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Will China-Africa partnership take the central stage in the 2020 fintech scene

In 2019 the fintechs finally managed to become the talk of the town. They expanded their reach, improved the lives of millions and finally this year they got the recognition for what they’ve done and what they can still do. One of the main topics of the conversation this year was the tension between fintech and banks, but more so than that it's the confrontation between the decentralized payment methods and highly regulated traditional transactions. At this point, it’s safe to say that everyone is theoretically on board with fintechs collaborating with the banks to create better services but that still seems to be in the realm of daydreaming. But what is actually happening now and what could in the following year define the character of the fintech scene is the very special relationship between China and Africa. Fintechs have been around for over a decade, but this year they took off to an unseen speed. Their reach across the world has been growing and the trust from the customers has been growing proportionally to that as well. All the major countries that have ambitions to be the leaders in their respective regions have already caught up to the importance of fintechs for their advancement and for maintaining the advantage over those who don't have high adoption rates of fintechs. The multiple benefits of fintechs have also been noticed by China, who is always trying to prove itself and to make it known that its ambitions for worldwide leadership has a legitimate basis. One of the ways China has been trying to do that has been through getting the technological advantage over its main competitor - the U.S. The never-ending and expansive trade war between the two might have been what jump started China’s proactive approach but the same intentions have been there since way before the trade war. The Huawei scandal just added fuel to the fire and now, at the end of 2019, we see that China has been strengthening its presence in Africa, a continent that has become a leader in fintech innovations and where a big chunk of venture capitals keep pouring in, with a large amount of the money coming from China specifically. 

And just like anything else when it comes to China’s foreign policy, this partnership is not a coincidence either. China is pursuing this partnership with caution and is slowly becoming more and more involved in African fintech startups and funds their development. While China itself has no shortage of fintechs and has been now actively promoting blockchain technologies, it still sees the unexplored potential and market of the African communities and wants to get involved before it becomes more obvious to the rest of the countries who want to become leaders in the fintech industry as well. At this point, China has invested billions in Africa and considering the fact that China plans on staying on this path of fintech development, it is likely that this partnership will also continue to develop. 

Why Africa became the most sought after fintech-partner

There has been a lot of discussions around what pushed the fintech revolution in African countries and why they seem to have higher adoption rates compared to some more developed western countries. Africa has a surprising amount of high-performing fintechs and they are way more mainstream in some African countries than in China or even some European countries.  While the rest of the world contemplates whether or not to trust fintechs and ditch their banks, for a lot of people in Africa, the choice is between no financial services at all or fintechs. This demand for the technologies has been the driving force behind the success of fintechs in Africa and the importance of these services has contributed to more people dedicating their time and energy to make the transactions smoother, offering even more services and to closing the gap between the regular banks and fintech services. At this point, you can basically access any sort of financial service in Africa be that loans, frictionless transactions or any other mainstream transaction. It has become a part of everyday lives of Africans and since this has been going on for years now the fintech industry is actually more developed and has already matured to a point where the developers know their markets and know what people would benefit from the most. 

This is why so many venture capitals from all across the world are trying to become a part of these fintechs and to contribute to their advancements. The African fintech scene is quite unique compared to even southeast Asia where similar problems prompted the fintech boost but where access to traditional financial services is more accessible.

But when we talk about the “wonders'' of the African fintech scene, it also needs to be mentioned that security concerns or the regulations are less of a concern in most African countries compared to the rest of the technologically advanced countries. While the leaders in the region like Kenya and Nigeria are now on their journey to improving the infrastructure and the performance of their regulatory bodies the rest of the African countries still prioritize the services above the security and insurance of the fintechs. This is part of the reason why fintechs manage to thrive so effortlessly there compared to a myriad of challenges that fintechs in the rest of the world face on a day to day basis and what largely stops them from developing and evolving. The African community should be looked up upon by those who want to prioritize fintech industry in their countries and China has been doing just that. It wants to become a part of the African fintech scene and to be able to benefit from these services as well. Despite the fact that China’s approach to fintech is the polar opposite of what we’ve seen in Africa. Meanwhile, China, as it has done so in the past, wants to learn and to change what they’ve learned to fit their standards and regulations. African startup scene continues to thrive, while the rest of the world including China is looking at what they can take away from the massive success of fintechs in the region.

China’s need for leadership

China doesn’t necessarily seem like a place where fintech and blockchain would thrive. Even the general concept of decentralized currencies or transactions not regulated by the national bodies seems out of character for the country. But seeing the potential of these technologies has launched China into a completely different mindset. It has now made its official goal to prioritize technology and to use it to its fullest potential. It has also taken upon itself to filter all the negative feedback regarding this decision and now silences almost everyone tries to delegitimize blockchain technology or cryptocurrencies in general.

If you’ve been keeping up with China for the last few years, the fact that they are now promoting blockchain will surely seem odd considering their attitude towards cryptocurrencies but all of that seems to be changing in the name of progress and gaining an edge over other important players who also want to be among the leaders in the field of technology. 

