Fintech

The rise of the fintechs: It’s raining investments in Africa

Strength of fintechs against banks in Nigeria - Startup Lagos

2021 has been a phenomenal year for startups in Africa, with a significant number of these startups securing huge investments, and gearing up for growth across more geographic and psychographic markets. In the first half of 2021 alone, African startups have raised a total of $1.19 billion (with fintech representing about 29.4% of the total money raised) as a report by Maxime Bayen and Max Cuvellier shows. With the rising trend of investments and growth capital in Africa’s tech space, you can be rest assured that funding to Africa this year may hit well over $2 billion. In the second half of the year, African startups have already attracted more than $350 million, in 70+ deals, with fintechs as Yoco, Fairmoney, and Kuda Bank, receiving huge chunks of that investment pie.

Kuda Bank CEOs - Startup Lagos

Fintech in Africa is a remarkably promising sector and is the sector most ripe for disruption in the next five years. This disruptive revolution has already begun with many African fintechs pivoting their businesses to cater to neobanking needs. The State of Fintech in Africa 2021 report shows that African fintech is at its growth stage, with one-third of firms (34%) claiming to be ‘driving aggressive growth,’ while one-quarter (26%) describe their growth as ‘mature and steady’, showing a healthy market dynamic and product-market fit. This growth comes on the heels of the massive market opportunity in the sector. As reports show, with regards to one of Africa’s most promising fintech markets, over 40% of Nigeria’s vast 200 million people are unbanked, and this has raised to greater prominence the calls for financial inclusion, across not only Nigeria but Africa as a whole.

In spite of this, many African fintechs are still to scale. Research findings by The Wheeler Institute of Business and Development show that only 37 fintech companies have achieved scale. The results showed that fintechs are majorly localized within the three heavyweights, Nigeria, South Africa, and Kenya, with scaled fintechs averaging about 12 years old. The report highlighted the analysis of about 716 companies (of which 37 represents a meager 5%) across four metrics, related to a number of end-users, annual revenue (in US$), cumulative funds raised in US$, and number of employees. These stats were analyzed across different geographies, fintech sector sub-segments, and time periods. Without a doubt, scaling takes some time, and in Africa’s diverse and volatile market, this even takes more time and effort.

Most fintechs in Africa would be looking at ways of consolidating the grounds they have made in the sector and remain sustainable for the long run. A significant pool of these fintech startups are already challenging traditional banks in their various countries and would bring even more disruption to the sector.

Prof. Ndubuisi Ekekwe on the Platform - Startup Lagos

As Prof. Ndubuisi Ekekwe opines:

I predict that by 2025, Flutterwave will be worth more than GTBank and Zenith bank combined! Kuda today is bigger than many banks in Nigeria! Click To Tweet

Nonetheless, the most important factor would be how these fintechs are able to maintain their meteoric rise towards unicorn-dom. One crucial element that would determine this is how infrastructure is able to change to address this new direction in the industry. As Dare Okoudjou of MFS Africa states:

“There is a fundamental but implicit assumption made about fintech around the world: that money is primarily stored in electronic form. In Africa, money is primarily still stored as cash and that requires layers of infrastructure to digitalize cash. Packaging this in the right way in a single market is hard enough. Doing it across multiple markets whilst keeping it simple, secure, compliant, and usable is incredibly hard. Through interoperability MFS Africa helps partners access a large aggregated market, simplifying a complex payments landscape, and making borders matter less.”

Developing this infrastructural capacity is what would easily enable the growth and adoption of these new innovations in fintech. As such, as the report by The Wheeler Institute of Business and Development further states, infrastructure companies, across the four fintech sub-segments, are better poised to achieving scale with a scale prevalence of 10%, unlike other sub-sectors. It will be interesting to watch this space, especially as Africa’s fintech space branches out into neobanking, and see what innovative ways that the sector would reinvent itself to meeting up with market demands.

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