Fintech, also known as ”financial technology”, refers to firms using new technology to compete with traditional financial methods in the delivery of financial services.
Artificial intelligence, blockchain, cloud computing, and big data are regarded as the four key areas of fintech. The use of smartphones for mobile banking, investing, borrowing services, and cryptocurrency are examples of technologies designed to make financial services more accessible to the general public. Fintech companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies.
Fintech has been on the rise in Africa due to several factors. The spread of smartphones has made high technology accessible to a large number of people, the fintech sector in Africa has enjoyed success with foreign investments, and the viability of the business model has also contributed to fintech growth in Africa.
Benefits of Fintech in Africa
Africa had a threefold increase in tech start-ups between 2020 and 2021, reaching almost 5,200 businesses. African fintechs have already made substantial strides into the industry, with typical penetration levels of 3–5% and projected revenues of between $4 billion and $6 billion in 2020 (excluding South Africa).
- Accessibility and financial inclusion: Fintech has the potential to improve accessibility and financial inclusion by providing access to financial services to people who were previously excluded from the formal banking system.
- Efficiency: Fintech can boost efficiency by streamlining processes and reducing transaction costs.
- Innovation: Fintech can unlock innovation by providing new products and services that meet the needs of consumers and businesses.
- Job creation: Fintech can create jobs and growth in African economies by providing new opportunities for entrepreneurs and small businesses.
- Social benefits: Fintech can bring social benefits by improving access to healthcare and insurance at scale and increasing access to lending in key sectors such as agriculture.
The financial services industry in South Africa is widely acknowledged as one of the most advanced globally. A little but rapidly expanding fintech industry has emerged in the last ten years to supplement this, revolutionising financial services through digitization, simplification, or disruption.
With a strong emphasis on development, South Africa boasts a rather mature fintech market that generates 40% of all fintech income in Africa. The financial industry is still dominated by incumbents, which makes it difficult for fintechs to grow to a large scale. This is made worse by South Africa’s complicated legislative framework, a lack of entrepreneurial skills, and a risk-averse investment environment.
Ways to join the Fintech industry in Africa
- Research: Start by researching the fintech industry in Africa and the different companies operating in the sector. This will help you understand the market and identify potential opportunities.
- Networking: Attend fintech events and conferences to meet people in the industry and learn about new developments and trends. You can also join online communities and forums to connect with other fintech professionals.
- Education: Consider taking courses or getting certifications in fintech-related topics such as blockchain, digital payments, or data analytics. This will help you build your knowledge and skills in the field.
- Internships: Look for internships or entry-level positions at fintech companies to gain practical experience and learn about the industry from the inside.
- Entrepreneurship: If you have an innovative idea for a fintech product or service, consider starting your own company. There are many resources available to help entrepreneurs get started, including incubators, accelerators, and funding programs.
Some of the Fintech companies in Africa
- Africa Fintech Network: A network of fintech leaders, organizations, and stakeholders that aims to promote and support the creation of innovative technologies and their deployment across Africa and beyond. They are located in Accra, Ghana.
- Pivo Technology: A digital bank for freight carriers in Africa.
- Bridgecard: A fintech company that provides a digital payment platform for businesses in Africa.
- Flutterwave: A payment technology company that provides seamless and secure payment solutions for businesses and individuals across Africa.
- Paystack: A payment platform that helps African businesses accept payments from anyone, anywhere in the world.
- Cellulant: A digital payments platform that provides mobile banking, mobile wallet, and other digital financial services to businesses and consumers across Africa.
- MFS Africa: A pan-African fintech company that provides cross-border payments and other financial services to businesses and individuals across the continent.
Some challenges with the African Fintech Industry
- Reaching scale and profitability: African fintechs are still in the early stages of development, and many are struggling to achieve scale and profitability. According to McKinsey, only 14% of African fintechs have achieved profitability.
- Navigating an uncertain regulatory environment: The regulatory environment for fintechs in Africa is still evolving, and many start-ups are struggling to navigate the complex regulatory landscape.
- Managing scarcity: Many African fintechs are struggling with a lack of resources, including funding, talent, and infrastructure.
- Building robust corporate governance foundations: Corporate governance is a critical issue for African fintechs, as investors are increasingly demanding transparency and accountability from start-ups.
- Lack of infrastructure and access to reliable internet connectivity in many parts of the continent: This is a significant challenge for African fintechs, as it limits their ability to reach customers and provide services.
- Blackouts: Frequent power outages in many parts of Africa can disrupt fintech operations and lead to lost revenue.
- Unaffordable internet: High internet costs can make it difficult for African consumers to access fintech services.
- Trust issues: Many African consumers are still wary of using digital financial services due to concerns about security and fraud.
- Paperwork woes: Fintech start-ups in Africa often struggle with regulatory compliance due to the high volume of paperwork required.
- Lack of regulations: While some African countries have established regulatory frameworks for fintechs, others have yet to do so, creating uncertainty for start-ups operating in those markets.
- Interoperability: The lack of interoperability between different fintech platforms can make it difficult for customers to use multiple services at once.
How does the future of Fintech look like in Africa?
The future of fintech in Africa looks promising. Despite the challenges that fintech start-ups face, the industry is booming and has already made significant inroads into the market. Africa had a threefold increase in tech start-ups between 2020 and 2021, reaching almost 5,200 businesses , and just under half of these are fintechs. With an estimation, Africa’s financial-services market could grow at about 10 percent annually, reaching about $230 billion in revenues by 2025 ($150 billion excluding South Africa).
The African fintech market is projected to reach $65 billion by 2030, representing a 13-fold increase over 2021. The technology industry particularly is seeing tailwinds. While venture capital spending has cratered worldwide in 2022 and 2023, according to McKinsey research presented at the conference, in Africa it is up nearly 10%.
The rise of finance apps and super apps in Africa has been driven by a combination of market conditions and customer demand. The industry is expected to continue to grow in the coming years as more people turn to technology for financial services.
Should you invest in African Fintech Industry?
Investing in African fintech industry can be a good opportunity for investors. The African fintech ecosystem grew in size by almost 20% and saw $2.7 billion in investment flood in over the last 24 months. The report also reveals that the fintech ecosystem is the most-populated vertical within Africa’s wider tech ecosystem, having maintained its steady growth over the last two years. Since 2015, 540 fintech startups from 25 countries have raised an extraordinary $3,635,823,965, three times more than any other sector.
In addition, total capital invested in African fintech companies grew by $1.49bn in 2021 compared to the previous year, setting Africa’s highest fintech funding year to date at $2.02bn. The number of deals had a gradual increase of 18% YoY to a total of 287 deals.
The African fintech market is projected to reach $65 billion by 2030, representing a 13-fold increase over 2021 . The technology industry particularly is seeing tailwinds. While venture capital spending has cratered worldwide in 2022 and 2023, according to McKinsey research presented at the conference, in Africa it is up nearly 10% .
However, investing in African fintech industry also comes with risks. The industry is still evolving and many start-ups are struggling to navigate the complex regulatory landscape. In addition, many African fintechs are struggling with a lack of resources, including funding, talent, and infrastructure. Therefore, it is important for investors to conduct thorough research before investing in any African fintech start-up.
Conclusion
As fintech matures, financial services on the continent are at an inflection point, and several African countries have a significant opportunity to capitalize on the momentum of recent years to unlock further potential in the sector.
