Financial Inclusion is critical to achieve the United Nations’ Sustainable Development Goals by 2030. For Africa, a continent which has struggled economically over the past few decades, Fintech may play a pivotal role in helping African countries emerge as a viable alternative for start-ups seeking their fortune east…
By Viraj Desai
According to a recent report by Disrupt Africa, almost one third of funding among startups were in the fintech sector. Venture funding for all startups spiked by 51 percent to USD 195 million in 2017.
At present, only 17 percent of the 1.2 billion population in Africa have bank accounts. While fintech has been a global banking disruptor, it is largely viewed as now being essential to lift millions of Africans out of poverty, by providing basic financial needs.
The African fintech market is projected to reach USD 3 billion by 2020. With a staggering Compounded Annual Growth Rate, this is expected to provide financial comfort to millions of its population; currently almost 300 million people lack access to formal financial services.
Across Africa, there are currently over 300 fintech startups working in diverse domains. Ecobank, a tier one African-based bank that currently has a global footprint across 36 countries, claims that Kenya, South Africa, Rwanda, Ghana, Nigeria and Cote d’Ivoire are the primary tech hubs driving a wave of African fintech startups.
Perhaps the most notable African fintech success story is of M-Pesa, a mobile banking finance and microfinancing start-up launched in 2007 by Vodafone for Safaricom and Vodacom (the largest MNOs in Kenya and Tanzania) have achieved a staggering success, with over 7 million active users in Tanzania alone by the end of 2016.
Recently, internet giant Opera launched OPay- a payments service integrated into its browser allowing users to top up air time and pay utility bills. The company’s ambitious plan to invest USD100 million in Africa’s digital economy over the next two years may add a further boost to Africa’s fintech scene.
Why Africa is favourable for fintech
Countries across Africa have set an easy entry on fundamentals that facilitate the growth of fintech; for almost 47 of the 89 markets where mobile money is available, both banks and non-banks are allowed to operate under the same regulatory codes. Secondly, half of the 300 million mobile money users globally reside in Sub-Saharan Africa.
Some examples of innovation in African fintech is Irofit, an MVNO that offers real-time financial payment sans internet connection. Other African fintech startups like Flutterwave and Paystack raised over USD 100 million between 2015 to 2017. Countries like South Africa, Kenya and Nigeria drew a large portion of start-up funding. Africans are fast becoming digital natives akin to many emerging nations within Asia.
Additionally, mobile tools to make credit profiles for the un-bankable will go a long way in stringent verifications. For a continent that is home to a large ‘unbanked’ population, creating credit profiles through fintech apps can lead to easier credit flow from regular banking institutions. This may increase access to finance for a larger section of the population, which may have historically been deprived of same due to individuals not having credit-worthy records with incumbent financial institutions.
One example of a startup using previous user history to ameliorate people’s lives is the Nigerian startup Bashi. By using the driver history from UBER, it offers a lease-to-own product to drivers who rent someone else’s car – which results in earning less money per fare. To counter this, Bashi helps individuals achieve vehicle ownership sooner.
While African fintech startups share is paltry vis-à-vis USD14 billion fintech market globally, quick expansion may see investment threefold soon. In 2016, startups like Branch raised USD 9.2 million while Zoona managed over USD 1 billion in transactions on portals.
Africa currently receives a large source of its foreign investment via remittances. The lack of adequate banking infrastructure makes it expensive to send money to the continent. This is another reason why fintech will drive down costs with significantly lower operational costs.
Diverse languages and vast geographies are challenges that companies must manage for providing services to a wider network. Africa, a motley continent where 54 countries exist and over 2,000 languages are spoken makes it challenging for fintech firms originating in one country to achieve quick expansion of services to neighbouring countries.
Snapshot on African Fintech Start-ups to Watch
- Click2sure: A South African fintech that allows customer to buy high-value item through online e-commerce provider, whereby at the end of the process, the customer is given an insurance policy for the same
- Luno: A South African firm that allows buying, selling and receiving Bitcoin or Ethereum
- Karri: South African mobile payment platform allowing one to make payments for school events
- Isazi Consulting :A South African data science company applying rigorous and scientific methods for extracting relevant parts from data
- Onefi: A Nigerian consumer credit company offering loans and financial services
- Asoko Insights: A Nigerian data company facilitating investors and stakeholders for accessing profiles on Africa’s leading private companie
- PesaChoice: A Rwandan fintech startup allows users to send money and make payments across the continent; and
- PiggyBank NG: This Nigerian app enables users to save money easily through discipline and flexibility.
22seven, acquired by Old Mutual, offers a dashboard on spending and saving habits, leading to greater transparency and accountability.