamlessly. The Ghana Interbank Payment and Settlement Systems (GhIPSS) reported that by 2022, the MMI system facilitated over $780 million in cross-network transactions accelerating Ghana’s journey towards a cash-lite economy.
Understanding the risks associated with such a novel system, the Bank of Ghana, in conjunction with GhIPSS, adopted advanced data-analytics tools for overseeing the MMI’s operations. This initiative provided regulators with real-time insights into transaction patterns, enabling timely identification of anomalous activities or potential breaches. Their proactive, data-centric approach ensured that users could rely on MMI for secure, efficient transactions, further cementing its position in Ghana’s financial ecosystem.
While the promise of data-driven transparency and compliance in Africa’s digital financial ecosystem is immense, several challenges need to be addressed to maximize its impact. This includes issues like data privacy and security concerns, digital literacy, and the need for regulatory collaboration across borders.
As of today, only 36 out of 54 African countries have put in place some data protection laws or regulations, according to Recent Developments in African Data Protection Laws, from Hogan Lovells. To promote the emergence of an African data ecosystem, realize its full potential, and open the door for development and innovation, a strong and comprehensive regulatory framework must be established.
We also note that in many African countries, the regulatory framework is outpacing infrastructure development to a large extent. The current data protection and sovereignty requirements would necessitate the construction of many more data centers throughout the continent with an emphasis on connectivity, collaboration, redundancy, cross-border data transfer rules and continental agreement.
By embracing data analytics, African countries can leapfrog into a new era of financial services, where innovation thrives, and consumers’ needs are met responsibly. However, collaboration among all stakeholders remains crucial to address challenges and create an enabling environment for data-driven financial solutions to flourish.
As Africa paves the way towards a more transparent, inclusive, and compliant digital financial ecosystem, the continent stands at the precipice of unlocking its true economic potential. It is incumbent upon us all to seize this opportunity and work towards a brighter, more prosperous future for Africa and its people.
Edouard Docteur, Chief Delivery Officer at Global Voice Group (GVG) delves into the burgeoning digital revolution within Africa. He also delves into some of the insights from their recently launched whitepaper which explores Data-Driven Transparency and Compliance in the Digital Financial Ecosystem in Africa.