by Calvin Ebun-Amu

2007, Kenya’s dominant cellular provider, Safaricom, launched M-Pesa. The service allowed users to send and receive digital payments anywhere in the country as easy as sending a text message.

With M-Pesa, customers store money in their mobile wallet which they use to make deposits, pay for goods and services in brick and mortar stores, and withdraw money from thousands of agents across the nation. The service has grown from strength to strength, with a 27% jump in global users to 25 million.

The Developing Alternative

Research shows that the percentage of people living on less than $1.25 a day who use M-Pesa rose to 72% by 2011 due to unique advantages of digital finance such as short-term Pay Bill Account services that allow fundraising for purposes such as education and disaster relief.

Globally, the market for alternative financial services is on the rise. In Africa, the demand for such services is fed by unique factors such as high theft rates and low rates of financial inclusion.

25 million people use M-Pesa worldwide

Research finds that emerging economies like Nigeria and Ethiopia have the largest potential benefits from the adoption of digital finance, with the opportunity to add 10-12% to their GDP.

Where many African States may have fallen short in infrastructure and human development, digital finance provides an opportunity for rapid, inclusive growth that does not require major investments in additional costly infrastructure.

McKinsey, however, points out that three building blocks are required: “widespread mobile and digital infrastructure, a dynamic business environment for financial services, and digital finance products that meet the needs of individuals and small businesses in ways that are superior to the informal financial tools they use today.”

Banks Riding The Wave

Many African banks have used the change of wind to strengthen their operations and outlook in markets. Access Bank and other Nigerian banks, for example, collaborated to create PayWithCapture, an app solution that enables users to save with friends and transfer money from multiple bank accounts one one platform using phone numbers and email addresses.

Excessive regulations may stifle any progress made in pursuit of the trillions of dollars in GDP and millions of jobs that further engagement with digital finance could create. Like Bitcoin, M-Pesa has been subject to scrutinisation and prospects of more regulatory pressure.

While regulations can reduce risks in the financial realm, the underlying business risks that follow, enforceable restrictions may prove more costly for the rising continent. Costs of $110bn a year in government (leakage) savings cannot be ignored.

Changing The Business Model

The fact remains that traditional banking has its limits. Limits which the digital sphere can help it transcend. While a small business loan may often require much bureaucracy and patience, micro-lending through a digital platform simply requires data on the usage of the phone to determine the eligibility and prospects of a business owner for a loan.

The global village is evolving and so is Africa. This should not be cause for fear but rather cause for intrigue and proactive thought. Traditional business models of banks and other companies across Africa will inevitably be remoulded significantly but as Marius van den Berg, of EY Financial Services Africa states,

“THE BRANCH OF THE FUTURE WOULD BE WHERE [ONE] CAN INTERFACE WITH A PERSON OR OBTAIN FINANCIAL ADVICE.”

The digital age will give rise to new models of thought that spur creativity as one operates “on the edge of chaos”, working towards the organisation of key resources that encourage growth across the African continent. With change comes “chaos” but with chaos unforgettable solutions and new beginnings.

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Op–ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija

Calvin is passionate about the growth of technological innovation and economic development across Africa. He tweets @calvinebunamu1 . This article was first written here