How African fintech firms can navigate tightening regulations

Fintech firms across Africa are seeking solutions to survive in a growing regulatory environment as policies are put in place to safeguard consumers within the booming digital payments sector.

On Tuesday in Casablanca, Morrocco, the Africa Financial Summit (AFIS) addressed this challenge by hosting a panel discussion titled "Innovating under pressure: The future of African fintech payments."

One panelist, David Akinin, founder and CEO of JABU, a fintech firm operating out of Zambia, said the country presents unique challenges due to stringent data localization requirements.

"Zambia specifically requires that we have everything in a local server, like all the personal data that we're collecting, and all these things get inputted into a local server. As a fintech [company], you're using international data cloud providers, [and] you're trying to manage your systems in a way that you're not depending on data servers locally; I mean, we have electricity problems in Zambia," he said.  

"It’s become a bit of an issue for us because it means we have to store our data locally and then replicate it and send it internationally to one of our international data servers," Akinin added. 

David Akinin, founder and CEO of JABU, speaking at AFIS 2024 in Casablanca, Morocco. (Source: Eden Harris)

These regulations will only get stronger with the African digital payments sector forecast to reach US$195.5 billion at the end of 2024 and exhibit a compound annual growth rate (CAGR) of 12.65% between 2024 and 2028, reaching US$314.8 billion by 2028, according to data from Statista.

Related:Four blockchain startups shaping Africa's financial future

Solutions from the Central Bank of Uganda deputy governor

Michael Atingi-Ego, the deputy governor of the Central Bank of Uganda, sympathized with fintech leaders, calling them the "new kids on the block" during his remarks on the Africa fintech panel.

He told Connecting Africa he wants regulations that support the development of fintech firms across Africa.

"It doesn't have to be so intrusive, but it should be flexible enough to allow them to grow because these guys are trying out new products in a very uncertain market. You don't know whether they're going to succeed or not," he said.

"So, you don't have to impose stringent regulations on them; they need better regulations, regulations that are commensurate with the risks that they are going to face, while not discouraging the innovation that they are putting in place," Atingi-Ego added.

Statista forecasts that the African digital payments sector will grow from US$195.5 billion in 2024 to US$314.8 billion by 2028. (Source: Image by vectorpocket on Freepik)

More stringent regulations are coming into force in regions like East and Southern Africa.

For example, Kenya has implemented the Data Protection Act of 2019 to provide explicit guidelines for fintech companies regarding the collection, processing and storage of personal data.

Related:Four strategies from North Africa to drive tech investment in SSA

Atingi-Ego, who is also the former deputy director of the African Department at the International Monetary Fund in Washington, D.C., also highlighted the critical role that data plays in driving fintech innovation, raising a key question.

"Some of these fintechs even need data to help them come up with their products, so how do you support them with that data? Because if you're going to come with a product, that product has got to be informed by data. How can you share that data with them in a manner that does not compromise consumer data protection?" he asked.

He also underscored the need to incentivize innovation within the fintech sector with a controlled setting.

"Innovation should be rewarded, and one of the rewards should be less stringent regulation. You can undertake that through a regulatory sandbox. When they come with a business idea that [says] 'I want to come up with these products', put them into a regulatory sandbox, test their products, under a controlled environment, let them try it out with a few clients," Atingi-Ego said.

Solutions from an Africa-based fintech CEO

Interoperability, the exchange and the use of information is a solution Akinin's company offers for payments across Africa.

He emphasized the importance of interoperability and working to drive easier movement of money across Africa.

"We can't win without cross-border payments and making Africa one place and having free trade if we cannot even make free trade inside the country [possible], if we cannot make systems interoperable. I think the solution is really to create interoperability and accountability," he told Connecting Africa.

Before operating out of Zambia, Akinin was in Namibia, but he said that regulatory environment was untested, slowing him down from starting his business. 

"Namibia's regulatory environment was a lot younger and unexplored. It's been a [much] longer process to actually launch our product and get it on the ground…but Zambia, for that matter, became our operational headquarters. Zambia is incredibly enabling, and the ecosystem is very vibrant, which has allowed us to launch and be revenue generating and actually profitable at this point," he told Connecting Africa.

Akinin emphasized the importance of uniform regulations across the continent.

"We need to make the regulatory environment be aligned throughout so that [nationally] we wouldn't have to decide where to be operational," he concluded.