How African fintech startups can become profitable

Noel K. Tshiani is the founder of the Congo Business Network. The organization has been actively involved in building and connecting the fintech ecosystem in the Democratic Republic of Congo since April 2019. It has organized delegations to attend the Africa Fintech Summit in the US, Ethiopia, Egypt and South Africa with the aim of finding investors and learn from leading entrepreneurs from advanced markets in Nigeria and Kenya.

The African fintech sector is booming with startups raising record amounts and expanding into new countries. But how can these companies grow and become profitable?

First, a number of factors contributing to the success of African fintech must be considered. One is the continent’s large and growing population. Africa has over 1.4 billion people and most of them are unbanked or underbanked. A huge potential market exists for fintechs that can provide affordable and convenient access to financial products and services.

Second, another factor contributing to the success of African fintech is the continent’s rapid economic growth. Africa is one of the fastest growing regions in the world and this economic growth is creating a new middle class with disposable income. This middle class is increasingly looking to digital financial services that can help them manage their money and save for the future.

Not all African fintechs are successful. To succeed, these companies must face several challenges, including:

1. Lack of infrastructure

Many African countries lack the basic infrastructure needed for fintech companies to operate, such as reliable electricity and internet access.

2. Complex regulations

The regulatory environment for fintech startups in some countries in Africa can be complex and challenging because central banks are in the initial phase of defining regulations, especially in cryptocurrency.

3. High competition

The African fintech market is becoming increasingly competitive, as more and more companies enter the space to challenge banks and mobile money operators.

Despite these challenges, there are some things African fintechs can do to gain more customers, raise money from investors and become profitable as detailed below:

1. Focus on underserved markets

One of the best ways fintechs can get more customers is to focus on underserved markets. The strategy should focus on targeting rural areas, youth and women. By focusing on these underserved markets, fintechs can tap into a large and growing pool of potential customers.

2. Prioritize customer acquisition and retention

Customer acquisition and retention are critical factors in the success of any fintech startup. African startups should focus on developing effective marketing strategies to attract new customers, while implementing initiatives to retain existing ones. Offering incentives for referrals, providing excellent customer service and developing loyalty programs are some options to consider.

3. Develop innovative products and services

Another way fintechs can attract more customers is to develop innovative products and services. Developing new payment methods, offering mobile banking services or offering microloans will position the start-up to stand out from the competition.

4. Offer competitive prices

To compete with traditional financial institutions, African fintechs must offer competitive pricing. Keeping costs low and passing these savings on to customers is the strategy to follow, especially for fintech startups looking to succeed in the diaspora to Africa money transfer business.

5. Embrace partnership and collaboration

Fintechs can also benefit from building strong relationships with banks and other financial institutions. These relationships can help fintechs gain access to capital, distribution channels and customer data. By building strong relationships with banks and other financial institutions, fintechs can accelerate their growth which can lead to profitability.

6. Get the right regulatory support

Fintechs also need to get the right regulatory support from central banks. That means working with regulators to understand the regulatory landscape and to develop products and services that comply with the regulations under development. By getting the right regulatory support, fintechs can avoid costly fines and penalties and can operate in a more stable and predictable environment.

7. Collect money from international investors

Fintechs need to raise money from investors to grow and scale their businesses. Some ways to raise money from investors include venture capital, private equity and crowdfunding. By raising money from investors, fintechs can get the capital they need to hire more employees, develop new products and services and expand their operations in promising countries in Francophone Africa.

8. Build a strong brand and reputation

Fintechs need to build a strong brand and reputation to attract customers and investors. Providing excellent customer service, offering competitive products and services, and being transparent about your business practices will help your startup in the long run.

9. Leverage data analytics

Fintech startups can leverage data analytics to gain insight into customer behavior, identify trends and make informed decisions. Doing so will help optimize business processes, drive growth and improve profitability.

10. Become profitable through patience

The ultimate goal of any business is to be profitable. Fintechs can become profitable by increasing their customer base, increasing revenue and reducing costs. By becoming profitable, fintechs can attract more investors, expand their business and create jobs for African workers.

According to McKinsey & Company, there are four key challenges facing fintech startups in Africa today on the road to profitability: achieving scale and profitability, navigating an uncertain regulatory environment, managing scarcity and building robust foundations for corporate governance.

To overcome these challenges, McKinsey suggests that fintech startups must focus on developing innovative products and services, leverage technology to reduce costs, build strategic partnerships with other stakeholders and actively engage with regulators to shape the regulatory environment to their advantage .

In conclusion, the African fintech sector is still in its early stages, but it has the potential to revolutionize how people access financial services on the continent. By addressing problems clients face with innovative solutions while focusing on the opportunities that exist, African fintech startups can continue to grow and succeed in 2023 and beyond.