This is an excerpt from The Future of Fintech in Africa 2023 report.
Since the Covid-19 pandemic, there has been an increase in AI-related startups and national AI advancements in Africa. The continent as a whole faces issues with large geographic swathes and population segments which remain undigitised, resulting in a huge
unbanked population. However, there are innovations in progress to tackle social, financial, and economic challenges facing African nations.
AI Media Group South Africa determined in a 2022 report that 2,400 companies were listed as AI-focused, and 40% were founded in the last five years. This marks the rapid development of AI within the continent.
South Africa, Nigeria, Egypt, Kenya, Morocco, and Ghana is where AI development in the continent has been developed to the largest extent, as the tech sector is not a national priority in countries where there is no method for data collection or data privacy
and to equip AI technologies with infrastructure and governance. The graph below demonstrates that South Africa is leading in AI-focused companies in Africa. There is also a large disparity between AI startups in different nations, as seen by 726 companies
in South Africa which specialise in AI, with the rest of the countries with less than 500 companies that are AI-focused.
AI development could increase bias and discrimination
There is concern that the development of AI technologies could exacerbate bias and further oppression of women, minority ethnic groups, and other communities vulnerable to exclusion due to the lack of diversity in the field.
Input data is also vulnerable to bias in countries that are informed by ethnic tensions and politics, such as Ethiopia and Kenya, according to the Atlantic Council. Africa holds the world’s least digitised regions, especially in conflictprone countries such
as South Sudan, Somalia, and the Democratic Republic of the Congo. AI is slowly being implemented on the battlefield, however, to evolve military technology and surveillance.
A report released by the International Centre for AI (IRCAI) on AI in subSaharan Africa found that 58% of participants of the AI community stated that diversity is an issue in their country or organisation. Specifically, gender diversity is a problem, as
the research revealed that within AI development students are 77% male and 23% female, and staff is 71% male and 29% female. There is a digital gender divide in Africa, and the implementation of AI technologies could lead to a regression in gender inequality
if proper methods of inclusion and development infrastructure are not completed.
A spokesperson from the Data Scientists Network (DSN) states: “There are potential risks associated with the use of AI in fintech. For instance, there is a risk of biased decision-making if AI algorithms are not designed to be fair and transparent. Additionally,
there is a risk of data breaches or cyber-attacks if AI systems are not properly secured.”
The racial, ethnic, and gender bias in AI has been an issue all over the world, and it is essential to generate AI platforms keeping in mind to create as inclusive an environment as possible to avoid skewing the data.
African national governments are forging ahead with AI strategies
The private sector has been the main driver of artificial intelligence development in Africa, though various national governments in Africa are beginning to gain interest in AI strategies. Positive AI is being implemented in Nigeria and Kenya, where startups
are focusing AI technologies on agricultural planning and education platforms.
According to Rajesh Savji Parmar, co-founder and CEO of Cloud Africa Ltd and founder of Indelible Inc. Ltd: “Governance frameworks and regulations are struggling to keep pace with the rapid advancements in AI technology. While some countries and regions
have established guidelines and legal frameworks for the ethical and responsible use of AI, there is still a lack of global consensus on this matter. In the private sector, companies have a responsibility to selfregulate and ensure that their AI applications
are aligned with their values and business objectives.”
There have been advancements in digital identities and biometrics in Africa, with Namibia’s leading telecoms and internet company MTC launching AI digital ID verification systems to secure personal customer data and create more accessibility for their services.
An unethical example of digital identity use is demonstrated in the case of Net1, which took advantage of digital identities being used for about 18 million South Africans in vulnerable communities that receive social grants from the South African Social Security
Agency. To facilitate digital identity use, SASSA called for the services of the Cash Paymaster Services (CPS) which worked with Net1 to distribute the grants. However, Net1 took advantage of the social security information and created false financial offers
to the victims, allowing them to deduct loan repayments and taking large amounts of their social grant funds.
A spokesperson from DSN remarks that governments need to work alongside the private sector to ensure responsible use of AI in fintech. To bolster positive AI application and restrict negative AI use, national governments need to keep in step with the progress
being made in AI developments and match regulation to national needs.
E-commerce in Africa is being boosted by AI initiatives
There are a number of AI-focused fintechs in Africa that are worked to enhance services in different sectors. Africa could increase its GDP by $1.5 trillion by 2030 through AI, analysts indicate.
The diagram below exhibits the variety of AI startups being adopted in Africa and in which regions there is significant AI growth. As seen in the visual, there are many areas in Central and Sub-Saharan Africa that have little to no AI development.
E-commerce in the region is boosted by the formation of AI initiatives such as the Tunisian national AI association, L’Association Tunisienne pour L’Intelligence Arti ficielle. Through the association, a Tunisian startup, Instadeep, secured a series B investment
of $100 million, the largest funding round of any African startup.
