African Fintech boom attracting global investment
Fintechs in Africa create financial inclusion for undeserving communities
The African fintech industry is booming.
From the number of fintechs to the size of funding, African fintech is the newest investment magnet.
Sector studies show that the African fintech industry has almost tripled in just one year (2020-2021). The estimated number of tech start-ups in Africa is now 5,200; no surprise, almost half of these are fintechs.
According to the study, as of 2020, African fintechs have brought in annual revenues of over $6 billion, enough to describe the industry as booming.
The African fintech story only makes sense as the financial sector on the continent has moved from relying on traditional funding options such as banks to smaller, more accessible and less stringent funding options.
The African fintech industry has also dealt with the pandemic-induced economic downturn. As banks struggled to stay afloat, even with fiscal restraint from governments, African fintech filled the gap.
In a continent where cash is still king, African fintech is pouring in huge amounts and showing even greater potential growth. In particular, one of the fastest growing African fintech hubs in East Africa is Kenya, Uganda, Rwanda, Burundi, S. Sudan, Tanzania and now DR Congo.
The seven countries of the East African Community (EAC) are leading the continent’s fintech growth, and sector experts estimate that if the trend maintains its current trajectory as projected, revenues from the African fintech industry are expected to almost double by 2025.
According to the McKinsey analysis, it is estimated that Africa’s financial services market could grow by around 10 percent per year, reaching $230 billion in revenue by 2025.
- The African fintech industry is now estimated to be the fastest growing startup sector on the continent.
- As of 2020, African fintech has grown with annual revenues exceeding $6 billion.
- African regulators need to invest in digital ecosystem value as fintech grows.
The fintech industry is the fastest growing start-up industry in Africa thanks to the exponential penetration of smartphone usage and expanding network coverage.
This fact is further perpetuated by the remote location of much of the continent which has previously limited the range of services that banks can offer.
With the penetration of the mobile phone into the interior of Africa, mobile money services have sent fintechs to create financial inclusion for Africa’s most excluded communities.
Not only are mobile money and other fintech services more accessible, they are generally up to 80 percent cheaper, less conditional and provide up to three times more interest in savings.
With financial inclusion in mind, governments are taking notice and offering more supportive regulatory frameworks, further ensuring that the African fintech industry’s growth competes with more mature markets, such as Vietnam, Indonesia and India.
Despite the high potential in East Africa, with countries such as Kenya standing out, South Africa still accounts for about 40 percent of the industry’s revenue.
Also in the western part of the continent, in places like Ghana, growth is at 15 percent per year and will only get higher through 2025. Then you have the larger economies coming in; Nigeria and Egypt are both expected to have annual growth of 12 percent over the same period.
While the growth rates at this early stage are higher in less developed East African countries, economies with more mature financial systems and digital infrastructure, the likes of South Africa have a greater chance to carry out more innovation in the fintech industry and implement safeguards such as regulatory technology including anti – money laundering.
But in these younger East African markets where financial systems and digital infrastructures are still in their infancy, fintech services will continue to reign in large numbers offering services ranging from underwriting, insurance, banking-as-a-service and buy-now-pay-later services within retail trade and lending to SMEs.
.The African fintech industry has several positive effects and multiplier effects on economies. The industry is creating much-needed jobs, increasing technical skills in the digital revolution and increasing economic inclusion overall.
African fintech industry, financial inclusion key to ending poverty
As the continent experiences digital transformation, studies show that over 230 million jobs in sub-Saharan Africa alone will require digital skills by 2030, making the ongoing skills adoption even more meaningful and necessary.
Furthermore, the growth of the fintech industry and the related digital transformation is also improving healthcare, education systems and even agriculture and a general increase in financial inclusion.
With such growth rates and such widespread impact, it is imperative for regulators to further create reassurance for African investors. For example, investors need assurance that governments will maintain favorable policies over time.
With digital transformation, there is also a need to formalize data systems and invest in digital ecosystem assets, including identification and tracking systems as well as the already mentioned need for strict anti-money laundering measures to protect African investors.
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There is also a need for capacity building both in terms of training human resources for the digital era at hand with specific needs for fintech, but also for the broader interconnection of industries.
Since fintech creates financial inclusion, governments need to build the foundations for the fintech structures that are built on such massive scales. Regulators must support the digital ecosystems necessary to keep the ongoing fintech growth in line with international standards and align them with their national development priorities.
All said and done, investors in African fintech are enjoying tasty returns from the sweet welcoming embrace that African SMEs and individuals have offered.
There is still a lot of room for growth; demand is high, with large underserved communities still at large. While there may be bumps in the road ahead as regulators and other players wake up to this fintech boom, growth is inevitable.
Investors looking at an opportunity in Africa would do well to venture into the financial inclusion fintech industry. That said, regulators in Africa should also put more effort into strengthening local investment in fintech, including laying down favorable policies for domestic investors entering the sector and promoting overall digital transformation.
