Africa – The Next Big Fintech Hub?

Africa’s fintech sector is witnessing unprecedented growth according to leading analysts.

According to London-based consultancy Penser, investments in African fintech startups between 2017 and 2020 have been higher than in any other sector across the continent.

And a recent report seems to confirm that this trend is showing no signs of slowing. Figures from BFA’s Global’s Catalyst Fund and Briter Bridges found that fintech funding in Africa, including mergers and acquisitions, grew to $1.35 billion last year from $1 billion in 2019. Moreover, the data shows that African fintechs had succeeded in raising more capital despite the Covid-19 pandemic

This was in contrast to fintech companies in emerging markets such as Latin America which saw a decline. Investors from all over the world have been increasingly looking to Africa as the next big fintech market to invest in. 

Among the major companies that have begun investing in the region are PayPal and Visa. In 2019 Lagos-based Interswitch raised $200 million from Visa. Similarly, PayPal has backed Tala an online lender which operates in Tanzania and Kenya.

In November of that year, it was reported that investors poured $400 million into African fintech in the space of a single week.

And last year, mobile-based payment service Chipper Cash became a major talking point. The fintech, created by Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled raised a $30 million Series B funding round, led by Ribbit Capital with the participation of Bezos Expeditions. The latter is the personal venture capitalist (VC) fund of Amazon CEO Jeff Bezos.

“We believe that Africa will be a sizeable fintech market, and this is an increasing opportunity,”  Nick Maynard, lead analyst at Juniper Research tells UrbanGeekz. “Africa is at a turning point in fintech terms. Mobile money has served the continent well and increased access to financial services, but the rising penetration of smartphones and the need for cashless societies is moving the argument on to more advanced fintech use cases. This means the continent is well-positioned for future growth.”

Karen Nadasen, CEO at global financial services provider PayU South Africa agrees. 

“Africa was already showing huge growth in fintech prior to the pandemic,” she tells UrbanGeekz. “This past year has further demonstrated its potential. Three things are clear in this fintech revolution –  the migration to digital payments is here to stay; government and regulatory support for fintech will continue; and, cross-border payments will continue to grow, becoming the norm rather than an anomaly.”

“With 475 million people across the continent predicted to be mobile internet users by 2025 – an increase of 42 percent since 2019 – online payments are booming,” she continues. “In South Africa alone, 85 percent of payments through PayU during the lockdown were recorded to be via mobile. 

“Digital acceleration fueled by the global pandemic has proven how accessible mobile payments services are now, and we expect that this innovation will continue, filling more gaps in societies across Africa and other booming emerging markets.”

Experts say a number of factors explain the growth of fintech in Africa. Among them are cheaper internet costs, rising smartphone ownership, and a large unbanked population, estimated to be 66 percent of sub-Saharan Africa.

“The failure of banks to address the needs of the local population definitely created a huge opportunity for new players to fill that gap,” says Benoit Lacroix, co-founder of portmoni.com which develops online tools for mobile money platforms and e-commerce sites.

“I believe that another key driver for the growth of fintechs is the extremely fast penetration rate of mobile phones in Africa, feature phones initially, and now smartphones. They allow populations that were previously completely disconnected to learn about and connect to those innovative services. To take the classic example of Kenya, with mobile money transactions now equivalent to half of Kenya’s GDP, the digitization of payments allowed innovative fintech services to get data and access millions of people that were extremely hard to reach a few years ago.”

Nadasen agrees. “Africa has historically been a region living by the mantra that ‘cash is king,” she said. “However with more than half of its population with little to no access to traditional banking, mobile money was a life-altering innovation. Services like M-Pesa have made immense strides in bridging the financial gap to the rural majority who now don’t need a bank account to buy goods, services and transfer money. As such, fintechs have added stability and security whilst reducing the need to store cash savings at home or on your person at all times.”

Analysts are predicting that the growth of Africa’s fintech sector will be a major boost to the continent’s economy.

“Fintechs create growth opportunities for local businesses, as we can see from all the initiatives focusing on small retailers (access to capital or inventory), the agricultural sector, or access to energy,” Lacroix tells UrbanGeekz. “All these definitely accelerate the growth of local economies by giving local entrepreneurs better access and tools to develop.” 

According to Maynard the impact of fintech could be transformative. “Broadly, it means that digitization of Africa’s economy will be accelerated. The transition away from cash will be a simpler affair within the region as digital solutions are adopted. It also means there will be significant opportunities in e-commerce, as platforms expand.”