Unprecedented growth awaits Africa’s fintech ecosystem.
A report by Boston Consulting Group and QED Investors has projected a 32% compound annual growth rate (CAGR) for fintech revenues until 2030 in Africa. But financial inclusion remains a problem on the continent.
Despite the challenges, Africa’s fintech sector appears poised for unprecedented growth. The sector is projected to reach a compound annual growth rate (CAGR) of 32% through 2030, according to a new report [pdf] published by an American strategy firm, Boston Consulting Group (BCG) and the Alexandria-based venture capital firm, QED Investors. South Africa, Nigeria, Egypt and Kenya – also known as the Big Four – are estimated to be the key markets for this growth.
According to the report – Global Fintech 2023: Reimagining the Future of Finance – the global fintech sector is expected to reach $1.5 trillion by 2030, increasing sixfold from $245 billion. The sector currently has a 2% share of $12.5 trillion in global financial services. However, it is projected to grow up to 7%, of which fintechs are expected to account for nearly 25% of all bank valuations worldwide by 2030.
In 2022, fintechs globally were hit by the dramatic decline in the venture capital landscape, losing more than half of their market value. To bring it home, investment in Africa’s fintech sector fell by a whopping 40%. But the report says this plunge was only a short-term correction in an otherwise long-term positive trajectory.
“Fintech sits within financial services, which is a massive, profitable industry, and the opportunity ahead of us to democratize access to these services on a global scale is enormous. We expect to see continued growth not only in developed markets in the US and Europe, but also in developing fintech markets in LatAm, Asia and Africa, where the inertia and friction are even greater, says Nigel Morris, managing partner of QED Investors and co-author of the report.
According to the report, Asia-Pacific (APAC) is poised to surpass the US to become the world’s top fintech market by 2030, with a projected compound annual growth rate (CAGR) of 27%. Similarly, North America – which today has the world’s largest financial services industry – will remain a critical fintech market and innovation hub, projected to grow fourfold to $520 billion by 2030, with the US accounting for an estimated 32% of global fintech revenue growth (a CAGR of 17%).
The UK and the EU – representing the world’s third largest financial institution market – are expected to witness major growth through 2030, projected to more than quintuple by 2021. Similarly, Latin American markets, led by Brazil and Mexico, which have established fintech landscapes, are projected to show a revenue CAGR of 29% over the same timeframe.
Growth, but with a darker side
Beyond the interesting projections, the overall financial industry has its fair share of setbacks. According to the report, nearly 80% of adults in the world are still either underbanked or unbanked. In Africa, cash remains king in most markets, with more than half of the population without bank accounts. This of course presents an opportunity for fintechs that want to “bank the unbanked”. According to a McKinsey report, Africa’s financial services market could grow by around 10% per year, reaching around $230 billion in revenue by 2025
But while fintech has now become platforms for payments and transactional banking globally, including in Africa, it has yet to solve the global inclusion debacle. McKinsey lists four key challenges facing fintech startups in Africa on the road to sustainability: achieving scale and profitability, navigating an uncertain regulatory environment, managing scarcity and building robust foundations for corporate governance.
According to the BCG and QED report, there is an urgent need for proactive regulation in the fintech sector, as over-regulation can stifle innovation. “Regulators should consider leveling the playing field through such actions as enabling faster pathways for banking and payment institution licenses, supporting digital public infrastructure, and facilitating an open banking ecosystem,” the report said.