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 at 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, details the fintech investment scene, and provides an update on the state of key 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 full on FT Partners’ website.

Underlying drivers of growth

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

Some of the supporting statistics include:

• Almost half of the world’s mobile money customers live 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 in cash
• Mobile penetration is 80%
• 47% have access to the internet
• The African Continental Free Trade Agreement entered into force in 2019, opening up cross-border payments and creating the potential for a common currency.

State of Open Banking

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

Nigeria, Kenya and South Africa have each intervened in creating formal regulation around open banking:

• The Central Bank of Nigeria issued its Open Banking Regulatory Framework 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 that currently offer customers open banking services.

Challenger banking scene

Many fintechs have risen to serve the underbanked or unbanked population 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 who lack access to traditional banking channels, then building out a more robust set of services on top of their lending offering. The key to this, the report notes, is an efficient and reliable insurance model.

Fintech investment scene

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

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

New investors in the African fintech space in the last two years include:

• Vitruvian
• QED
• Silver Lake AQD
• CommerzVentures
• Dragons
• rendering
• Insight

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