B2B payments are the most-ripe sector for disruption in the next five years.
Most African fintech does not expect to reach exit through IPO as just one in five plans to list in the long run.
Seven out of ten respondents in Nigeria and South African fintech believe African fintech could compete in North America, reflecting strong business ties to the US market.
Over the last decade, African fintech has boomed. From the first generation of innovators in peer-to-peer, mobile money transfers and basic savings accounts, today’s start-ups are building businesses in everything from business payments, wealth management and microinsurance to embedded finance tools in critical sectors like energy and agriculture. Yet, firms across the continent face a range of growth challenges that block their ability to scale.
The fintech in Africa report produced by findexable and commissioned by the UK Department for International Trade explores growth dynamics in Africa’s largest fintech ecosystems – Ghana, Kenya, Nigeria and South Africa. The research focuses on key areas to inform investors, policymakers and innovators exploring opportunities in Africa and the levers that can accelerate the growth of the region’s fintech ecosystems.
Here are some highlights from the report.
African fintech is in ‘growth mode’
Africa’s fintech ecosystem is booming in terms of both the number of start-ups and their outlook. According to the report, a third of firms (34%) claim to be in the phase of ‘driving aggressive growth,’ while a quarter (26%) say growth is ‘mature and steady’, showing a healthy market dynamic and product-market fit.
African tech start-ups raised $350 million in the first quarter of 2020, 16% up from 2019, and the region’s fintech ecosystem grew by 60% in the five years to 2019. Nigeria is a major growth engine, drawing 37% of Africa’s venture capital tech investment in 2019, 62% of which was in fintech. With over 40% of the country’s 200 million population lacking a bank account, the opportunity is sizable.
The report also shows that B2B payments are the most-ripe sector for disruption in the next five years. Over half (56%) of fintech startups are active in B2B, helping digitalise Africa’s enormous community of merchants, SMEs and informal economy participants.
Growth investment & exits
According to the data survey, the African fintech community is positive about the venture capital community in their home market. South African firms are most likely to describe it as strong, while Ghanaian companies were most likely to describe it as in its infancy or non-existent.
The report further adds that the majority of fintech (54%) consider their domestic venture capital community to be ‘fairly strong’; however, most companies do not expect to reach exit through IPO (just one in five plan to list in the long run) as African countries lack the network benefits of a London or Silicon Valley.
Acquisition or merger is the most popular long-term commercial plan for African fintech – as nearly one in three respondents view this path as their most likely exit strategy.
Cross-border growth
According to the report, survey respondents are fairly bullish about the potential for fintech in Africa to compete in overseas markets. Over half believe they could enter European markets in the next five years (Kenyan respondents were most likely, with 70% believing this to be likely).
Seven out of ten respondents in Nigeria and South African fintech were more than the average to believe African fintech could compete in North America, reflecting strong business ties to the US market.
Skills & talent
The report concludes that the African talent pool is strong in some areas, but there are gaps. Data from the report showed that Africa’s home-grown skills base is improving as survey respondents are positive about the availability of software engineering talent – 50% rank their home market as excellent.
Respondents also rank their design and business management skills pool highly. South African firms are most likely to report an excellent software engineering talent pool. But the gaps are telling – the weakest category across all countries is in data science, which 60% of respondents describe as weak – rising to 87% in Ghana and 70% in Kenya. The continent also has a significant gender gap, with few female fintech founders.
First Published on Business Insider Africa.
