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Potential Unleashed – FinTech in Africa in 2021

Potenial Unleashed – FinTech in Africa 2021

The world’s second largest continent by population and size, Africa is punching above its weight due to the achievements in its booming FinTech sector.

Africa’s FinTech sector is central to the region’s economic growth. FinTech brings large remittance inflows of money from its diaspora; facilitates all types of payments in both formal and informal sectors; and allows the millions of unbanked to transact, trade, and be included in the continent’s economic vibrancy.

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Capitalising on a vast unbanked population that is amongst the youngest in the world, Africa’s tech savvy generation has become early adopters of mobile money solutions and other digital financial tools. As a result, tech hubs, in particular in Nigeria and Kenya, have become global innovation leaders.

What could this mean for the region’s growth in 2021?

Where tech companies might be ‘disruptors’, African FinTechs are ‘creators’ delivering much-needed financial inclusion to drive prosperity and growth. Africa has been experiencing the world’s fastest expansion in VC and start-up activity led by the continent’s rising stars Nigeria, Kenya and Egypt. Multi-nationals and global investors alike are flocking to take advantage of the region’s potential.

At the centre of this FinTech revolution is Nigeria, which will continue to be the continent’s star performer in 2021. With Africa’s largest economy and biggest population, Nigeria was home to the biggest African start-up success stories in 2020. First among these is Stripe’s acquisition of Paystack for a reported US$200 million; the continent’s largest exit-by-acquisition of any start up. This cements the payments sector as the standout FinTech performer judging by scale and significance of investment. As with Paystack’s founders, who returned to Nigeria to start a business with US funding, this familiar path of entrepreneurs returning home to the continent is enhancing the rapidly growing pool of local innovators and founders.  Notably, this ecosystem is looking beyond the traditionally strong Nigeria – US investment corridor, to Europe and Asia for investment. As post-Brexit UK investors cast their sights beyond Europe for opportunities, this creates a new potential win-win for African entrepreneurs.

Following its $200 million investment in InterSwitch in 2019 – a deal that created Nigeria’s first FinTech unicorn – VISA has recently announced that African start up partnerships would be central to its strategic investment strategy in the region.

Bezos Expeditions, the personal VC fund of Amazon founder Jeff Bezos, participated in a $30 billion Series B funding for Nigerian FinTech start-up Chipper Cash, a free mobile payments that allows users to transact across Africa and beyond.

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Others, like Nigeria’s mobile-first challenger bank Kuda, are creating a full stack offer to users and aims to be the go-to bank for customers in Africa and its diaspora. Where it differs from competitors, is it has opted for a microfinance licence from the Central Bank of Nigeria so giving it the opportunity to lend without dependence on partner banks and so creating a whole new mobile banking dynamic.

With 66% of its population unbanked, and the world’s youngest workforce, mobile money transactions in Africa are the highest in the world. Sub-Saharan Africa leads the world in mobile money, leapfrogging the legacy systems used for payments in the West to account for almost 10% of regional GDP. This appetite for tech enabled transactions is seen as key to FinTech’s role in boosting African businesses and economies. Last year Africa received between $50-75bn in remittances from high and middle-income countries, primarily the USA, UK and France.

As a sector, FinTech is expected to contribute $150bn to Africa’s GDP by 2022, and with Sub-Saharan Africa being the most expensive region in the world for sending money, FinTech solutions are opening up countries’ economies as well as improving transaction speed and cost. ICON acted on the landmark sale of digital payments provider Beyonic to MSF Africa, which created a global hub connecting over 200 million mobile wallets across the continent, enabling businesses from micro to SME to manage digital transaction with individuals and businesses around the world, as well as providing unparalleled possibilities for growing enterprises in 35 African countries and 60 globally.

But, as in any investment scenario, counter to opportunity is risk. With a population of almost 200 million people, Nigeria is home to the greatest number of extremely poor in the world. Wrestling the twin perils of low oil prices and poor infrastructure, the country has suffered its second recession in five years. This is expected to drive reform as government relaxes controls to favour FinTech companies and that creates yet more opportunities for the sector.

This vast continent may be the new Asia – exciting global investors with its vibrant FinTech sector, innovative founders, and the sheer ambition of its young, long into the 2020s.

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