Fintech has irrevocably changed the generational ways of buying, selling, saving and borrowing. In developed countries, this has long been a usual thing. But the digitalization of the sector is also proceeding at a faster pace in the region where, not so long ago, a simple money transfer from the phone was a miracle. So, Africa.

Market: only growth so far

Global venture capitalists have accurately calculated the gigantic potential of the continent. After a short “COVID” pause in 2020, the fintech sector in Africa soared last year to an all-time high. With at least a twofold increase in investments, a 50% increase in the number of transactions was noted. (1)

More than a third of investments in Nigerian fintech companies come from US venture capital funds; the rest is Asian money, in particular Chinese. Large corporations are also active in the market. By the way, the heads of local investment funds are gradually beginning to perceive the predominance of Western money in Africa as a slap in the face to them personally. Although with all the growing activity on their part, it will not be easy for them to change the balance of power.

At such a pace of development, this African venture industry inevitably begins to influence international markets. 

Key market pillars are Nigeria in the west, Kenya in the east and South Africa in the south. To illustrate, in the first quarter of 2021 alone, Nigerian fintech investment outpaced total investment in all of 2020. And in general, the services of financial technologies are used by consumers in about 40 countries of the continent.

In 2020, the explosive growth of mobile financial transactions was noted. At the same time, more than two thirds of mobile transactions with personal money are carried out precisely in “black Africa”, that is, in countries south of the Sahara. 

Payment services and digital banking are, of course, the main drivers of market expansion. However, credit technologies are no less promising growth point, and so far almost not covered in Africa. In Nigeria, for example, the index of penetration of credit services is a barely noticeable 3%. But the adoption by fintech startups of alternative credit scoring solutions based on artificial intelligence and machine learning methods allows these platforms to work with higher-risk borrowers that traditional banks tend to refuse.

What success is based on

Analysts note several factors that allow African fintech to grow rapidly. The first is, of course, the distribution of smartphones on the continent at affordable prices. The second place can be attributed to the general lack of ATMs and bank branches in general, which makes it difficult, and in some places even impossible, to transfer funds and even to pay bills. Until recently, two thirds of the population of “black Africa” ​​simply did not have bank accounts, making payments with cash and checks. Currently, more than 40% of the population uses only the basic services of traditional banks.

By the way, with the massive advent of the “digital”, old-timer banks are also forced to adapt and fight for their clients. They have no choice but to offer competitive services. But the process of digital invasion is already started. For example, in South Africa, Internet banking offers zero fees for their services – and for the local market, this is a shake-up of the very foundations. Whether traditional banks will retaliate, only time will tell.

Africa’s greatest asset is its youngest population in the world: 67% are under 30 years old, and about 40% have not yet reached 15. It is those who were born at the turn of the millennium, according to statistics, the most susceptible to technological innovations. It is hard to be surprised that already in 2020 Africa was the undisputed leader in the volume of mobile money transactions, surpassing the second region of South Asia by as much as 374%.

An equally noticeable factor is the peculiarity of the development of African telecommunications networks. As a rule, each country has one dominant provider, which allows it, with a significant market share, to offer users a wide range of services. Such a system minimizes the problems associated with the interoperability of equipment and technologies, and developers of fintech solutions are successfully integrated into it.

But nothing lasts forever…

African fintech’s victorious tread may stumble over the economic and geopolitical realities of this year. Many major deals in the sector were announced before the war and inflationary shocks of the late winter and spring months, and therefore may remain only statements. Moreover, in other regions, fintech startups are already cutting staff, abandoning expansion plans, and someone has already closed. Experts do not anticipate  a miracle from Africa and predict the curtailment of its venture capital market no later than September, following the reduction in funding for start-ups in the US and Europe. The social and economic effect of the African venture has been small before: in terms of per capita of the population of the continent, the volume of investments in venture deals is the lowest in the world.

In addition to global threats, the cooling of the African fintech market is also expected for local reasons. No matter how actively smartphones are purchased on the continent, they are clearly not yet enough to cover the entire region with fintech. The quality of communication is improving, of course, but the pace is not the same: in 2020, no more than 62% of Africans had access to 4G, and if in North Africa 86.9% of the population used this communication standard, then, let’s say, in Western Africa – only 59%.

It’s too soon to forget coronavirus hangover: the cost of living everywhere – and Africa is no exception – is rising, making it harder for the consumer to choose between the attractive but redundant and the simple but necessary.

Government regulation is another industry headache. There are 54 states on the mainland, each with its own laws. It’s hard to imagine what kind of bureaucracy the founders of fintech companies have to break through in order to enter new markets.

An important factor here is staff turnover. With the transition to remote work, high-class specialists, graduates of local and foreign technological universities, easily find profitable positions in American, European and Asian companies. And new talents are not endless.

But until the cons are in full swing, African fintech is far ahead of other tech verticals in the region in the race for investor hearts. The sector remains promising, and the abundance of cash injections makes it easier for startups to grow in value.

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