The fintech sector takes the biggest cut of Africa’s startup funding

Africa is at the forefront of financial innovation, with the fintech sector accounting for the highest number of venture capital (VC) start-up deals closed across Africa in 2021.

This is one of the main findings of Mastercard’s white paper “The Future of Fintech: Rapid Growth Attracts Smart Capital” which provides a landscape of the fintech sector across Africa.

The report details Africa’s success in the fintech industry and how the continent has leapfrogged to position itself at the forefront of payments innovation.

The report found that the fintech sector accounted for 61% of the $2.7 billion in seed funding channeled to African startups in 2021. The sector also accounted for 27% of the record number of deals closed in the same period.

Fintech start-ups on the continent grew by 81% in 2021, with South Africa, Nigeria and Kenya emerging as key hubs on the continent, attracting the largest rand value of investment from VC firms and fund managers in 2021, according to the research.

The three countries are also among those leading the transition to digital payments, with governments introducing the infrastructure and policy frameworks that enable this growth well in place.

Major deals worth more than $100 million each have characterized the industry in the region, with innovation largely driven by the need to solve multiple pain points, with a focus on increasing financial and digital inclusion.

“It is encouraging to witness the growth of the fintech landscape across the region, creating more opportunities for start-ups, scale-ups, enablers and micro, small and medium enterprises (MSMEs) to bring more people into the digital fold,” explains Ngozi Megwa, senior VP of digital partners and enablers, Eastern Europe, Middle East and Africa, Mastercard.

“The growth in the number of fintech companies in Africa reflects global fintech funding that jumped to a new record of $131.5 billion in 2021. The number of fintech unicorns reached 235 with 34 alone born in Q42021. Fintech companies now represent more than 20% of the total tech unicorn value, compared to 15% the previous year.”

The study shows that on the demand side, the role of MSMEs has been decisive for fintech’s growth.

MSMEs are using fintech and e-commerce solutions to scale, source and reach. The growth in alternative payment rails and new platforms is shaping the commercial landscape.

As in the rest of the world, the COVID-19 crisis lit a fire under the local e-commerce space, leading online stores to reap the benefits of this major shift in shopping trends.

Last year’s Mastercard Economics Institute: 2022 Economic Outlook found that South African consumers bought up to 30% more online in 2021, compared to the previous year, with a significant increase in e-commerce subscriptions.

As the fintech ecosystem in Africa increasingly adopts new technologies to deliver financial services, governments, regulators, financial institutions, payment and technology companies, financiers and entrepreneurs are working together to be at the forefront of financial innovation and develop applications.

Around 45% of the population in Africa does not have an official identity, making eKYC a seamless entry point for fintech.

“Regulators across different countries in Africa have adopted a collaborative approach to enable the introduction of new solutions by fintech companies. Africa has proactive regulators that promote innovation for financial, digital and economic inclusion,” the study notes.