Opportunities in Africa’s Financial Technology Space

In Africa, financial technology (Fintech) has proven to be one of the most attractive sectors to investors. About 159 Fintech startups on the continent have raised billions of dollars.

Financial Technology uses technology to channel financial transactions and make financial services more efficient. Its adoption has become a growing disruptive trend in the banking sector, challenging traditional methods used by legacy banks, and forcing them to play catch up with smaller albeit more savvy startups.  Fintech services include Peer-to-Peer lending, digital insurance, digital banking, online stock trading, crowdfunding and crowd-investing.

“Fintech is clearly a vibrant space within the African tech scene, perhaps the most vibrant of all,” said Tom Jackson, co-founder of Disrupt Africa. “Increasingly, investors are seeing the huge potential the space has to offer.”

This rise in investment in Africa has also been attributed to the adoption of Fintech services by Africa’s unserved market as opposed to other segments in the financial market. In Kenya, for instance, mobile money accounts have been the major form of payment in the country and it has also helped to increase the amount remitted back to the country. Mobile money accounts in Cameroon, the Democratic Republic of Congo, Gabon, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe have outnumbered Bank accounts.

According to a report by investment advisory firm Ernst and Young In retail financial services, FinTechs often have greater opportunity to disintermediate, disrupt and take market share, even above investment banks. And management consulting firm Accenture predicts that in five years’ time, the current wave of disruptive innovation brought by fintech will have delivered safer, more transparent and efficient banking to customers. This implies that in emerging fintech markets, where there’s still room for innovation, investors should still be eager to fund startups that provide unique solutions to the banking needs of individuals and enterprises.

From data analysed by Accenture, between 2010 and 2017, total global investment in fintech ventures reached US$97.7 billion. And the volume of global fintech deals grew at a compound rate of 35 percent, with total funding growing at an annual rate of 47 percent.

Given the trend in markets like China, however, these investments will potentially plateau and drop in the future. China was the top destination for venture capital money in 2016, but investors pulled back and fintech funding in the country declined by 72 percent in 2017, to $2.8 billion from $10 billion in 2016.

Beyond profitability, investing in Fintech increases available financial opportunities, such as working with millennials and reshaping of their business through digital technologies.