Checking in on Fintech in Africa

Fintech in Africa has experienced a growth spurt in recent years. Last month, investment banking firm FT Partners took a deeper look into the state of fintech in Africa in a report titled Fintech In Africa: Momentum is Building and the World is Taking Notice. The report examines underlying drivers of recent growth, offers details of the fintech investment scene, and provides an update on the state of important trends such as challenger banking and open finance.

Below are a handful of highlights from the 207-page report, which you can check out in its entirety on FT Partners’ website.

Underlying drivers of growth

The report highlights the multiple factors currently creating the perfect storm for fintech growth in Africa at the moment. The continent’s young, underbanked, tech-savvy population has long-favored cash, but is showing increasing favor for mobile-first technologies as mobile adoption rises and governments seek to further financial inclusion.

Some of the supporting statistics include:

  • Almost half of the world’s mobile money customers reside in Africa
  • More than half of Africans are unbanked or underbanked
  • 65% of those in Sub-Saharan Africa are unbanked or underbanked
  • 90% of payments are still made using cash
  • Mobile penetration is 80%
  • 47% have access to internet
  • The African Continental Free Trade Area Agreement went into effect in 2019, opening up cross-border payments and creating the potential for a single currency.

State of Open Banking

It is well known that open banking and open finance create a wealth of benefits to end consumers– including increased control over use of their data. In addition to this, Africa is poised to benefit from open banking, which is expected to extend banks’ reach to rural populations and lower costs and barriers to entry of banking services by facilitating innovation in the space.

Nigeria, Kenya, and South Africa have each made inroads into creating formal regulation surrounding open banking:

  • Nigeria’s Central Bank issued its regulatory framework for open banking in 2021 and is currently working on operational, technical, and security guidelines
  • Kenya’s Central Bank emphasized open infrastructure as a strategic pillar for the financial services industry as part of its four-year-strategy announced in 2020
  • South Africa is home to six banks currently offering customers open banking services.

Challenger banking scene

Many fintechs have risen to serve the underbanked or unbanked populations in Africa, a group that makes up more than half of the country’s total population. FT Partners reports that many challenger banks are finding initial success in serving as alternative lenders to customers that lack access to traditional banking channels, and then building out a more robust set of services on top of their lending offering. Key to this, the report notes, is an efficient and reliable underwriting model.

Fintech investment scene

In 2022, African fintechs garnered $1.5 billion in funding across 135 deals. This is up significantly from 2019, when the continent’s fintechs brought in $340 million across 27 transactions.

In such a cash-heavy, underbanked society, it is no surprise to see that payments and banking technology was the most popular sub-sector for investors in 2022, having received more than $2 billion in funding volume. The report also notes that the payments and banking technology is responsible for more than half of the fintech financing deals over the course of the past six years.

New investors in the African fintech space over the past two years include:

  • Vitruvian
  • QED
  • Silver Lake AQD
  • CommerzVentures
  • Dragoneer
  • Fidelity
  • Insight

Photo by Nothing Ahead