Sustaining growth in the fintech ecosystem – New Telegraph

Funding for Nigeria’s fintech has been relatively low compared to what was achieved a few years back. This has made stakeholders feel more concerned about the declining strength of the sector, and devised strategies to maintain the success previously recorded in the ecosystem. Abolaji Adebayo writes

Africa is known for establishing new businesses, where the average rate of entrepreneurship is one of the highest in the world. While the lack of employment often drives start-up activity in developing regions, market opportunities and the growing digitization have increasingly motivated African entrepreneurs, leading to more start-up creations in the technology sector. By introducing innovative digital services, the continent’s tech startups have attracted interest from both international and local investors, with the total funding value growing from less than $190 million in 2015 to over $2 billion in 2021. Africa’s largest economies present the most competitive startup environments . Considering several indicators, such as the number of startups, incubators, coworking spaces and the overall economic ecosystem, South Africa, Nigeria and Kenya were the most favorable African countries for startups in 2022.

The rise of fintech

startups Mainly due to the lack of formal financial services, the fintech sector has boomed in Africa in recent years. To compensate for low bank account penetration and credit card ownership on the continent, several startups launched new digital payment solutions, such as mobile money, which are more accessible than formal financial services. Capital secured by fintech startups grew significantly from $55 million in 2015 to over $1 billion in 2021, and the fintech sector accounted for most of the tech companies that received funding in Africa in 2021. That year, the highest funding value went to Nigerian OPay, the East African chipper and the Senegalese wave – all provide digital financial services.

E-commerce

E-commerce and retail tech startups secured the second highest funding volume among Africa’s tech startups in 2021. Similar to the fintech sector, capital raised by e-commerce and retail tech companies increased significantly in 2021 compared to previous years . Accelerated by the COVID-19 outbreak, the growth of Africa’s e-commerce sector highlighted new market gaps, including the need for support and logistics services to the already established online marketplaces. Home to Africa’s e-commerce giant Jumia, Nigeria has traditionally been the leading e-commerce hub on the continent. However, Egypt recently emerged as a strong e-commerce market and secured the highest startup funding value in 2021. Although other technology sectors have expanded to a lesser extent in Africa, including e-health, ed-tech and agri-tech.

Investors

Obtaining early-stage funding is crucial for startups. Entrepreneurs often seek external investment to raise the capital needed to develop their startup idea. In recent years, the number of venture capital (VC) deals in Africa has increased significantly, jumping from around 70 in 2014 to over 300 in 2020. Around a third of participating investors were based in the US as of 2020, while other leading origins of early stage investment were South Africa, Great Britain and Nigeria. Most of the investors were fund managers and investment firms, and accounted for almost 60 percent of the VC deals. The gradual growth in investment in recent years led to the emergence of new unicorns, i.e. privately owned companies valued at over $1 billion. In 2021, four African startups reached unicorn status, a record on the continent.

Shrinking funding

But with the current economic trend worldwide, the fintech ecosystem in Nigeria and Africa has been dead. Funding for the sector has been reduced in 2022, signaling a doom that must be contained beforehand. It is expected that in 2023 and beyond, the ecosystem will thrive in Nigeria and Africa, but the current situation has given the stakeholders to rethink and find means to save the sector. Recently, African fintech stakeholders gathered to map out growth strategies and find options to retain the ecosystem. Amid slow funding for African fintech startups, stakeholders in the ecosystem are planning how to sustain the growth recorded on the continent in recent years. The challenge was the main discussion at the 5th Africa Fintech Forum held in Abidjan, the capital of Ivory Coast. As of 2021, 576 fintech startups were headquartered in Africa. The number of companies increased from 491 in 2019, a growth of 17.3 per cent. Fintech is the most populated sector in Africa’s tech scene. It also receives the highest share of funding among other start-up categories. In 2021, 154 fintech startups were located in South Africa. The country counted the highest number of such companies in the Africa region. Nigeria followed closely with 144 fintechs, while another 93 were headquartered in Kenya. Together, the three countries housed over 65 percent of African fintech, which totaled 576 companies in the same year.

