When will African fintech startups start building global solutions?

Financial technology companies in Africa are at the center of the continent’s startup ecosystem. They continuously receive the largest share of funding and have extracted more than half of the continent’s unicorns. Based on the banks’ precedent, these relatively new actors fill the gaps that the banks have not been able to fill, with solutions that target all Africans, no matter how little resources they may have.

For most of these startups, the mission is clear: they need to tap Africa’s 57% unbanked population. But is this thinking small? Should more African startups look towards exporting their solutions beyond the continent’s shores? It is, after all, a signal of the maturing of a consistently funded industry. And when building for the globe, the quality of solutions is expected to increase for the average African.

At the recent GITEX GLOBAL, an annual technology event that brings together technology innovators from around the world to network, learn and discuss the next best in global technology, the quality of solutions displayed by African start-ups reflected the infancy of our technology ecosystem. In the same house where engineered AI holograms proved they could be very “human” and effective as customer service representatives, African startups showed flagship lending and remittance solutions to the world, prompting TechCabal to ask an important question: when will Africa start to build for the world?

Barely a month after GITEX, this conversation resurfaced in a panel session at Fidelity International Trade and Creative Connect (FITCC), London. Once again, stakeholders in the African tech ecosystem gathered to discuss opportunities in the African fintech space, spotlighting the opportunities for fintech startups to expand their solutions to markets beyond Africa.

The five-person panel consisted of Edidiong Uwemakpan, Group Leader, Marketing and Communications, Moniepoint (formerly TeamApt); Adedoyin Odunfa, MD/CEO Digital Jewels Africa, a company that handles compliance and risk management for technology companies, with roots in 15 African countries; Ben Champion, CEO of Nanumo, a B2B startup that helps fintechs automate manual processes and receive money; Sukhi Srivastan, Head of Sales and Business Development, AZA Finance; and Ovie Isiekpe, VP of Growth, VertoFX.

“Expanding into other markets provides wider footprints and increased volume of transactions for African startups,” Srivastan said, maintaining that expansion should be a secondary consideration for startups — the only caveat being startups building cross-border infrastructure or products with an international theme . According to her, the quality of solutions in the African market is far more important than the number of people they reach, and entrepreneurs must ask themselves whether their solutions require expansion or new replication in other markets.

Relevant to this conversation is the question of where in the world Africa should build fintech solutions for. Will a Lagos-based startup export its remittance solution to the US and compete against Google Pay, Apple Pay, Stripe and Paypal? Or will a digital lender in Nairobi join the race to “introduce digital services” to SMEs in Europe? These are unlikely, and may even sound sarcastic, given Africa’s backwardness in global technology and digital development.

The reality is: for Africa to build for the world, it must first build for itself and tackle domestic problems with world-class solutions. Our logistics system operates far below efficiency, intracontinental supply chains are fragmented, and apart from the few fintechs connecting Africa through payments, cross-border payments in Africa are burdensome, costly and complex.

In fact, when you buy cedis with naira for example, what happens in the backend is that the naira is exchanged for dollars, which are then used to buy cedis, resulting in the disappearance of funds from Africa, an inflation of the actual value of the dollar, and increased costs are sent across the system – definitely not the kind of solution we should be exporting to the world.

“African fintech startups should consider scaling solutions only after working locally,” was how Champion put it. The CEO of Lagos and London-based Nanumo believes that solving domestic pain points is the origin story of successful global fintechs, and Africa must follow suit if local startups want to etch their names on the global fintech wall of success.

Africa is one big disconnected family

Globally, nuances in different markets show the possibility of success or failure for startups. Product owners agree that cultural subtleties and regulatory patterns are crucial for broad use of products, especially in new markets. Admittedly, these differences can affect operations from country to country, but in Africa, interoperability issues are at the center, to the detriment of key sectors of the continent’s economy.

For example, intra-African trade and logistics are generally expensive and difficult to track, sometimes costing twice as much as international standards. Traveling to other African countries can also be extremely demanding, with most countries – especially the wealthier ones – requiring their hard-to-obtain visas from nationals of other countries on the continent.

Africa’s richest man, Aliko Dangote, has said he needs about 38 visas to move around Africa, the same continent most Europeans freely waltz into. This disconnect kicks in when Africans try to pay for services or transfer money within the continent . The isolation of African banks and financial institutions makes cross-border payments difficult, to say the least.

Fortunately, the continent is finally pushing high-level solutions to build Africa’s connectivity: The African Continental Free Trade Area (AfCFTA) as a policy-driven initiative to optimize and stimulate cross-border trade and logistics, and the Pan-African Payments and Settlement System (PAPSS) to ensuring efficient and near-instant payments between African financial institutions. PAPSS is a dream come true for fintechs in Africa, as they can now leverage the system of connected African central banks to drive fast and easy payments within the continent.

The challenges of global expansion

News of African startups expanding and performing well in global markets is always a joy for the African community at home. It puts the spotlight on the quality of solutions and founders active in the African technology ecosystem. Whether it’s Paga expanding into Mexico, SWVL expanding into Asia, or Moove expanding into the UK, the encomiums eventually trickle down to the African tech ecosystem. But as glamorous as this may be, global expansion comes with significant challenges.

“It is a challenge to effectively run a global back and front office,” Srivastan contributed to the panel. “It’s the licensing and account aspect that can sometimes be difficult to navigate, followed by the need for efficient machine-like operation.” For the Aza Finance manager, this can be difficult to understand before a start-up takes the global expansion route.

Moniepoint’s Uwemakpan made it clear that she is excited about the prospect of African fintech expanding into Europe. According to her, the policies in Europe are stable and favorable for fintech companies. “There’s also a pool of experienced and affordable tech engineering talent out there, and I love that the most,” she said.

She is right after all. As true as it is that great talent can help push a company forward, unfavorable regulations can move a company backwards much faster. The regulatory climate in an optional market can ultimately make or break a startup. For example, ride-hailing startups raised millions in VC funding and expanded into the Nigerian market only to be shut down completely in 2020 by a rather unexpected policy. This shows how crucial regulatory climates are for startups when they seek to expand into global markets. Acquisitions can also be a direct means of navigating regulations in frontier markets.

On the whole, global expansion is not a new concept for African startups. There are clear success stories, and there will be many more as the ecosystem matures. But we must not forget that expansion is always nice to have. The core focus of startups, African or not, fintech or not, is to leverage innovation to solve hard problems quickly. As more African startups achieve product differentiation, partner at scale, and do great work, they will eventually become ripe for expansion while making the lives of users better.

Ecclesiastically, African founders should first seek solutions to problems, then many other things – including expansions and mega valuations – should be added to them.