For many years, the African continent has boasted and relied on its natural resources as the assets through which the continent would develop, and this was embedded within the hearts and minds of the nationals across the continent who looked forward to any discovery with hopes of wealth and prosperity. Could the increased popularity of Fintechs be another gold mine for the continent?

Africa’s financial system has and continues to be largely dominated by Commercial banks who serve as financial intermediaries between savers and borrowers. There has, however, been the challenge of getting most of the continent’s adults to own accounts and consume financial services offered, due to branching costs, lengthy account opening requirements – such as utility bills and Identity Card with a home address, distance to financial institution, and high illiteracy rates. An African business special report revealed that as of 2011, 80% (representing 350 million) of the African adult population remained without access to any banking services.

Moving slowly but surely into the digital era.

The introduction of digital banking within the banking space took to the runway with the aid of technology advancement, infusing banking and technology to provide easy access and to reduce banking costs for both providers and customers.

Telecom operators like Safaricom, MTN, and others took advantage of the existing financial service gap and ventured into transactions via mobile phones. The success of what initially was described by established financial institutions as disruptive, turned out to be a bold step by Telcos like Safaricom’s M-Pesa mobile payment service in Kenya, which stirred interest in other Telecom companies in Nigeria, Ghana, South Africa, Egypt, and other countries across the continent.

The pace of increase was accelerated when the Corona virus pandemic hit the globe forcing businesses and economic activities to come to a halt. Interestingly, COVID-19 forced financial institution account owners who hitherto resisted online and mobile banking to give it a try. This therefore took the digital flight off the runway and accelerated it right into the skies. The financial technology (Fintech) sector became triumphant in the midst of global adversity.

What was the differentiation factor? The mobile money service introduced less bureaucratic registrations and the ease of using mobile phones for financial transactions. This was a paradigm shift from the hitherto online banking which was accessible to only corporates and high networth customers. This paradigm shift sped up, automated, and improved the delivery and consumption of financial services, resulting in overall account ownership increase in Sub- Saharan Africa. Interestingly, The Global Findex survey 2021 revealed that the growth in mobile money accounts was accompanied by a decline in financial institution accounts.

Take for instance, account ownership in Benin, as indicated in Fig. 1, increased overall from 38% in 2017 to 49% in 2021, but the share of mobile money accounts doubled from 18% in 2017 to 37% in 2021, while the share of financial institution accounts decreased from 32% to 24%. Similarly, Financial institution Account ownership in Zambia also decreased by 12% from 36% to 24%, and mobile money account ownership increased by 14% from 28% to 42%. Additionally, Ghana’s financial institution accounts ownership remained relatively stagnant after 2017, yet mobile money accounts increased by 21%, from 39% to 60% to boost overall account ownership by 11%.

Evidently, even though this idea of infusing banking and technology originated from established banks and other financial institutions, it has become a sector on its own with more startups offering new products across the world for retail and business-to-business (B2B) customers. The services offered arrays from payments and transfers, deposits, savings, securing loans, managing investments, and arranging insurance. On the tree of financial services, the lowest hanging fruit is payments, and this is seen to dominate the Fintech space, with payment companies receiving the most funding.

According to the survey report by Briter Bridges and Catalyst Fund in 2021, as indicated in Fig.2 above, payment companies in Africa received the most funding among the different African product categories validating the concentration of Fintechs on payment services.

Payments, which include transfers, of which foreign remittances play an important part, is key in the Fintech space. Africa has a large diaspora population who hitherto were faced with varied challenges and transaction fees when remitting funds to friends and relatives. The advancement within the Fintech space boosted remittance transactions resulting in 60% of the world’s mobile money passing through Africa by 2021. This is of no surprise since in 2007, when the mobile money operator Safaricom launched its M-Pesa service in Kenya, it specifically targeted the remittance market, promoting its services with the slogan “Send money home.”

