African FinTech Reaches New Heights

The African fintech landscape shows incredible resilience to the pandemic even after the turmoil in global markets, showing that the momentum is driven not only by capital availability but by value creation, solving real problems within large user markets.

FREMONT, CA: Although the global pandemic had a significant adverse impact, the African fintech realm observed a continuous rise. Increasing access to mobile devices, internet connectivity, and robust network infrastructure has accelerated the African continent into the second fastest market for global banking and payment businesses. Africa’s prominent tech unicorns primarily include fintech companies.

The African continent allows companies to address enormous challenges with wider potential user bases without facing many initial issues from incumbents or legacy competitors. This is due to the low proportion of the continent’s population currently having sufficient access to financial products and the potential for digital solution deployment pulled out by the rise in mobile and internet access.

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For instance, the lack of interconnectedness in the cross-border banking infrastructure and a substantial migrant labor workforce led to the need for ways to transmit money across regions safely. This resulted in mobile money and third-party payments systems becoming segment leaders, with more than half of the world’s mobile money customers now based in Africa. Currently, the continent accounts for three-quarters of the world's mobile money and peer-to-peer transactions by volume.

Servicing the underbanked and migrant workforce has also become a key driver for innovative financial solutions in Africa. With such crucial factors, the addressable user markets are huge, and with the right targeted solutions, the potential for massive growth is significant. In recent years, the fintech industry has accounted for more than 25 percent of all venture capital rounds as an investment segment. African fintech startups can also perform more with dollar-based capital raises if they possess locally based operations.

The sector is gaining traction, leading to speculation about whether the situation for African fintech is sustainable in the contemporary global market, where current VC startup valuations are failing. The South African payments sub-sector is already saturated and ripe for consolidation. However, statistics show a different view; in the first quarter of the previous year, Africa was the only place to record triple-digit growth based on a few databases investigating venture funding, most of which is streaming into fintech.

This has arrived at a time when, globally, the indicators are moving in a different direction, and venture funding is becoming more cautious. Africa’s fintech growth has reached a point when venture investors are looking for leaner and faster-growing opportunities that can do more with their capital within a shorter period.

However, the biggest challenge fintech encounters are global stagflation and investors becoming more careful in their investment choices and the risks they are willing to take. While some sub-segments, such as payments, are at their peak, others have extensive opportunities, such as alternative lending, digital investment, and neo-banking. Moreover, many African countries have not reached the heights achieved by countries like Nigeria, Kenya, South Africa, and others known for their fintech advancements. This indicates that the fintech growth in Africa still has several runways to be traveled.