Is Africa the Next Potential Fintech Magnet?
By Gargi Bagchi – Managing Editor, The African Gazette
Understanding the Basics
Fintech – an often hazy and relatively new term has been coined by combining the words ‘financial’ and ‘technology’. It refers to any new or emerging technology helping financial institutions offer financial services in an advanced, newer, and quicker way than was earlier available.
Millennials and tech-savvy customers expect lending, money transfer, loan management as well as investments to be secure, scalable, and effortless without requiring bank visits or any assistance of a person. Innovative and fast progress like Mobile Payments has altered the way we handle our finances. Fintech is leveraging advanced technology to empower consumers to take responsibility for their financial aspects, thereby promoting higher financial literacy than in earlier times.
Africa is an emerging continent, not just in terms of economy and growing population, but also in terms of the vastly increasing tech community and fintech. The growth of the fintech ecosystem here is vital as it would not only nurture local talent along with intellectual property but will bring about overall innovations and progress for the entire continent.
Africa is home to the greatest share of the underbanked and unbanked population in the world, which allows small and medium enterprises and fintech startups the scope to leverage this huge pool of underbanked and unbanked citizens.
Recent Analyses and Trends
The CEO of the global financial services provider PayU in South Africa, Karen Nadasan predicts that government and regulatory support for fintech is here to stay as much as migration to digital payments and growing cross-border payments. Moreover, the rise in mobile internet users and online payments will continue to see an upward trend – there is a prediction of over 475 million people in this regard across Africa in 2025 – a sharp 42% increase from 2019.
According to Penser – a London-based consultancy, African fintech startup investments between the years 2017-2020 were higher in comparison to any other sector across the entire Africa.
Reports from BFA’s Global’s Catalyst Fund and Briter Bridges reveal that there has been a growth from $1 billion in 2019 to $ 1.35 in 2020 in fintech funding in Africa, also encompassing mergers and acquisitions.
Lagos-based company Interswitch raised a staggering amount of $200 million from Visa. In November 2019, investors reportedly paid $400 million into the fintech space in Africa within a single week.
Despite the economic downturn due to the pandemic, fintech in Africa seems to continue on an optimistic trend. The implementation of AfCFTA (African Continental Free Trade Agreement) in January 2021 is a positive sign.
Several African countries have been accelerating their digital transformation and the telecom giants are establishing newer networks along with streamlining existing facilities for improving wireless services, internet, and connectivity.
The Present African Fintech landscape – the reasons behind the growth
According to reports from Penser, experts in fintech consulting – apart from growing urbanization in Africa, around 65% of the population in this continent are below 35 years – as they are more tech-savvy than the rest, naturally there is an increase in the use of mobile and smartphones. Moreover, 66% of SSA – Sub-Saharan Africa is unbanked. Lack of physical bank branches allows the rise of digital banking across the continent, thereby offering emerging fintech to onboard a huge number of new clients.
Let us look in detail at a few of the pioneering forces in fintech implementation across Africa in recent times.
Mobile Wallets or mobile money accounts: With more than 20% of adults in this region with mobile money accounts, this is the highest in the world. 79% of e-commerce growth has been due to mobile money and 80% of all MSMEs (micro, small as well as medium enterprises) have a mobile money account. A major percentage of Africans have access to basic mobile phones with SMS capabilities and 39% boast of possessing smartphones in the continent. This offers an opportunity to provide digital-banking offerings which are compatible with such cellphone interfaces.
Electronic Payments: The electronic payments market in Africa has revenue worth around $18 billion, driven by the mix of mobile money and cards. Card payments account for 56% of the total revenue generation in comparison to 18% brought in by electronic money transfers and 26% through mobile money. The payments volume was focused on both mobile payments and card at 42%
Huge Investments: According to data collected by Penser, since January 2015, fintech in Africa has raised funding to the tune of $320 million with the ecosystem surging to 60% since 2018. OPay – the Chinese-backed Africa-focused payments company raised $170 million across two rounds of fundraising in 2019. Paypal has backed Tala in Tanzania and Kenya and Mastercard has backed Jumia Pay – which is the in-house payment solution provider of the biggest e-commerce company in Africa. Stripe and Visa have led an $8 million series in Round A for Paystack, an online Nigerian payments company. Global investors are seeing Africa as the next hub to be explored with all the earlier mentioned fintech aiming to be the payments company of pan-Africa.
Remittances: The African markets’ remittance costs are higher than anywhere in the world. Africa’s dependence on remittances provides a great deal of opportunity for entry of fintech since they offer faster transfers and low processing fees.
Who are the Fintech frontrunners in Africa?
According to fintechmagazine.com, the highest penetration of fintech is in South Africa in 2020, with investments of $112m, followed by Nigeria at $74m, Kenya at $62m and finally Egypt investing $51m. The four emerging African fintech hubs include:
Johannesburg: With the city being home to many leading banks and financial institutions, it does have an ecosystem that encourages fintech to thrive. In 2019, the city saw over 220 programs providing support to fintech startups. The Intergovernmental Fintech working group and ProjectKhoka were some of the several initiatives supported by the South African Reserve Bank.
Nairobi: Nairobi houses several banks and multinational companies and is the second biggest fintech hub in Africa after Johannesburg. The city has seen growing interest from global technology firms and the rise of international investors and venture capital firms along with domestic investors making it a fintech magnet in Kenya. Some of the strengths that the city has built in the fintech space include remittances, payments and banks, and lending technologies. A few of the local companies include Alternative Circle, Kopo Kopo, Bitpesa, and Lendable.
Lagos: Lagos presents ample opportunities for fintech growth with the World Bank Global Findex report of 2017 stating that more than two-thirds of adults possessing a mobile phone, 40% of adults with a bank account, and 6% population with online banking access. Lagos had hosted the first Africa Fintech Summit in 2018 and the presence of organizations like the Fintech Association of Nigeria are instrumental in allowing the fintech community to thrive.
Cape Town: 47% of technology start-ups and Africa’s 75% of venture capital deals are in Cape Town. With its international talent pool and a steadily growing supportive ecosystem, the city is conducive to promote not only fintech but overall technological growth.
The Future
South Africa is generally welcoming and offers a conducive platform for fintech to prosper. The Financial Technology Programme established by the South African Reserve Bank is aimed at assessing the emergence of fintech and also looking into its regulatory implications. The Ecobank Group in Lome, Togo launched The EcoBank Challenge in 2017. It partners with and identifies fintechs that are quite mature to gauge. Ecobank then offers those fintechs access and support to the 33 African markets for their expansion.
Presently, bureaucracy is the reason behind the massive processing backlog, causing a slowdown in the government’s capacities for facilitating trade. The scene is expected to shift with the introduction of fintech that streamlines, speeds up, and simplifies processes. The future of fintech certainly looks bright in Africa despite the challenges which emerging markets encounter at the start of developing a new industry.
Gargi – Currently Managing Editor of The African Gazette, she has been an independent content creator, researcher and editing professional. With 12+ years of experience across diverse writing genres, Gargi comes with an exposure of working with a multitude of global clients in the digital space. She has a penchant for reading and researching on new topics, and enjoys listening to music and traveling. She can be contacted through Email or Linkedin
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