A recent study by Mastercard has revealed that the fintech industry in Africa is gradually emerging as the continent’s most vibrant sector. Africa has arguably been at the forefront of financial innovation, developing use cases such as mobile money and using fintech as a means of financial inclusion.
These Fintechs have become major players in the African financial sector with some competing traditional banks in terms of size and value. Between 2020 and 2021, the number of tech start-ups in Africa tripled to around 5,200 companies, half of which were fintechs.
In 2020, Fintechs in Africa earned an estimated revenue of around $4 billion to $6 billion, as experts reveal that the African region is experiencing a “fintech outbreak” that has caught the attention of both local and foreign investors.
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In the sub-Saharan Africa (SSA) region, fintech startups recorded 894% year-on-year growth in funding in 2021 – the second highest in the Middle East, Africa and Pakistan region during the period, and the highest annual growth rate in recent the five years.
Africa’s most populous nation Nigeria emerged as a leading fintech hub in the Middle East, Africa and Pakistan as startups in the country accounted for a third of all funding distributed to fintech in 2021. Within Nigeria, fintech accounted for 71% of all venture capital5 .
In 2019, Fintech startups in Africa grew from 311 to 564 in 2021, with South Africa, Nigeria and Kenya emerging as key hubs. The sector accounted for 27% of the record number of closed deals and 61% of the US$2.7 billion distributed across Africa in 2021. The space was characterized by mega deals of more than USD 100 million each.
The fast-growing sector comprises sub-segments of particular interest, including digital payments, e-money, international money transfers, peer-to-peer (P2P) lending and equity financing7.
Fintechs in Africa have made the region a hotbed for investment, with average deal sizes increasing and the share of fintech funding increasing in recent years, leading to job creation and improving African economies.
Despite a decline in funding in line with global trends, it has been predicted by experts that Africa will witness significant growth and value creation for the fintech industry.
Although, despite the influx of fintechs in the region, cash is still used in around 90 percent of transactions in Africa, implying that fintech revenues have great potential to grow.
An analysis by McKinsey estimates that Africa’s financial services market could grow by around 10 percent per year, reaching around $230 billion in revenue by 2025 ($150 billion excluding South Africa, which is the largest and most mature market on the continent) .
As the fastest growing startup industry in Africa, the success of fintech in Africa has been attributed to so many factors such as; an increase in smartphone ownership, reduced internet costs, expanded broadband network coverage, as well as a young, rapidly growing and rapidly urbanizing population.
While fintechs have made significant inroads in Africa – particularly in wallets, payments and distribution, there is still plenty of room for expansion. As the market matures, unique spaces are identifiable in almost every area of financial services.
Despite the rise of Fintechs in Africa, experts reveal that the sector has not even scratched the surface as challenges remain with less developed financial infrastructure and a large percentage of the population still unbanked.
The challenge of financial inclusion remains fraught with much innovation and technology needed to ensure that more Africans gain access to financial services that can drive economic growth.
