‘Why African fintechs will remain popular’

THE ecosystem of African financial technology (Fintech) continues to grow despite global economic challenges.

As an investment segment, the fintech industry has made up more than 25 percent of all venture capital rounds in recent years, with South Africa joining other regional leaders such as Egypt, Nigeria and Kenya.

Of the nine notable tech unicorns in Africa, seven are fintech companies.

A recent survey by Mastercard found that the number of African fintech startups has increased in number from 311 in 2019 to 564 in 2021.

The study also noted that of the $2.7 billion in venture capital funding deployed in Africa in 2021, 61 percent of it was in fintech startups.

The study found that the Sub-Saharan Africa region had one of the highest year-over-year growth rates in the world, with fintech startups recording 894 percent year-over-year growth in 2021.

With the right targeted solutions, the potential for rapid growth is significant.

In recent years, the region has also seen the majority of fintech investment capital come from various offshore money markets, including the west coast of the United States, the United Kingdom and China.

African fintech startups can also do more with dollar-based capital raises if they operate locally.

In particular, mobile money and third-party payment systems are segment leaders in the African Fintech space with more than half of the world’s mobile money customers now based in Africa.

A small portion of the African population currently has adequate access to financial products and the potential for digital implementation of solutions increased alongside the increase in mobile and internet access.

For example, a lack of interconnectedness in cross-border banking infrastructure and a large migrant workforce created a clear need for ways to transfer funds securely between regions.

Serving underbanked and migrant workers has also created opportunities for innovative financial solutions in Africa and the user markets are huge.

The Fintech industry in Kenya originally focused on mobile money transfer services and since 2007 has followed the wave of exponential market adoption.

Building on technology related to GSM text messaging, major players in the market were able to extend the offering to users who did not have an internet or data connection, but had access to cell phone towers and standard mobile devices.

In the same period, financial inclusion went from 26 percent in 2006 to 83 percent of the total population today. That activity created a market that many other fintech entrants were able to diversify and, as a result, a large portion of GDP flowed through such services.

This similarly makes the regulators Fintech friendly and interested in innovation collaboration.

Three of the largest African unicorns come from Nigeria and the country is dominant in Africa when it comes to fintech venture capital investment.

The Mastercard study found that Nigerian Fintechs accounted for a third of all venture capital funding deployed in Fintech by 2021. Nigeria has also benefited from a highly entrepreneurial technology sector and deep financial inclusion issues.

About 38 million adults in Nigeria are completely financially excluded, especially when it comes to accessing credit.

This created the perfect conditions for dynamic fintechs to emerge with a huge potential market if they were successful.

Senegal’s Wave, the first unicorn from the French-speaking African region, recently saw a $200 million capital raise in a Series A round of fundraising. This was the biggest Serie A to come out of that region to date.

Examples like this show that there are many more African regions that have yet to grow in the African Fintech push.

South Africa benefits from a robust financial and banking sector, but one that has been slow to adopt new technologies and modernize outdated banking technology.

This has led the country to see additional trends in open banking fintechs that operate on top of current banking infrastructure but offer more flexible payment channels. There are several recent regulatory developments as the country prepares to fully adopt Fintech and its various sub-segments.

South Africa also has specific compliance and due diligence issues that need to be addressed before and during fintech transactions.

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