Fintech Landscape of South Africa 2022

What have been the trends and the current situation in one of the most important economic markets in the Middle East and Africa (MEA) region – South Africa – especially with fintech in 2022?

As highlighted by Fintech Times‘ Fintech: Middle East and Africa 2021 Rapport is South Africa historically an important trade and investment center for the African continent to do business globally.

It is unique in that it has two global cities – Johannesburg and Cape Town. In terms of financial services as a whole, the largest city in South Africa is home to some of Africa’s leading banks and financial institutions, such as Standard Bank Group, FirstRand, Absa Group, Investec and Nedbank Groupand suggests it as a potential fintech magnet for Africa.

It is not only the home of the country’s primary financial cluster, but has developed an ecosystem where fintech can thrive.

In Cape Town, the city accounts for 75 percent of the country’s venture capital agreements. Of the more than 500 entrepreneurial companies in Cape Town’s technology sector, around 20 per cent are in e-commerce and SaaS while 15 per cent are in fintech.

South Africa is unique compared to the rest of Africa in terms of both financial services as well as insurance in that the country actually has a fairly high banking population as well as one that is insured. This is a stark contrast compared to its other African neighbors. In addition, the ecosystem is quite developed across both fronts.

When it comes to banking, the majority of South Africans (at least 67 percent) have a bank account. In terms of insurance, South Africa, according to a report from McKinseyhas over 80 percent of the prizes from all over Africa continent. In fact, South Africa has one of the world’s highest penetration rates for insurance.

Similarly, unique to South Africa is not only the high mobile penetration speed, but the high frequency of smartphones in the country. For example, 95 percent of South Africans now have a mobile phone. In addition, what sets it apart from large parts of sub-Saharan Africa is that 91 percent of all phones in the country are now smartphones.

While previous attempts to launch mobile money platforms in South Africa failed, due to the fact that a majority of citizens had access to traditional bank accounts in a market that has a strong, well-established financial system, Vodacom and MTN targets the unbanked again through superapps in an attempt to disrupt the traditional financial systems.

One reason why mobile money has not been as successful in South Africa has been the regulations behind it. South African regulations require a seller to have a specific license for a financial service provider. In East Africa such as Kenya and Tanzania, they do not have regulations like this, and therefore the growth in the use of mobile money has skyrocketed.

While the advent of internet and mobile banking has been impressive in the local market, mobile money services have struggled to make a tangible impact in South Africa.

In terms of VC funding this year, in the first quarter of this year, South Africa was the third highest in Africa – after Nigeria and Kenya and led Egypt in fourth place, with $ 228 million in funding raised during the first three months this year .

To note, South Africa tracks well from a financing perspective. From January 2015 to May 2022, 357 individual South African technology startups raised $ 1 billion ($ 993,684,600), a number topped by Nigeria alone during that time.

Funding, both in terms of the number of start-up companies supported and the total count secured, has generally increased from year to year, especially in the last three years, and this year turns out to show that the country will have another record year.

In the case of South Africa’s fintech sub-sectors, just like the Middle East and Africa (MEA), payments lead by 28 per cent in first place, followed by lending by 21 per cent in second place, in third place is investech with 19 per cent, whereby insuretech is in fourth place by 10 percent in a draw with blockchain. Financial management takes four percent and “other” takes the remaining eight percent.

Buy now, pay later (BNPL) provides an opportunity in South Africa. Specifically, in South Africa alone this year, BNPL is expected to grow almost 100 percent (97.5) to reach over $ 450 million ($ 457.3) by the end of the year. Some of the largest players include such as Payflex from South Africa, as last year Australian BNPL Zipper took a 25 percent stake.

Despite the positive fact that South Africa has a more advanced ecosystem for financial services and insurance on the African continent, it remains to be challenged. For example, in October last year, only 44,912 small and medium-sized enterprises (SMEs) had sent a financing request to commercial banks, representing two percent of all South African SMEs, and almost 40 percent of those requests were still pending.

In addition, cryptocurrencies are quite popular in South Africa, where it is one of the largest users of it globally and one of the highest in the MEA along with others such as Kenya, Nigeria and Togo.

To note, include key players in the broader fintech area The South African Reserve Bank, Financial Sector Conduct Authority (FSCA), Payments Association of South Africa (PASA), South African Insurance Association (SAIA), Insurance Institute of South Africa (IISA), Fintech Association of South AfricaThe Banking Association South Africa (BASA).

Despite its challenges, South Africa is an important regional hub for fintech and broader digitalisation on the African continent; it will continue to be so for the foreseeable future.