China’s partnership with Africa is not at all surprising and is actually a very smart move on China’s part. Despite being tech-partners, China knows that it can supply Africa with what the continent needs the most which are investments. Africa has the fastest-growing population in the world but has no financial security to accommodate this growth.  The partnership between the two has a long history but the one that hasn’t always centered around finance, or fintech. But this year saw the massive change in China’s strategy towards investing in Africa. We saw Chinese-owner Opera raise $50 million to supports its West African digital commercial network. This year we also witness a new partnership between Alibaba’s Alipay and Flutterwave, which is a Lagos based startup. The collaborations allowed customers to use digital payment methods when paying between Africa and China. In November of this year, we saw a record of $240 million pouring in Africa from Chinese investors, part of which was Opera-Owned OPay which raised $120 million. Opera is the second most popular browser in Africa, it made sense for the company to build off of that and to venture into financial technologies. Since we saw such a huge rise in the fintech investment this year, it’s very likely that the partnership will continue to thrive under these terms and we will likely see more collaboration between Chinese investors and African fintech startups in 2020. Since the following year was painted as a start of China’s journey to maximizing fintech adoption rates and technological innovations it’s only safe to assume that China will continue to cultivate this relationship and proceed to learn from the African fintech scene as much as possible. The rest of the world is also catching up to the benefits of investing in African fintechs so China might have to deal with more competitions in the following year

Why this partnership is so important

At a glance it might seem like this partnership could only matter to Africa and China but the reality is that this is one of the most impactful relationships and partnerships currently happening in the world.

The importance of fintech while more apparent in Africa has slowly transitioned into the rest of the world. The U.S and Europe are working hard to perfect the current fintech scene and to come up with a regulatory solution that would allow fintechs to do their best while also providing the users with security that comes with the traditional banking. All these conversations about fintechs taking over banks might seem unrealistic but more the user base of fintechs grow the less likely are the banks to get them back or to entice them with their pricey services. Fintechs have transformed the way we think about financial services, it has opened a whole new market for these services as well, with people who were continuously denied such offers because of a lack of documents or other similar reasons. Fintech has the loyalty of the customers that very few banks can relate to and on top of that, the technology behind these fintechs is what gives these countries that produce these technologies an advantage. This is part of the reason why so many nations are after the African startups because we will likely be seeing the same adoption rates as the African countries soon enough. People have long been bothered by the inefficiency of banks, the long procedures, and high fees. Even though fintechs are new to the majority of the population and some security concerns are still valid, it is likely that their customer base will continue to rise and hence the ones that already have the infrastructure down and know which industries benefit the most from having these fintechs will benefit the most from the technology. China’s need for leadership hasn’t been a secret. It wants to prove itself and claims its leadership position since the rest of the world seems to challenge that frequently. 

Fintechs are the future of finance and with the practical aspect of this, China wants to secure its position as a developed country in the future as well. Dealing with fintechs might seem like out of its nature, but China knows just how to adapt technologies without compromising its morals. It was announced last year that China would be launching a government-issued cryptocurrency which to some people sounds like an oxymoron but China it’s a way to maintain the grip while trying to harvest the benefits of the technology, which should be too hard, considering it has one of the highest percentage of people who use fintechs

Partnership between China and Africa works because both parties are putting in what the other lacks or wants to pursue. Africa has a need for investments, China has the need for technological innovation boost. This partnership will likely define a big part of the fintech industry in the years to come and will also shape the dynamics between international partners across the board. 

This partnership and its success has the potential to help move Africa along on its development journey, while China focuses on fintech and learned from the years of experience that Africa has at this point how to manage it, while also maintaining its grip on the continent by being one of the top investors, at least in this sector. 

This partnership is mutually beneficial and will likely continue to be the way fro the years to come. China’s ambitious goals to dominate the technological innovation industry is brave but not totally out of reach. Especially with the blend of its resources, with the experience and tested practices from African countries, meanwhile strengthening its presence there seems like a legitimate plan that will help China achieve its dream of being the leader in not only in the region but across the world when it comes to technological innovations. This partnership between the two important regions will likely define the overall trends in this industry and since both of them seem determined to improve upon their current conditions through the help of the other this relationship will likely stay stable throughout the following year.

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Comments: (1)

Maosen Cai
Maosen Cai - WeBank - Shenzhen 01 January, 2020, 05:39Be the first to give this comment the thumbs up 0 likes

Alternative view from a Chinese fintech practitioner: the fintech space and broader internet players in China are driven by private sectors rather than state-owned companies. Yes, we do see in rapid increase of Chinese fintech players going overseas, spanning from Southeast Asia to India and most recently Africa. But I think this is due to two reasons: First, China is tightening regulations over fintech industry with more emphasis over financial stability and data privacy, thus causing those smaller players previously arbitraging loose industry regulation now looking overseas to sustain their growth. Second, Chinese VC/PE investors are also expanding globally, and with the successful experience of fintech sector, they also see overseas fintech sector as one of the priority targets.    For those state-backed companies, they are still focusing on infrastructure development, resource and energy sector, etc. but clearly fintech or innovation in Internet space is not their strength. So China expansion in fintech is just one natural reflections of how capital and companies pursue greater opportunities globally, same as the US.