FintechTechnologyFintech in Africa

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Fintech is a combination of the two terms “financial” and “technology”. It refers to a business that uses technology to amplify financial services and processes. It has very broad applications like mobile banking, insurance, and cryptocurrency. Fintech is a fast-growing industry serving both consumers and businesses. The term’s origin can be traced to the early 1990s with the “Financial Services Technology Consortium”, a project initiated by Citigroup to facilitate technological cooperation. However, only since 2014 has the sector attracted the focused attention of regulators, consumers and investors.

The African Fintech space has been on the rise. It grew by 60% between 2017 and 2019. In 2019 fintech sector remained the most popular among investors, with 77 fintech startups raising a combined US$107 million. According to the Briter Bridges Africa’s Investment Report 2020 , financial technology companies retained the lion’s share of funding, taking 31% of total funding that went to African Companies in 2020. Since January 2015, 277 fintech ventures have banked US$874,968,465, more than twice that raised by any other vertical over the same period. The amount raised by fintech startups on the continent is growing each year, at even greater rates, with the sector having already doubled its 2020 total in the first six months of 2021.

Finnovating for Africa 2021 report , found that fintech businesses are more likely to be acquired than those in any other space. The sector has seen seven acquisitions in a period of two years, compared with 10 in the previous eight years; and in the reported, the US$200 million acquisition of Nigerian fintech startup Paystack by Stripe last year can lay claim to one of the landmark moments of the African tech space in the last decade.

Africa’s fintech activity initially started in payments but quickly expanded to other areas including lending, asset management, investing and insurtech. Fintech is enabling financial integration and serving as a catalyst for infrastructural and agricultural development. It is setting the path for the development of a digital economy in Africa.

 “No space has quite the potential impact of the fintech space when it comes to impact – and profits – in Africa, with startups operating such platforms able to significantly address the major issue of financial exclusion on the continent and thus promote development in all sorts of other areas,” ~ Disrupt Africa co-founder Tom Jackson.

South Africa, Nigeria, Kenya and Egypt have the three most developed fintech ecosystems in Africa, Fintech: The Middle East and Africa 2021, a report by Fintech Times that analysed the fintech ecosystem in the Middle East and Africa (MEA) classified Uganda, Morocco and Rwanda as ‘tier three’, being “markets to watch” that are predicted to convert to emerging hubs should their growth and focus on fintech continue. South Africa, Kenya, Egypt and Nigeria were classified in the emerging fintech hub category (“tier two”).

South Africa was an early mover in fintech regulation and development, welcoming digital innovation and supporting electronic money solutions as early as 2009. According to Fintech Africa, data differs from one source to another, but it is estimated that South Africa is home to about 200 fintech companies that cover a wide range of products from insurtech and cryptocurrency, to lending and wealthtech.

Nigeria is Africa’s largest economy with a population of 200 million, home to Africa’s largest fintech ecosystem, where fintech startups have raised over $600 million in funding between 2014 and 2019 and more than 200 fintech companies are providing essential services. Nigerian Fintechs are primarly focused on payment and consumer lending. The country’s thriving fintech sector has been driven by its youthful population, increased smartphone penetration and a focused regulatory drive to increase financial inclusion and cashless payments.

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Notable fintech startups from Nigeria include companies such as CowryWise and PiggyVest in investment and savings, that offer millennials and young professionals with mobile apps that allow them to conveniently save their money and earn more interest than they would at a traditional bank, in lending, startups like Carbon and Renmoney use alternative credit-scoring algorithms to provide instant, unsecured, short-term loans to individuals. There is Kudi, a bank agent network that aims to bridge the gap between the cash economy and digital solutions; Lidya, an online lending startup for small and medium-sized businesses (SMEs); and Kuda, Nigeria’s first mobile-only bank licensed by the central bank.

In Kenya, fintech development has been propelled by the mobile money revolution trigged by M-Pesa, the SIM-based mobile banking service launched by telco giant Safaricom in 2007. M-Pesa allows users to deposit, withdraw, transfer money, pay for goods and services, access credit and savings, all with a mobile device, and combines Safaricom’s mobile infrastructure with an agent model. Since its launch, M-Pesa has spread quickly and expanded to seven countries. As of June 2020, it had more than 30 million active users in Kenya out of a total population of 52 million, according to data from the Communications Authority of Kenya .

 “We are seeing the increasing maturity of the fintech ecosystem in Africa. Startups are building out their solutions for the benefit of their customers, expanding to new markets, and raising millions of dollars in capital. It is an exciting time to be involved in African fintech, whether you are an entrepreneur, investor, traditional financial institution or customer,” said Tom Jackson, co-founder of Disrupt Africa.

According to Investocracy News , there is still a long way to go for Africa as its starting conditions are unsatisfactory and unique. Access to internet stands at a meager 23%, while in developed countries it is around 85%, which makes it difficult for businesses in the region. Banking penetration is at only 17% on average, while in developed countries it is more than 60%. This leaves much more scope for new entrants to take over the market.

Diana Thuo

Financial Engineering undergraduate with deep interests in Personal Finance and Investment.

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