Nigeria, 10 others to lead $230 billion revenue growth in African fintech

African fintech companies could see their revenues jump to around $230 billion by 2025 ($150 billion excluding South Africa, which is the largest and most mature market on the continent) according to analysts at McKinsey.

The growth opportunity is likely to be concentrated in 11 major markets, including Cameroon, Ivory Coast, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South Africa, Tanzania and Uganda, which together account for 70 percent of Africa’s GDP and half of its population.

However, growth will be possible if these markets replicate the levels of fintech penetration achieved by Kenya, which has one of the highest levels of penetration in the world.

The estimated revenue growth of $230 billion represents eight times today’s value. While cash is still used in 90 percent of transactions in Africa, the McKinsey report shows that fintechs on the continent have made significant progress with estimated revenues of around $4 billion to $6 billion by 2020 and average penetration levels of between 3 and 5 percent (excluding South -Africa).

The dominance of cash represents an opportunity for fintechs, especially those with agile structures that have found it easy to take a share of the expanding market.

Also read: IT, fintech have strengthened financial inclusion – NPF Microfinance MD

There are several trends driving the growth of fintech in Africa, including increasing smartphone ownership, falling internet costs and expanding network coverage, as well as a young, fast-growing and rapidly urbanizing population.

The COVID-19 pandemic was a catalyst that drove existing trends towards digitization and created a fertile environment for new technology players. Conversely, it caused significant hardship and disrupted lives and livelihoods across the continent.

McKinsey predicts that growth in financial services across the 54 countries will not be uniform. South Africa already accounts for 40 percent of the share of value in the market, because it has the most mature banking system on the continent.

The region and country expected to see the fastest growth are Francophone West Africa and Ghana with growth of 13 and 15 percent per year respectively.

Nigeria and Egypt are tied for an expected growth of 12 percent.

“Despite a slowdown in funding in line with global trends, we expect significant growth and value creation ahead for the fintech industry in Africa,” McKinsey analysts noted in the report.

South Africa and Nigeria are seen as having more mature financial systems and digital infrastructure, may see more innovation in advanced financial services, including business-to-business (B2B) liquidity and regulatory technology such as anti-money laundering and know-your- customer (KYC) compliance.