Paul Whelpton, chief analytics officer at Jumo, remarks on the growth of AI in Africa: “AI is gaining traction in many fintechs across the African region. With vast amounts of data (especially payments data) flowing through e-wallet providers, e-commerce
players and telcos, AI is being leveraged to place individualised financial products like insurance, buy now pay later, and real time digital lending at a large scale.
“A combination of digital only customer interactions and very large consumer bases allows fintechs in Africa to create and train algorithms faster than peers in more developed regions, especially when it comes to banking and payments. We estimate that by
the end of 2023 more than 1 billion individual credit advances would have been made in as little as 8 years. This is a phenomenal training set that will enable fintechs to fine tune their product offerings as they move up the value chain, providing higher
value offerings to individuals and businesses.”
Derek Matin, technology chief of staff at Yoco, explains that their contribution to e-commerce in the African market falls into two categories: core technology offering which consists of intellectual property and forms the heart of the product, and their
network of software services on the cloud.
He continues that the implementation of AI in both of these categories varies, as for core technology they develop and train models to inform business decisions, but to develop their cloud services, Yoco buys commodity services and applies AI models to enhance
their operation. “For example, the cloud service we use for people management might have a recruitment model that has implemented AI models to assist in candidate sourcing and we benefit from that but don’t drive or build the model.”
AI is being used for machine learning algorithms, customer behaviour analysis, demographics, and data to create more personalised experiences for consumers. African fintechs are also using AI tools for cybersecurity and fraud prevention. DSN lists a couple
examples: “Jumia, an e-commerce platform that leverages AI-powered tools to improve customer experience, uses AI to personalise recommendations for customers, improve search functionalit y, and optimise logistics and supply chain management. It also has a
payment system called JumiaPay.
“Another example is Paystack, a Nigerian-based online payment gateway that offers businesses the ability to collect payments from customers on their websites or mobile apps. Paystack uses AI-powered fraud detection and prevention tools to protect against
fraudulent transactions and ensure the security of users' financial data.”
Nigeria plays a prominent role in AI fintech products, with numerous Nigerian banks using chatbots such as Zenith Bank, Fidelity Bank, First City Monument Bank, UBA Group, Access Bank, Heritage Bank, and Keystone Bank.
“Chatbots are powered by AI and Natural Language Processing (NLP) technologies that enable them to interpret and respond to customers' queries in real-time. By leveraging AI, these chatbots provide customers with a faster and more convenient way to access
banking services, such as checking account balances, making payments, and initiating transactions, without the need to visit a physical bank branch,” states a spokesperson from DSN.
They continue to add how AI technology holds the potential to drive financial inclusion, increase efficiency, and improve consumer experience in the Nigerian fintech industry. In order for AI in Nigeria to continue to develop and streamline services, AI
companies and regulators must cooperate to develop ethical, responsible, and sustainable technologies.
However, challenges facing the African e-commerce industry include the availability of data due to less digitised areas and limited methods of data collection, and a shortage of talent in the data science field.
AI regulation is required to keep up with innovation
The first countries in Africa to establish national AI strategy frameworks were Egypt, Mauritius, and Rwanda. However, in many nations foreign technologies are being brought in that are not compatible with national needs.
Vumacam, a South Africa-based company used Danish AI technology in their surveillance cameras, which often misread African faces and lead to unfair treatment. During the Ugandan elections in 2020 Huawei AI technology was used to recognise supporters of an
opposition leader to target for arrest. In January 2022, Amazon Web Services faced backlash for constructing a data storage centre on indigenous land in South Africa, furthering the already entrenched neo-colonial and exploitative history of the indigenous
population in the country.
However, select foreign companies are also delivering in growth and education within the fintech industry in Africa. Gillian Darko, general manager of in-market operations for JUMO outlines the positive influence of outside investment: “In Ghana, Google
opened a new office in Accra (2022) after more than three years since the company established its presence with the first AI research lab in Ghana. The office will support the exciting growth of the company’s AI research team and other developers in the country.”
China has been driving AI technologies in the continent with 40 of 54 African countries signing the Belt and Road Initiative agreement to bring smart city infrastructure to cities as of 2021. The initiative could stimulate growth in the countries, but there
are also concerns on surveillance and China’s influence.
Darko adds: “Africa also wants to educate its youth. Meta launched free training via WhatsApp for entrepreneurs (WhatsApp Business Coach) in the francophone region of Africa. The 2022 State of AI in Africa report showcased that in the last 5 years, many
companies across Africa have invested in AI. I truly believe the continent is in a period of rapid transformation.”
In conclusion, there are many obstacles facing Africa’s AI sector at present. With national tensions, political uncertainty, and a global economic crisis, there is still much to be done in terms of digitisation, data quality, and inclusion in Africa. However,
there has been noteworthy success in the rise of startups and fintechs in countries such as Nigeria, Ghana, South Africa, and Egypt. To feed into the growth, national governments must take a more hands-on role in AI regulation to keep up with AI innovation
and national priorities need to be met before allowing foreign influence.