Fintech

Will African fintech ever rule the world?

Will African fintech every rule the world? Startup Lagos

Economies around the world are experiencing a massive decline in economic indices as a result of the pandemic, and Africa is no exception. The World Economic Forum predicted that African economies will contract by 4.4% in 2021 as a direct result of COVID-19, and economies across Africa are shrinking under the weight of the pandemic. However, despite this, the level of investment in African fintech companies keeps on a steady increase.

Since 2015, startups in Africa have raised more than $320 million in investment and almost a third of funding raised by African startups in 2017 was in the fintech sector as investors bet on consumers turning to more formal financial services in a region where just 17% of the population have banking accounts. Venture funding for African startups jumped by 51% to $195 million in 2017.  At Q3 of this year alone, funding for African startups has exceeded the $2 billion mark, which is far more than was raised in the entire 2020, with the bulk of these investments going to fintech startups.

To put it in context, Flutterwave, a Lagos-based payments processing and infrastructure company raised $10 million in its Series A round — one of the largest Series A rounds by an African startup, as of then, and $35 million Series B in 2020. This year, the company had closed a $170 million Series C funding round, one that gave the company the “unicorn” status with a value of over $1 billion. Flutterwave joined the billion-dollar league of African startups to have reached the elusive $1bn valuation – Egyptian payments company Fawry, Nigerian payments company Interswitch and Dubai-based e-commerce giant Jumia, and just recently, OPay. OPay, in an investment round that recorded the highest funding to go to an African startup, secured $400 million in investment from SoftBank that have raised the payments services startup to unicorn status.  

In the same vein, Cellulant, the digital payments solutions company operating in 11 African countries raised $47.5 million in its Series C round—one of the largest for a solely Africa-focused venture-funded company. The round was led by The Rise Fund, an impact investment fund run by TPG Growth, the US-based private equity group, with participation from Endeavor Catalyst, Satya Capital, Velocity Capital & Progression Africa. The investment in Cellulant is the latest endorsement of the key role African fintech companies are playing in bridging the crucial payments and financial inclusion gaps on the continent.

Africa’s fast-growing population and markets present far more important opportunities for Startups than challenges that exist; with high risks come greater rewards, and firms entering the market earlier stand to make solid returns as the ecosystem matures. Of Africa’s vast entrepreneurial potential, Nigeria and South Africa seem to be blazing the trail, with a constantly expanding business capacity for high growth potential startups. Only recently, Iyinoluwa Aboyeji stated on his official Twitter handle that the Nigerian business environment was more friendly than most of Africa’s other markets. He hinted at the Nigerian market being more free market and entrepreneur-friendly than most other countries of Africa.  

With increased innovation, and the explosion of interest in African fintechs, to meet Africa’s unfulfilled demand for goods and services, close the gaps in its infrastructure, create jobs, and decrease poverty, Africa’s fintechs are making significant strides across the continent. However, many of these fintechs in Africa are still bedeviled by peculiar problems that prevent or stifle growth within these tech startups, some of which stem from inconsistent and draconian government policies to harsh market situations. Moreso, Africa is not a country, but a continent with diverse cultures and socio-economic statuses. Taking into account the funding need of startups, a whopping 85% of small businesses experience limited access to financing which conceptualizes the funding gap in the continent.

Some of these have been highlighted in a previous post, pointing to the challenges of mismatching Silicon Valley-style investment models with Africa’s unique market. In the face of all these, many persons are asking crucial questions on how soon it would be before African fintech positions itself to rule the global market.

To achieve this, it is important that certain things are taken to note:

  • There is need for constant innovation in the fintech sector to ensure that these fintechs are not only offering the value in payments infrastructure, but as well services tech in the various ways that fintech can interface with different sectors of the economy and offer value therein. The consideration here, is finding ways to build on sector convergence to ensure that the different sectors are served with value through fintech.
  • African fintechs also have to look at the bigger picture. While many commentators regard the impetus and growth of fintech in Africa as threatening the value and relevance of traditional banking, there is but little difference. African fintechs are still heavily reliant on traditional banking infrastructure. Rather than disrupting the existing infrastructure, African fintechs are offering alternatives to reach down to the last mile, in payments and transactions services. It would be interesting to see how African fintechs can further disrupt the sector, offering viable functional alternatives for transactions across Africa. A lot of regulatory modifications would be required, nonetheless, to see this through.
  • While looking at the bigger picture, African fintechs, more importantly, have to look at big data. With the data that fintech is able to capture in Africa, especially in the informal sectors, Africa can leverage hugely on these insights to even serve a larger market. Pngme, with its recent raise of over $15 million is looking at capitulating on this through its machine learning-as-a-service model. The groundbreaking innovations in big data, internet of things, cloud-based computing and software as a service (SaaS) present a whole vista of opportunities for growth and development within the finance sector for Africa. Through these means, African fintech will be unlocking blue ocean markets, where users are unserved, and affording them value and access to financial services.

Without much doubt, the proliferation of fintech services across Africa will continue to grow as investors remain upbeat about the opportunities that are available in the sector.

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