African Fintech Startups Are Revolutionizing Banking

By the end of 2017, there were more than 300 fintech startups across the continent. Disrupt Africa's Finnovating for Africa: Exploring the African Fintech Startup Ecosystem Report 2017 concludes that African fintech startups' growth since 2015 has been nothing short of tremendous.

Africa is a vast continent with diverse economies and a total population of over 1 billion people living in 54 independent countries spread over 30 million square kilometres. By the end of 2017, there were more than 300 fintech startups across the continent. Disrupt Africa’s Finnovating for Africa: Exploring the African Fintech Startup Ecosystem Report 2017 concludes that African fintech startups’ growth since 2015 has been nothing short of tremendous.

The record shows over US$100 million in fintech funding has been secured across the continent over the last two years, with South Africa receiving 34.2 percent of the total and Nigeria following closely with 34 percent. South Africa has the most fintech startups with 94, followed by Nigeria with 74 and Kenya 56. In this report, we identify the factors and the drivers behind the growth.

Payments Made Easy

Fintech has made payments and remittances more convenient across the continent. Most traditional banks are located in cities and commercial areas, making them difficult to access from remote areas. Tanzania, for example, has about 50 million people sparsely distributed across an area nearly four times the size of the United Kingdom. In Nigeria, banks used to be packed with customers queueing to pay their utility and cable TV bills, school fees and so on. It could take hours to make a simple transaction.

In 2012, a cashless policy was introduced by the Central Bank of Nigeria to curb excess handling of cash and reduce the volume of money in circulation. The policy has facilitated many Nigerian fintech startups’ market penetration and expansion.

Customer transportation costs, waiting times and the loss risks attached to cash have been eliminated by the smartphone-based fintech services provided by these startups. About 100 of Africa’s fintech startups are focused on streamlining money transfers. According to Tayo Oviosu, Founder & CEO of Nigerian mobile payment platform Paga, “Nigerian banks have traditionally not focused on retail. Paga has built the single largest network of financial access points in Nigeria. We are going to leverage that to deliver financial services to the mass market”.

Market Confidence

One of the significant drivers of African fintech startups is high confidence in the market. Early fintech startups demonstrated that the market is strong, and the growth trend has continued, attracting Silicon Valley-based accelerators. Fintech startup funding is presently one of the most attractive investments on the continent. In 2017, over 30% of the US$195 million in VC funding raised by Africa startups went to the fintech sector.

Safaricom’s M-Pesa mobile money service has had a great impact in Kenya, and Nigeria’s Paga, South Africa’s Zoona, Kenya’s BitPesa and others across the continent are garnering increased funding as investors become more confident.


Influencing the Traditional Banking System

Since the inception of fintech, there have been dramatic changes in the continent’s traditional banking system. Banks and financial institutions are under pressure to match the innovative solutions and services being offered by fintech startups which have reached millions of people who have mobile phones but not bank accounts.

Now, banks and financial institutions are introducing a variety of strategies and tactics to invest in, acquire or collaborate with fintech startups. This is a trend that’s expected to continue.

More Africans Connected to the Internet

Nigeria, South Africa, Egypt, Ethiopia and Kenya are among the most significant mobile markets in Africa. Although 80 million Nigerians — 47 percent of the population — do not have bank accounts, 142 million Nigerians have mobile network access and 92 million are internet users, according to the Nigerian Communications Commission (NCC).

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The penetration of mobile phones and the internet has enabled fintech to influence how financial services and products are developed and delivered, as more Africans plug into digital financial services in Nigeria and across the continent.

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Kenya’s M-Pesa is being used by more than half of the country’s adult population, and has recorded transactions worth more than half the country’s GDP since its debut. Similar success stories have been told by the likes of South African startup Zoona, Nigeria’s Paga and others.

Filling the Vacuum

A World Bank report notes that Nigeria, like many countries in sub-Sahara Africa, has a growing population that lacks easy access to traditional financial services, and fintech innovators are filling the vacuum by connecting these people.

This differs from the situation in advanced economies with strong financial institutions, where fintech startups are cast instead as disrupting the traditional banking industry. For example, China’s Wechat is a popular messaging app with a wallet feature that enables users to send and receive money, make payments and so on from within the Wechat app, without connecting to a bank account for many transactions.

Competition and Regulations

Among the factors responsible for African fintech startup growth are strong competition and loose regulations. Presently across the continent, there are few or no strict regulations compared to advanced economies. Startups can operate relatively tax-free free and with less government interference, leaving them to chart their courses and develop their products with little regulatory interference.

There is also increasing integration from service providers, many of which are partnering with fintech startups to make transactions more convenient for customers. For example, cable TV companies such as DSTV, HiTV, and TSTV have introduced fintech alternatives to their traditional bank payment models.

As more banks and financial institutions acquire or partner with fintech startups, the trend is being seen not so much as financial industry competition but as an industry reinvention that has improved financial services companies’ profiles, reach, and products and services; and is beneficial to banks, startups and customers alike.

Fintech has thus become one of the most vibrant investment options in the African tech space.

Going Forward

In recent years, African fintech startups have been outperforming banks in delivering digital financial services. Iyin Aboyeji, Chief Executive of digital payment technology startup Flutterwave, describes fintech as a fundamental element that will drive the digital economy in Africa over the coming years. Investors and companies are expected to get even more involved in African fintech markets because the opportunities are tremendous.

Analyst: Oloketuyi Jacob Oladeji| Editor: Robert Tian、Michael Sarazen

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