As little as five years ago it was rare to see venture investment filtering through Africa, with seven-figure seed investment rounds happening as infrequently as spotting a bat-eared fox on safari. Fast forward to 2021... Early-stage startups in the region are bagging multi-million dollar deals and pre-seed rounds are taking off, paving the way for the world's next household names.
So what’s changed, and why is fintech at the core of this shift?
Conditions in the Regional Market
The market in Africa is traditionally cash-based. This leaves a lot of room for innovation as technology evolves and participation in the global economy continues to expand. Mobile money and new forms of payment are exploding, and the continent as a whole is now one of the fastest-growing global regions for mobile banking. Startups that are building this new financial infrastructure are the ones getting investors’ attention. Nigeria is at the center not only in terms of GDP, but the fintech revolution and associated funding in general. With non-cash transactions expected to continue to grow quickly, there is plenty of room for fintechs to build innovative products and compete for market share.
Needs of the Banked and Unbanked
Many citizens in Africa remain unbanked, opening up two interesting sectors – mobile money and smartphone banking services. As regulatory restrictions continue to slowly be lifted, we’re seeing more and more access to these types of services. One example is Egyptian fintech startup Cassbana, which was founded just last year and raised $1m in pre-seed funding, in January 2021. Cassbana employs AI and machine learning to provide financial identities to unbanked and underserved Africans.
For banked consumers in Africa, we’re seeing a huge spike in funding for fintechs focused on core infrastructure. Just like Plaid made connecting a bank account to any app simple for both the app developer and user, startups are leveraging this trend to build Africa’s API infrastructure.
Opportunities for Importing Success Stories
As companies in the US clamour for local market share, startups in Africa have a unique opportunity to leverage what’s working, innovate, and rollout products that have already caught steam in other areas of the world. Now we have companies like Stripe acquiring Paystack, one of Africa’s highest valued fintechs, offering a similar payment processing solution that was able to corner the African market.
We also have major global payment card brands focusing on the growth of fintech in Africa. Visa recently partnered with fast-growing Nigerian money transfer company Paga (one of many VGS customers in Africa) which not only surpassed $2b in transfers in 2019 but is also expanding its services into Latin America, where there are similar needs for digital money transfer disruption. What else will Africa’s innovation bring?