Riding the African FinTech Safari

Over the past few years, Africa has become a hotbed for FinTech across the board, gulping up investments higher than any other sector on the continent.

This is a natural occurrence, as 66 percent of Sub-Saharan Africa (SSA) remains unbanked, these innovative financial startups have mushroomed all over to meet the rising demand for financial services.

According to the UN, over half the global population growth through 2050 will come from Africa, given that it has the world’s fastest-growing population.

Currently, while nearly 65 percent population is under the age of 35 and this represents a key demographic that’s more tech-savvy than others. FinTech in Africa is a growing sector full of opportunities especially in regional markets such as Nigeria, Egypt, South Africa, and Kenya.

The emergence of FinTech is not only granting people access to financial services but is also changing the competitive landscape by serving as a catalyst for innovation across other industries, from agriculture and retail to transport and insurance.

According to a report by WeeTracker, African FinTech startups raised a combined USD 678.73 million in funding, in 2019 alone.

African FinTech companies is the poster child of necessity being the mother of invention; an example of this can be seen through Kenya’s M-Pesa, which spotted a massive demand from people who did not have access to traditional banks and disrupted traditional financial services with mobile technology that captured a previously untapped market.

The company enjoyed massive success, offering financial inclusion to over 41 million people, as well as a safe, secure and affordable way to send and receive money, top-up airtime, pay their bills, get paid and even secure short-term loans.

M-Pesa is one of many success stories that shook up the financial landscape.

According to a report by the International Monetary Fund (IMF), these fintech businesses challenge traditional structures and create efficiency gains by opening up financial services to many.

“Technological innovation and infrastructure development can play key roles in allowing the continent to transform its demographic dividend into jobs, growth and rising living standards for all,” according to the IMF, but only if policymakers are able to navigate the perennial race between fast-moving innovation and the slow pace of regulation.

According to a report by Quartz Africa, Africa is home to more than 400 FinTech firms enabling payments, funds transfer, lending, and even wealth management. Nigeria, Kenya, and South Africa are the top FinTech hubs on the continent, accounting for the larger proportion of fintech firms and attracting the lion share of investments.

“Regionally, the Middle East and North Africa saw strongest growth, up 40 percent, sub-Saharan Africa and North America, both up 21 percent. In general, emerging markets and developing countries experienced faster growth than developed markets,” the World Bank said in a whitepaper echoing the statements made by Quartz.

While African FinTechs were able to weather the storm of the year-long COVID-19 pandemic, they were the principle financial services that people relied on when under lockdown, growing their position within the market.

The pandemic acted as a catalyst in proving that this industry is the future of Africa’s financial sector, with no signs of stopping any time soon. With this newly garnered footing in the market, it will allow them to set and follow the latest financial trends of the industry.

Let’s discuss some of them.

1. Mobile Wallets

The African continent witnessed a rapid adoption of mobile wallet payments, since more than 20 percent of adults in the SSA region own a mobile money account, which the highest figure in the world, according to Financial Technology (FT) Partners.

“80 percent of all micro, small, and medium-sized enterprises (MSMEs) in the continent have a mobile money account and 79 percent of the growth in ecommerce has been facilitated by mobile money,” FT Partners highlighted. 

This increased dependence on mobile money is widely due to the continent’s increasing smartphone penetration at 39 percent, which is projected to steadily rise to 66 percent in the next five years.

“In comparison, over 80 percent of Africans have access to a mobile phone (with SMS capabilities), providing a unique opportunity. For instance, over 37 million Kenyans have mobile phones — this outnumbers both the number of ATMs and desktop computers that they have access to,” the report by FT Partners noted.

This lays the ground for developing a more robust digital and mobile banking experience and offerings, allowing FinTech to claim the financial throne in Africa.

2. E-Payments

According to a study by Penser, a UK-based Business management consultancy firm, the African electronic payments market is worth around $18 billion in revenues, while domestic payments account for $8 billion within the same amount.

The online payments market is worth $0.8 billion and represents 10 percent of the electronic payments market.

The state of e-payments will keep increasing as the continent is looking to increase its investments within the telecoms industry, which would propel financial innovations, heighten connectivity, and incentivize investments within the FinTech industry.

3. Remittances

It comes as no surprise that the African diaspora around the world is one of the largest, with UN estimations reaching around 30 million people.

Naturally as with any country, diasporas represent a hefty contribution to the continent’s economy through money transfers back home, relying mainly on Western Union, MoneyGram, or traditional banks for said service.

FinTech has the potential to tap into this demographic and capitalize on the profits that come, mainly due to the diaspora looking for alternatives to the ones named above since they charge high commission fees, expensive exchange rates, and longer durations for the transfer to actually happen.

If positioned correctly, FinTechs across Africa could disrupt this industry trend, providing cheaper, faster, and fairer alternatives.

4. The rise of investments

According to a report by Disrupt Africa, the continent has raised $320 million in funding since January 2015 and the ecosystem has surged 60 percent in the last two years.

“In 2018, fintechs raised $132.8 million, making it the sector’s best year for funding. In 2019, fintech deals with a combined (disclosed) worth of $53 million accounted for 18 percent of the nearly $290 million raised across 88 disclosed deals,” the report highlighted.

Not only that, but African FinTechs have attracted investments from heavy-hitting names such as global giants Visa, PayPal, Stripe, and the like, offering innovative payments and financial services.

OPay, the Africa-focused, Chinese-backed payments company founded by Opera, raised $170 million in 2019 across two fundraising rounds. Lagos-based Interswitch raised $200 million from payments giant Visa making it Africa’s first “home-grown” unicorn.

Visa and Stripe have also led an $8 million Series A round for Nigerian online payments company Paystack. Visa has also co-led digital lender Branch’s $170 million Series C funding round. Rival Mastercard participated in a $20 million Series A funding round for payments solutions provider Flutterwave.

Mastercard has also backed Jumia Pay, the in-house payments solution of the largest e-commerce player in Africa. Similarly, PayPal has backed Tala, the online lender operating in Kenya and Tanzania.

All these contributions, investments, and funding will help African financial startups expand their footing further into the continent as they attempt to take advantage of the unbanked population.

5. Emergence of cryptocurrencies

The financial revolution happening on the African continent is fueling the rise of cryptocurrencies as many young Africans looked to the currency to widen their earnings, the value of cryptocurrencies being transferred in and out of Africa increased 55 percent over the course of last year.

In addition, cryptocurrencies have become favored for better services within the continent since local currencies are pegged as weak and unstable.

As we enter the dawn of a new year and decade, the innovative work put forth by FinTechs across Africa has the potential to change the entire working landscape, better its position as a global leader in financial technologies, providing its people with the tools needed to grow on all levels.