The African Financial Technology (Fintech) ecosystem continues to expand despite global economic challenges.
As an investment segment, the Fintech industry made up more than 25 percent of all venture capital rounds in the last few years, with South Africa joining other regional leaders such as Egypt, Nigeria and Kenya.
Out of the nine notable tech unicorns in Africa, seven are fintech companies.
A recent study by Mastercard noted that African Fintech startups increased in number from 311 in 2019 to 564 by 2021.
The study also noted that of the $2.7 billion in venture capital funding that was deployed in Africa in 2021, 61 percent of that was in Fintech startups.
The study found that the sub-Saharan Africa region had one of the highest year-on-year growth rates globally, with Fintech startups recording 894 percent year-on-year growth in funding in 2021.
With the right targeted solutions, the potential for rapid growth is significant.
In the last few years, the region also saw the majority of Fintech investment capital coming from various offshore money markets, including west-coast United States, the United Kingdom and China.
African Fintech startups are also able to do more with dollar-based capital raises if they have locally-based operations.
Mobile money and third-party payment systems in particular are segment leaders in the African Fintech space with more than half of the world’s mobile money customers now based in Africa.
A low proportion of Africa’s population currently has adequate access to financial products and the potential for digital deployment of solutions took off alongside the rise in mobile and internet access.
For example, due to a lack of interconnectedness in the cross-border banking infrastructure and a huge migrant labour workforce, there was a clear need for ways to transmit money across regions safely.
Servicing the underbanked and migrant workforce has also created opportunities for innovative financial solutions in Africa and user markets are huge.
Kenya’s Fintech industry was originally focused on mobile money transfer services and has ridden the wave of exponential market adoption since 2007.
Building on technology akin to GSM text messaging, major players in the market were able to expand its offering to users who did not have internet or data connection, but had access to cellular phone towers and basic mobile devices.
In that 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 within and as a result, a large portion of GDP flowed through such services.
This makes the regulators similarly Fintech-friendly and interested in being cooperative towards innovation.
Three of the largest African unicorns come from Nigeria and the country is dominant in Africa in respect of Fintech venture capital investments.
The Mastercard study found that Nigeria’s Fintechs accounted for a third of all venture capital funding deployed into Fintech in 2021. Nigeria has also benefited from a highly entrepreneurial technology sector and deep issues in respect of financial inclusion.
About 38 million adults in Nigeria are completely financially excluded, particularly when it comes to credit access.
This created the perfect conditions for dynamic Fintechs to emerge with a massive potential market if successful.
Senegal’s Wave, the first unicorn from the Francophone African region, recently saw a $200 million capital raise in a Series A round of fundraising. This was the largest Series A to come out of that region to-date.
Examples such as this demonstrate that there are still a lot more African regions yet to take off in the African Fintech push.
South Africa benefits from a robust financial and banking industry, but one that has been slow in terms of adoption of new technologies and modernising of legacy banking tech.
This has led to the country seeing additional trends in open banking Fintechs that are operating on top of current bank infrastructure but providing more nimble payment channels. There have been 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 must be addressed before and during Fintech transactions.
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