As mobile money accounts spread across Sub-Saharan Africa, their use for remittance payments also expanded, as well as their use for other types of payments. For instance, Zimbabwe has a large diaspora population in South Africa who used to physically carry cash back home across the border, but this has become a thing of the past, thanks to the ever growing and innovative Fintech sector.

Growth or Eruption?

The Fintech sector in Africa is not only growing but rather erupting. According to Mckinsey, the Nigeria Fintech sector grew by 197% between 2019 and 2021, with most investments coming in the form of foreign direct investments. This Fintech eruption spanned across many African countries to which Kenya has now earned the accolade as Africa’s Fintech ‘Silicon Savannah’. 

A2020 report by American research firm Boston Consulting Group (BCG) revealed that Kenya and Ghana had the second and third highest mobile payment usage in the world respectively, after China.

The2021 World bank’s Global Financial Index (Findex) survey indicates that 55percent of adults had an account in Sub-Saharan Africa, including 33 percent of adults who had a mobile money account—the largest share of any region in the world and more than three times larger than the 10 percent global average of mobile money account ownership. This puts Sub-Saharan Africa as a global leader in mobile money account ownership.

Already,400 million consumers in sub-Saharan Africa use mobile payment banking systems to handle $300 billion worth of mobile money transactions, a good reason for Boston Consulting Group to estimate that by 2025, the ultimate size of the market across Africa could be as high as 850 million customers, supporting between $2.5 trillion to $3 trillion in transaction volume and $25 billion to$30 billion in yearly revenue from the financial transactions alone.

The growth opportunity in Fintech, according to the Mckinsey, is likely to be concentrated in eleven key markets: Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South Africa, Tanzania, and Uganda, which together account for 70 percent of Africa’s GDP and half of its population. This confirms the Global Findex 2021 survey which concluded that Sub-Saharan Africa is home to eleven-11 economies in which a larger share of adults have only a mobile money account rather than a bank or other financial institution account.

Attraction for international investors

This Fintech eruption could be the beginning of the breakthrough story since there are still sections of the continent that are cash dominated. The potential for growth is surely vast.

Fintech has become the major player in achieving financial inclusion as it keeps attracting unbanked customers and encourages investors whose interest in financial and social return means more opportunities. If more opportunities, then, more attention from global players, especially from cash-dominated economies. 

Africa is considered the second largest banking market in the world in terms of growth and profitability and with a rapid growing population, it has the potential that attracts attention to the rapid rising share of global Fintech investment. The continent boasts of over 500 Fintech firms, most of which are in Nigeria, Kenya, and South Africa, attracting the most investments, and benefiting from growing pools of experienced Fintech entrepreneurs, data scientists, engineers and other in skilled roles.

Investors from Silicon Valley to China have spotted the African Fintech bug and are increasing funding for the sector, with the biggest funding jump occurring in2020, based on the Briter Bridges and Catalyst Fund survey. 

Nigeria, with the world’s seventh biggest population, after robbing Kenya of the crown as leader of Africa’s tech revolution in 2021, is attracting the lion’s share of investments. The country attracted more than $1billion in venture capital investment in the last few years. This includes key investments such as Visa’s$200m investment in the Fintech company Interswitch, a $120million investment in OPay by a group of investors led by Sequoia Capital China and Softbank Ventures Asia, and China’s Tassion investment of $40m in PalmPay.

In terms of the funding sources, it is largely Venture Capital (VC) and Private Equity (PE) with significant investment from the US investing in Fintech in Africa. For instance, more than a third of investment into Nigeria in 2021 was from US-based VC funds and some large corporations too. In South Africa, for example, Visa and Fidelity have taken stakes in Jumo (which serves West African markets).

There is significant investment from Asia too, especially China. For example, Nigeria’s OPay raised US $400 million, most of that came from Asian investors, in 2021 to become a Unicorn.

The foreign money flowing in should be an awakening call for local investors who ought to become more active in order not to be late to the game. The opportunities remain vast to pursue as the continent enforces formal identification, widespread of mobile phones and the expanding use of accounts beyond payments and transfers