Security and Trust in Africa’s Digital Financial Inclusion Landscape

Introduction

To promote financial inclusion, innovators and policymakers across Africa have encouraged the adoption of financial technologies like mobile banking and mobile money, as well as more emergent technologies such as artificial intelligence and distributed ledgers. This is especially the case in sub-Saharan Africa, where there are an estimated 400 million financially unserved or underserved people. Digital finance is characterized as a catalyst for poverty reduction, as it provides low-income households with access to affordable and convenient tools to support their economic activities. Kenya’s M-PESA mobile money system, for example, is famously purported to have lifted households out of poverty.¹ Such tools can facilitate digital payments from governments or businesses to people and vice versa—providing quicker transmission of pensions or welfare, for instance. And these payments are generally considered more efficient and less vulnerable to fraud or theft than cash payments and can help consumers establish a financial history that enables access to loans and other financial services.²

Digital financial inclusion is thus a priority across Africa, as evidenced by the uptake of digital technologies in most African markets. According to the Global Findex Database, Africa leads the world in mobile money adoption, the primary driver of digital financial inclusion.³ Additionally, mobile money accounts have enabled users to save formally, borrow money, make or receive digital payments, receive remittances, and even raise emergency funds. The potential of digital financial services has spurred innovations in the sector of financial technology (fintech), thus creating options for businesses looking to reach new markets or more effectively serve their customers. Between 2020 and 2021, over 2,000 of the estimated 5,200 tech start-ups in Africa were in the fintech sector,⁴ a testament to the push to deepen financial sector services and to the indispensable role of digital technologies in driving financial inclusion.

Digital financial services (DFS), however, are not without significant challenges. Consumers less familiar with digital technology, or who have limited literacy, can find DFS difficult to navigate. And consumers in rural or poorly connected regions often have inequitable access to mobile phones and the mobile internet. Access rates for Africa’s total population remain stubbornly low. In 2023, among the continent’s 1.18 billion people, the mobile phone penetration rate stood at 43 percent, with 489 million unique subscribers, and the mobile internet penetration rate stood at 25 percent, with 287 million users.⁵ In addition, the introduction of digital services has created new avenues for criminality to take hold, fraud to transpire, and security to be compromised, with real-world impacts on the businesses driving African economies and the people who are often not afforded adequate protections by law or current-day practice.

Between January 2022 and July 2023, the main sectoral targets for cyber attacks across the continent were financial sector organizations, followed by telecommunications companies and government agencies.⁶ Africa reportedly loses about $4 billion (gross⁷) a year to cyber crime, resulting in a 10 percent reduction to gross domestic product (GDP) across the continent,⁸ a number that is likely to have increased since 2021. In South Africa, SIM-swap frauds registered a spike that cost a victim an average of more than $900 per incident in 2021;⁹ and online banking fraud incidents cost an average of $1,131 per incident in 2022.¹⁰

About the CyberFI Project

Several years ago, the Cybersecurity and the Financial System (FinCyber) project—implemented under Carnegie’s umbrella Cyber Policy Initiative—revealed that more attention should be paid to the relationship between cybersecurity and financial inclusion in Africa.¹¹ The findings pinpointed the need to incorporate cybersecurity into the technologies driving financial inclusion from the start, rather than as an afterthought. Therefore, in 2021, as part of the initiative, Carnegie launched the Cybersecurity, Capacity Development, and Financial Inclusion (CyberFI) project to examine the potential impacts of Africa’s significant digital transformation and how to promote inclusion while mitigating the negative side-effects.

Carnegie worked…