African financial technology (FinTech) companies are not just keeping pace with the latest advancements in artificial intelligence (AI); they are surpassing them with innovative solutions, according to Microsoft.

Lillian Barnard, President of Microsoft Africa, who acknowledged the transformative power of mobile money in Africa said that by enabling millions to participate in the financial system for the first time, mobile money has revolutionised financial services across the continent. Now, AI is poised to be the next major disruptor.

While traditional financial institutions struggle to adopt AI, African fintechs are already reaping the benefits, according to Barnard who states that these homegrown solutions are reducing reliance on cash transactions.

Microsoft on how AI propels fintech sector

“AI has the potential to propel the fintech industry into a new era of financial inclusion,” says Barnard. “And perhaps most exciting of all is that Africa is not simply catching up with AI-powered developments, but surging ahead with innovative solutions that have considerable implications for the underbanked.”

Barnard also highlights a significant barrier for local small and medium-sized enterprises (SMEs): the high cost of digital financial services. It is estimated that around 90% of transactions in Africa are still cash-based, largely because cash transactions come with no fees.

However, AI has the potential to lower the cost of the entire financial services ecosystem, from fraud detection to risk management and compliance. These efficiencies can translate to substantial cost savings, ultimately benefiting the end-user, the local SME.

“Banks,” Barnard said, “for example, can make their services more affordable to their customers by rolling out AI-powered chatbots to handle routine queries, at the same time sparing them from having to travel to a bank branch.”

More recently, cloud technology has become a game-changer for fintech companies. Cloud platforms like Microsoft Azure offer increased scalability, operational efficiency, and the ability to rapidly deploy new innovations, empowering fintechs to accelerate financial inclusion efforts across the continent.

A prime example is African payment giant Flutterwave. President of Microsoft Africa revealed that the payments company shifted its infrastructure to Microsoft Azure, a cloud computing platform. By doing so, Flutterwave gained the capacity to expand its operations and process high volumes of payments efficiently.

One of the most exciting applications of AI in African fintech is real-time lending. Companies like M-Kopa, a connected asset financing platform, are leveraging AI’s power to assess credit risk and provide instant microloans. This empowers previously unbanked individuals to access essential services like solar power systems, health insurance, and smartphones.

In terms of successes, M-Kopa, for example, has witnessed a significant increase in customer repayment rates thanks to AI-powered risk management.

Looking ahead, there is a lot of potential for fintechs to fully realise AI. However, hurdles remain. Building the necessary infrastructure, ensuring widespread and affordable internet connectivity, and developing the required skill set are all crucial steps.

Barnard also noted regulation as a hurdle for fintechs to overcome. “Though more African countries are expected to introduce regulations to guide AI development and deployment, relatively few have strategies and policies in place at a national level. In fact, many FSI organisations in Africa view the risk of new safety and regulatory requirements as one of the biggest stumbling blocks to wider implementation of the technology, hindering greater progress in financial inclusion.”

Microsoft is actively involved in addressing these challenges, Barnard said. These include initiatives like the Airband project to provide high-speed internet access to 100 million people in Africa, establishing data centres across Africa, and collaborating with organisations like Safaricom to train developers.

Microsoft said it working with the African Union and national governments to establish responsible AI practices.