African governments need to work on market integration if the continent is to facilitate the growth of its fintech sector, says Dare Okoudjou, founder and CEO of pan-African payments company MFS Africa.
Speaking to African Business at the Inclusive FinTech Forum in Kigali, Okoudjou says that the “size of markets” is the biggest challenge facing the African fintech sector. With the potential exceptions of Nigeria, Egypt, and South Africa, Okoudjou believes that the economies of individual African countries are too small to accommodate fintech unicorns or other large companies.
“There’s simply not space to have a billion-dollar revenue fintech company in Rwanda,” Okoudjou says. “It’s just not possible. So, it has to be possible for these businesses to be multi-market.
“That means more complexity – complexity from a regulatory point of view, but also complexity in terms of consumer understanding and the local context.”
Passporting provides solutions
Part of the answer to minimising this “complexity” and encouraging cross-border growth could be passporting. This would allow firms licenced in one jurisdiction to operate in another country without having to obtain further licences or regulatory approval, as is the case in the European Union, for example.
“If you get your Payment Services Provider (PSP) licence here in Rwanda, and then want to go to the DRC, you have to repeat the whole thing again,” Okoudjou tells African Business. “When you put that together with the size of the markets, it makes everything very constrained.
“Passporting would be a huge relief for companies that need an operating licence, because you can just stick to one jurisdiction [for licensing]. It would also free up capital – and time – for startups and help Africa have more of a chance to see bigger and better companies on the continent.”
Okoudjou believes that such a move is “much simpler than people think” and could be done quickly and easily with some decisive action on the part of politicians. “I think everybody’s waiting for someone to start,” he says, and suggests that one country acting unilaterally could pave the way for broader market integration.
“Rwanda decided [in 2013] that if you’re coming from an African country, your visa is free. They didn’t need to go and consult all the other African countries and asked how they felt about this. They just did it,” Okoudjou notes.
“Rwanda could decide that they trust companies coming from South Africa or Kenya and that they can just apply for passporting,” he says. “There is obviously a trust factor, but it’s not actually that difficult.”
Market integration essential for growth
Okoudjou also believes that these principles apply more widely – that Africa needs wider economic integration if fintech and other industries are to fulfil their potential. He thinks that this, if such policies are pursued, “in 30 to 50 years, we could be looking at something similar to what we’re seeing in India – probably closer to India than China, but why not China also?”
“There is a real force in demography that is playing in Africa’s favour,” he says. “But if we want to fully use it, we need this market to come together.
“We need to give entrepreneurs across the continent access to a bigger market. We keep talking about this potential market of 1.2bn people. But it is not a reality until we actually make it.”
