Will fintech’s future arrive fastest in Africa?
Updated: Jan 16
Ahead of this year’s IAMTN Africa Summit in Cape Town (22 & 23 April), we take a look at the region’s burgeoning fintech scene and how incumbent-fintech partnerships are driving the payments industry.
The likes of London and Singapore usually spring to mind when you think of fintech hubs, but Africa is looking to catch up fast.
Over the past few years, there has been a notable emergence of fintech startups across Africa. These agile businesses are helping to boost financial inclusion, with the startup sector now one of the best-funded sectors on the continent. Sub-Saharan Africa has become one of the world’s fastest-growing investment zones for financial technology firms.
Investment in African fintechs nearly quadrupled in 2018 to $357 million, with startups in Kenya, Nigeria and South Africa accounting for the largest share. But 2019 broke all sorts of funding records. According to the Decoding Venture Investments in Africa report, an overall total of $1.3 billion was raised in Africa last year, with Nigerian startups getting around 50% of this total. There’s a lot of interest from the East, and China in particular. OPay and PalmPay, two Nigerian fintechs, jointly received over $200 million in funding in 2019 - mainly from Chinese investors.
All of this activity has seen exciting new fintech ecosystems take seed in several African cities. In the inaugural edition of the Global Fintech Index City Rankings, four African cities were identified among the top 100 fintech ecosystems globally. This included Johannesburg (62), Nairobi (63), Lagos (71), and the host city for this year’s IAMTN Africa Summit, Cape Town (87).
The report was put together by Findexable, a fintech research firm, and its partners, including Crunchbase and the Africa Fintech Network. The rankings were compiled by scoring several factors, such as the number of fintech startups and hubs in each city, the scale of investment and the local regulatory landscape and support infrastructure.
Given the need and potential upside, Findexable predicts that “fintech’s future is likely to arrive fastest” in Africa. And there are plenty of signs that industry leaders agree, with Paypal, Visa, Mastercard and Stripe all investing in African fintech startups.
Plugging the gaps
Interestingly, African fintech startups are not so much disrupting traditional financial services (as in the West) but rather they are building up an underdeveloped banking and financial services industry. They are creating a raft of innovative tech-based products and solutions including mobile money and online payment processing, thus plugging the gaps that exist in local financial service industries.
This is particularly true in South Africa, where the more successful fintechs are targeting key market niches that the country lacks. For example, JUMO is focused on digitalising every South African’s banking experience and making services accessible in the more remote rural areas. Yoco, meanwhile, is targeting online payments and providing small businesses with an easier alternative to get paid without accruing too many fees.
A number of African startups and telecoms firms are bringing digital banking to underserved areas of the continent, often in partnership with traditional banks and financial institutions. One well-publicised example is Equity Group, Kenya’s second biggest bank by assets, signing a partnership agreement with telecoms operator Safaricom in April 2019.
Such partnerships are increasingly common. In Dec 2019, MFS Africa announced a partnership with Visa that will help to bridge the gap between the mobile money sector in Africa and the latest capabilities in online digital payments. Mobile money wallets are of course prevalent across Africa, but without a virtual or physical network credential associated with them, many international online services are unavailable to users. This partnership will solve this problem, with MFS Africa distributing Visa payment credentials across multiple markets in Africa.
A large part of IAMTN’s work is to help forge these partnerships and drive industry collaboration. IAMTN works closely with financial institutions, fintechs, regulators and other key stakeholders to enable effective, safe and reliable cross-border payments and remittances.
Veronica Studsgaard, Founder and CEO, IAMTN, said: “Our event in Cape Town will provide a unique opportunity to facilitate high-level networking between the region’s fintechs and the wider private sector, policy makers and the public sector. It will be the definitive gathering of industry leaders, who will come together to collaborate and build a brighter future for the industry.”
“In the remittance sector, many types of cross-border partnerships are needed to operate an efficient international money transfer service, which in turn contributes to reaching the UN’s Sustainable Development Goals (SDGs).”