Banks in the region are confronting an uncertain future as regulators begin to warm up to financial technology (fintech) companies that are deploying frontier innovations to deliver financial services faster and at lower costs.

James Mwangi, CEO of Equity Group Holdings, one of the region’s largest multinational lenders, this week admitted that the future of banks in Africa’s financial services sector is uncertain, as fintechs rapidly eat into the market traditionally reserved for them.“What is certain is that financial services will be required, who will provide them is what is debated,” he said at the Inclusive Fintech Forum (IFF) in Kigali, where the survival of traditional banks was a key discussion point.“If you look at mobile loans, the bulk of mobile loans are not provided by banks, but it’s a financial service. I think that future will need to be shaped not only by technology, but the regulator must come in, so that we’re all protecting the consumer.”Mr Mwangi is not alone in his concerns. Across the region and globally, banks are increasingly worried about fintechs eating their lunch, forcing many to adapt through innovating as well.

The latest African Financial Industry Barometer, an annual publication by Deloitte and African Financial Industry Summit (Afis), last month revealed that digital transformation is now the top priority for banks on the continent, ahead of financial performance and customer experience.

A recent innovation survey by the Central Bank of Kenya revealed that in just two years, the share of lenders leveraging financial technologies to digitise and modernise their operations rose by 19 percentage points to 79 percent in 2024, highlighting the speed of digitisation.

The most digitised function is now credit, deposit, and capital-raising, overtaking payments, clearance and settlement, which has officially been usurped by fintechs across the continent.

Across the region, this kind of shift is evident. In Rwanda, Bank of Kigali, the country’s leading lender by market share, just last week launched an Application Programme Interface – a service typical of fintechs – to allow third parties to integrate banking services to its platform, one of several innovation efforts by the bank.

In similar innovation efforts, Equity Group Holdings announced that it is investing in an artificial intelligence (AI) facility in Kigali, and is assembling a team to develop an African stablecoin.

Desire Rumanyika, chief digital and retail officer at the Bank of Kigali said the lender, like others in the region, have been forced to innovate to keep up with evolving customer needs, but also to survive.“It’s also survival mode, because the cost of not innovating is deadly. If you don’t innovate, others will come innovate, disrupt, then you’re no longer relevant in the market,” he told The EastAfrican.

The growing concern for survival comes as regulators begin to embrace fintechs, which have long been alienated players in the financial industry, despite driving massive innovations in payments, lending, saving, and insurance.

Regulations across the region are finally recognising fintechs, be it conventional finance or unconventional sectors like virtual assets and cryptocurrency.

In Kenya, for instance, after the enactment of the Virtual Assets Service Providers Act – which brought legal recognition for crypto firms in the country – the Central Bank of Kenya has now embarked on a journey to review its governing legislation to allow oversight of other fintechs.

Rwanda and Uganda have also started the process of bringing crypto companies into legal recognition and regulation through legislation.

This is expected to grow, and with it, the heat on traditional lenders. Payments, for instance, are fast slipping out of banks’ grasp as regulators begin to allow non-bank firms, including fintechs, to plug into national payment infrastructures.

Currently, of the 33 instant payment systems across Africa, only 15 allow non-banks to participate, but they are mostly private-sector led and allow only a limited number of private sector participants.

“It’s not about protecting one interest against another or promoting one over another. It’s about national public interest promoted by an even-handed approach by Central Banks,” argued David Porteous, one of the report’s authors and the CEO of Integral: Governance Solutions, an advisory firm.

Alongside the legislative shifts that are bringing legal recognition and protection for fintechs, regulators are increasingly working together to ease the burden of compliance for the financial technology firms.

In one such landmark collaboration, the National Bank of Rwanda this week agreed to collaborate with the Central Bank of Kenya to cross recognise payment service provider licences, significantly easing compliance burden for fintechs in both countries.“By promoting mutual recognition of licensing regimes, the framework will facilitate the responsible expansion of licensed PSPs across Kenya and Rwanda, while preserving robust regulatory oversight and supervisory cooperation,” said CBK after the signing in Kigali.

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