Q&A: Report details fintech’s explosion across African continent

Africa has seen a boom in fintech in the last two years, with 301 startups now active in the sector on the continent, a report released earlier this month by Disrupt Africa reveals.

Ventureburn asked Disrupt Africa co-founder Tom Jackson and co-author (along with Gabriella Mulligan) of Finnovating for Africa: Exploring the African Fintech Ecosystem Report 2017 to share some of his thoughts on where fintech is going in Africa.

Ventureburn: What are some of the most surprising things you have uncovered in fintech in Africa in the last two and half years?

Tom Jackson: There are plenty of things that obviously don’t surprise us, such as the fact that South Africa, Nigeria and Kenya lead the way, or that the vast majority of fintech startups operate in the payments or lending spaces.

But the sheer prevalence of fintech across the African continent – we’ve tracked companies in startups were also traced in Algeria, Ethiopia, Ivory Coast, Morocco, Mozambique, Namibia, Rwanda, Senegal, Sudan, Tanzania, Tunisia, Zambia and Zimbabwe – is exiting, and suggests an increasing trend whereby local startups are developing solutions to local problems.

The fact startups are operating in very niche areas such as KYC (know your customer) and insurtech is also interesting, while the fact that the data suggests African blockchain startups have 40% chance of raising funding is staggering and very exciting.

VB: What are some of the trends in fintech?

TJ: Payments and lending are clearly the most popular spaces, with over 60% of African fintech startups operating in these areas. Both spaces are clearly in need of some consolidation, as there are far too many companies operating in the same space in each country for them all to be sustainable, especially while internet penetration remains so low.

However, you are not more statistically likely to raise funding as a payments startup, for example, than if you are an insurtech startup, as investors are wise to my point above. Fintech startups have also proven attractive targets for acquisition over the last few years, more so than others sub-sectors of tech in Africa.

VB What are the leading countries (top three) in Africa for fintech and why are these countries doing so well?

TJ: South Africa, Nigeria and Kenya. This has much to do with size of market, but these are also the three most developed startup ecosystems in Africa, so it is hardly a surprise they lead the way in fintech too.

In all of these countries there are a variety of incubators and accelerators increasingly focusing on fintech, indeed, South Africa even has its own fintech club in the form of Alphacode. Banks – especially in South Africa – are also working more closely with startups in these markets than elsewhere.

That said, though these three lead the way, there is a lot going on elsewhere, with the likes of Uganda and Cameroon also relatively well developed when it comes to fintech.

VB: What is the value of the fintech sector in Africa and what percentage of the global market does it make up?

TJ: It’s tough to put a number on this at this point, but it is miniscule in comparison to the market globally. African fintech startups, at the time of the report going to press, had raised less than $100-million in funding over the last two and a half years. But it will grow and grow.

There are so many challenges – and therefore opportunities – that need addressing on the continent, and so many innovative products and solutions from Cape Town to Cairo, that the fintech sector will be a very big deal indeed.

VB: What are some emerging trends that we are likely to see in future years?

TJ: Consolidation, hopefully, as startups partner, merge and identify specific focus areas in order to scale properly. This is essential if the sector is to develop. Investors interest will continue to grow, we expect fintech to be the most attractive to tech investors for years to come.

We should also expect more innovations in areas such as invest tech, blockchain and big data as there is limited need for more payments or lending startups.

VB: How are banks on the continent reacting to fintech, are they working and collaborating more with fintech startups?

TJ: They have been slow on the uptake, but are now realising the need to get involved. I think there is an increasing realisation on the side of both banks and startups that this is not a zero sum game, they both need each other in order to prosper.

So we are starting to see more and more bank-led programmes across Africa, and these will multiple in numbers over to the years to the point we regularly see banks partnering with, investing in, and, down the line, acquiring African startups.

VB: Who then might be keen on buying the report and why?