At the center of Africa's rapidly evolving technology ecosystem is the rapidly growing fintech sector. Africa accounted for 70% of the total value of mobile money transactions worldwide in 2021.

The continent has seen a rapid proliferation of digital instant payment solutions in recent years. The low level of banking coverage combined with the rise of mobile phones has created an important opportunity that other continents do not have.

Without a doubt, African economies are at a crucial moment. The fintech narrative in Africa has largely revolved around the story of the unbanked, poverty alleviation and economic development. But its success lies in balancing the benefits and emerging risks, as in any tide of change. Although traditional banks still have a long way to go to solve the problem of financial inclusion, Africa is increasingly relying on digital and mobile services.

The introduction of mobile banking by telecom operators such as Safaricom in Kenya – through its M-Pesa service – essentially kicked off the digital revolution that quickly overtook the banks. In fact, the volume of this type of transactions increased by 13 % annually between 2014 and 2016, thanks to the greater availability, reliability and security of electronic channels. This has made Africa the second fastest growing market in the world for electronic payments, with around 40% of Africans now preferring to use digital channels for banking transactions. Over the past two years, emerging markets have increasingly attracted investors looking for the next financial opportunity. In 2021, Chipper Cash, which offers peer-to-peer payment services in seven African countries, raised $30 million in a Series B round.

In parallel, the rise of financial technology has disrupted the traditional banking market. Fintech is the integration of technology and finance. This merger creates an enabling environment and presents an opportunity to promote efficiency gains in the continent's market economy.

In fact, it is no exaggeration to say that fintech in Africa represents one of the most significant opportunities for the continent's development. Alongside innovative ideas from new entrants, more partnerships are being established where digital technologies build on existing mobile and telecoms infrastructure to offer customers mobile and online financial services.

Some challenges

The African fintech space is growing exponentially, but the development of the fintech ecosystem is still in its early stages. Although fintechs have made significant inroads into Africa – especially in wallets, payments and distribution – there is still plenty of room for expansion.

While growth opportunities for fintech companies are considerable across the African continent, in some regions the total addressable market (the relevant category of viable customers) is limited by infrastructure constraints. These include the low penetration of mobile telephony and the Internet in some markets, the lack of identification coverage and the scarcity of payment methods, which constitute the backbone of all digital money transfers. Africa also has the lowest-income population on the planet - with personal consumption expenditure (PCE) that can be up to ten times lower than that of North America and five times lower than that of Europe - while only three countries on the continent have achieved payments in real time having deployed the necessary payment infrastructure for this.

In addition to uneven infrastructure across markets, fintech companies in Africa also face fragmented financial regulatory frameworks and conflicting regulatory coordination in many regions. Countries evolve at different rates. While some regulatory bodies are beginning to proactively create enabling frameworks to encourage innovation by fintech companies and support the development of an enabling environment - for example, by creating sandboxes for fintech companies, upgrading from licensing requirements and implementing digital know-your-customer regulations - others are taking advantage of gray areas to learn and open space for significant growth. In both situations in general, complex and variable regulations, including licensing approval processes, can make it difficult for fintechs to ensure business continuity and compliance across markets.

Finally, companies do not operate with infinite resources. You need to effectively manage time, money and people to launch and sustain growth. Following record fintech investment in 2021, funding is slowing, especially for late-stage startups. But with incumbents starting to catch up with the disruptors, fintechs cannot afford to slow their progress. This suggests that African fintechs will likely have to tighten their belts to adapt to a new venture financing reality.

African financial services are undergoing structural change

A McKinsey analysis estimates that Africa's financial services market could grow by around 10% annually, reaching revenues of $230 billion by 2025. Agile fintech companies have been quick to grab a share of this market in expansion. The success of fintech companies, the fastest-growing emerging industry in Africa, is being driven by several trends, including rising smartphone ownership, falling internet costs and expanding coverage of the network, as well as by a young, rapidly growing and rapidly urbanizing population. The COVID-19 pandemic has accelerated existing trends towards digitalization and created a fertile environment for new technological players, even as it has caused significant hardship and disrupted lives and livelihoods across the continent.

The analysis also points out that fintech companies are bringing significant value to their customers. Its transactional solutions can be up to 80% cheaper and the interest on savings up to three times higher than those offered by traditional operators, while the cost of remittances can be up to six times cheaper.* Along with an influx of financing and increasingly favorable regulatory frameworks, these factors could mean that African fintech markets are at the beginning of a period of exponential growth, especially in Nigeria, Egypt and South Africa.

In Nigeria especially, the total amount raised by Nigerian start-ups in 2021, fintech start-ups accounted for 59% share of the total amount raised by all start-ups in this period. In 2021, Flutterwave and Opay reached a valuation of $1 billion, achieving unicorn status. In particular, Flutterwave reached a valuation of $3 billion in February 2022, ranking as one of the best-valued African startups.

With technology becoming increasingly important in the financial sector, we tend to view banks and fintech startups as opposing forces fighting for market share, but the reality is that both sides need each other just as much. They need to compete with each other. In terms of innovation, blockchain technologies and decentralized banking continue to drive the future of financial services. More traditional banks are increasingly trying to take advantage of technologies that speed up and simplify payments.


Given the different levels of financial evolution of African countries, the opportunities in each market will be different. Economies with more mature financial systems and digital infrastructure, such as South Africa and Nigeria, will likely see more innovation and advancements in financial services, including regulatory technology such as anti-money laundering and compliance with know-your-customer regulations. (KYC). In markets where financial systems and infrastructure are still growing, there are likely to be advances in financial services, such as underwriting in insurance and “buy now, pay later” services in already small retail lending. and medium-sized companies.

With digital becoming a way of life in Africa, the stage is set for the next phase of fintech growth. African fintechs and other stakeholders, including governments and investors, have the opportunity to explore how the sector can achieve long-term sustainability. Ensuring world-class corporate governance will likely be a critical factor in enabling fintechs to navigate uncertain and fragmented terrain, manage scarcity, and successfully achieve scale and profitability.

Fintechs have become major players in the African financial services sector (in some cases rivaling traditional banks in terms of size and value), funding has increased and value is being created. Additionally, consumer access is at an all-time high. Current leaders have built the payment rails, effectively laying the foundations on which the sector can grow, but tightening market conditions suggest that, in their next phase of development, fintechs may have to tailor their approach. that seek to consolidate and formalize to achieve lasting success.

Source: VenturesAfrica