Africa an investment hotspot as fintech goes mainstream

Continent secured about $1.5bn more in investments in 2021 than in 2020.
The pandemic has had a lot to do with the global shift in consumer behaviour towards fintech platforms. Image: Mark Blinch/Reuters

Having secured about $31 billion in funding in the third quarter of 2021 alone, the world’s more than 26 000 fintech companies have together pulled the industry out of the niche sector and into the mainstream, and Africa isn’t missing out on this growth.

According to Dominique Collett, Rand Merchant Investment’s senior investment executive and head of AlphaCode, investment into the African fintech sector increased to about $2 billion in 2021, in comparison to $500 million in 2020.

The continent remains a hotbed for fintech investors and it seems Africa’s huge unbanked population will continue to pique the interest of investors looking to plough money into emerging markets.

“The fintech sector in Africa is currently very focused on payments and digital banking – this makes sense given the low level of banking penetration across the continent,” says Collett.

“So I think investors will continue to focus on this space and [this is] where we will see activity for the next few years.”

The coronavirus pandemic had a lot to do with the global shift in consumer behaviour towards fintech platforms. According to Collett, about 30% of banking consumers use banking apps and about 64% are using one or more fintech platforms.

These numbers are expected to continue growing as more money is expected to be invested on the continent, opening opportunity for innovation to solve other problems hindering the financial industry in Africa.

Read: The JSE’s best performing tech shares in 2021

“As African consumers get pulled into the financial ecosystem through payments and digital banking services, we will see the emergence of other verticals like lending, asset management and insurance,” says Collett.

Themes to look out for in 2022

Climate change, wellness, buy-now-pay-later financial solutions, mobile network operators, the internet of things, niche challenger banks and cryptocurrency are expected to generate lots of interest this year.

Some existing market players will be expected to reimagine solutions that will address some of the world’s biggest problems like climate change, in line with the COP26 Climate Change Conference’s post-Covid theme of ‘Building better’.

Other players, such as those in the banking sector, might have to face off against new market entrants in the form of niche challenger banks. A shift away from the rise of new digital banks can be expected, with new entrants instead looking to grow within a niche consumer base.

“A few years ago, it was all about the challenger banks, such as Monzo and Revolut, which offered a better user experience,” says Collett.

“Many banks have now caught up in terms of user experience and now the focus is on niche banks, such as Daylight in the US and Pride in Brazil, which focus on the LGBTQI [lesbian, gay, bisexual, transgender, queer and intersex] community, and Monese in the UK which focuses on migrant communities. In Africa, there are players such as Kuda focusing on the unbanked.”

Growth to continue beyond 2022

Whatever problems fintech companies look to solve, it is clear the sector still has great years of growth ahead of it with no sign of reaching market saturation any time soon.

“[Financial services] is one of the largest industries in the world –$22.5 trillion, making up 24% of the world’s economy – according to the World Bank – and is an industry that constantly needs innovation and new developments given how frequently consumers interact with the industry,” says Collett.

Read: Cryptocurrencies: What’s on the horizon in 2022?

“There is no doubt that the incumbents will continue to innovate and claim back market share from some disruptors, but I think this is an industry that will continue to attract talent and capital and we will see new business models and businesses emerge.”

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