Leading cities

in Africa In 2022, according to data provided by StartupBlink, the best city for startups in Africa is Lagos, in Nigeria, with a total score of 8.38 points. The largest city in Africa and a major financial hub for Nigeria and the entire continent, Lagos ranked 81st out of 1000 cities worldwide. Cape Town and Johannesburg, in South Africa, followed as leading cities for startups on the African continent.

Cooperation

As the situation becomes worrisome, the main concern of the stakeholders across Africa is what should be the next step for fintech in the region in order not to lose its glory. According to them, the continent’s fintech must now work together to achieve a common goal of improving payments across Africa. They said the collaboration will also help them maintain current growth even if external funding declines.

Different growth

Specifically, HPS Business CEO Gary Ceaplen noted that while fintech’s past lies in the US, and its present remains entirely in Asia, Africa needs to position itself for what’s to come to take advantage of the next fintech revolution. However, he noted that growth in financial services across Africa’s 54 would not be uniform. He said: “While the lion’s share of value in the market (about 40% of revenue) is currently concentrated in South Africa, which has the most mature banking system on the continent, Ghana and Francophone West Africa are expected to show the fastest growth at 15 percent and 13 percent per year until 2025.

Expected growth

There were 144 fintech startups in Nigeria. Compared to the previous years, the number of startups in this sector experienced an increase. Nigeria actually has some of the highest amounts of fintech startups in Africa. He added: “Nigeria and Egypt follow each other with an expected growth rate of 12 percent per annum over the same period until 2025. Overall, we expect the growth opportunities in the fintech ecosystem are likely to be concentrated in 11 key countries – Cameroon, Ivory Coast, Egypt, Ghana, Kenya, Morocco, Nigeria Senegal, South Africa, Tanzania and Uganda, which together accounted for 70 percent of Africa’s GDP and half the population.”

Big players

Digital banks first rose to prominence by offering payment services, and most did not require the high minimum deposit levels required by traditional banks. Customers looking for financing can turn to a large number of loan apps, although lenders must have robust loan recovery procedures where they offer unsecured financing. Major players include Fairmoney, which offers loans within five minutes without collateral, using repayment history and smartphone data to make decisions on sums up to N500,000 ($1,204). Palmcredit claims to be even faster, providing loans within three minutes, again unsecured but capped at N300,000 ($722). Branch appears to be the most popular lending app, with 10 million downloads by June 2022, although of course not all those who download financial apps actually use them. App-based companies are advancing into more and more sectors, including equity investing, with fintechs Cowrywise and PiggyVest encouraging people to invest for the first time. Established banks and other financial services companies will have to respond to such products by cutting their investment fees, by making investments easier and, above all, by ensuring that people can invest even small sums.

Advocate for growth

The president of the Africa Fintech Network, Dr. Segun Aina, said the network had sought to unite fintech across Africa, while engaging central banks across the country on the issue of regulation. He said: “Our mandate at the Africa Fintech Network is to be the platform that unites African fintech and acts as the voice of African fintech in the world. “We are advocating for all fintech in Africa to address the challenges facing fintech, number one of which is regulatory issues. And to address this, we are working with the African central banks to ensure that we are of one mind so that regulations from the central banks , which are the primary regulators of fintech, will be done in a way that will not stifle innovation, but promote innovation.” On the next step for African fintech, Aina said the stakeholders would continue to offer solutions and look for the next areas of opportunity for fintech on the continent.

“What’s next for African fintech is a very big question because funding is drying up today for African fintechs. Fintech companies in Africa over the last 3 to 4 years have witnessed an influx of funds, but this year it has been somewhat slowing down. “Today we are witnessing a lot of layoffs even in fintech. So, what’s next for African fintech, where is the next opportunity for them? We expect the answers to come from the experts,” he said.

Last line

With the right collaboration, it is expected that stakeholders in Nigeria and Africa’s fintech ecosystem will come up with viable strategies to address the current challenges and keep the sector growing.

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