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Africa is poised to become the fastest-growing fintech region as the global fintech industry is projected to reach $1.5 trillion by 2030, according to a new report released by Boston Consulting Group (BCG) and QED Investors.
The report emphasises that emerging economies will lead the way in fintech growth, with the Asia-Pacific region expected to surpass the United States and become the world’s largest fintech market by 2030. Meanwhile, Africa’s fintech market, led by countries such as South Africa, Nigeria, Egypt, and Kenya, is projected to grow thirteenfold to $65 billion by 2030, with a compound annual growth rate (CAGR) of 32%.
“Globally and in Africa, the fintech journey is still in its early stages and will continue to revolutionise the financial services industry as we know it,” says Caio Anteghini, partner at BCG in Johannesburg.
“Even though financial services remains one of the most profitable sectors of the economy worldwide, it struggles with innovation and customer experience remains poor. More than half the world’s population remains unbanked or underbanked, with the majority in emerging economies, and technology continues to unlock new use cases in leaps and bounds. All stakeholders must therefore seize the moment. Regulators need to be proactive and lead from the front, while incumbents should partner with fintechs to accelerate their own digital journeys.”
The report highlights that despite a temporary market correction in 2022 that caused fintechs to lose more than half their market value on average, the fundamental growth drivers of the fintech industry remain unchanged.
Nigel Morris, QED Investors managing partner and co-author of the report, states, “We expect to see continued growth not only in developed markets in the US and Europe, but also in developing fintech markets in Latin America, Asia, and Africa, where the inertia and friction are even greater. QED remains more bullish than ever about the future of fintech and its promise to improve the lives of billions of people across the world.”
The report identifies Asia-Pacific, particularly emerging markets such as China, India, and Indonesia, as the driving force behind the region’s fintech growth. With the largest fintechs, substantial underbanked populations, a high number of small and medium-sized enterprises, and a rising tech-savvy youth and middle class, Asia-Pacific is projected to achieve a compound annual growth rate (CAGR) of 27% and surpass the United States as the leading fintech market by 2030.
In Africa, the report forecasts the continent to be the fastest-growing fintech region, with a projected fintech revenue CAGR of 32% until 2030. South Africa, Nigeria, Egypt, and Kenya are identified as key markets driving this growth.
“Unencumbered by legacy infrastructure, Africa can leapfrog its way to a new financial ecosystem and address the challenges of a population that is predominantly unbanked or underbanked,” says Anteghini.
The report underscores that fintech has the potential to solve the access issue, particularly through smartphone-based solutions in payments and lending, presenting significant opportunities for regional champions with full-stack attacker models.
The report further emphasises the shift in focus within the fintech industry, with B2B2X (B2B to any user) and B2b (serving small businesses) sectors expected to lead the next era of growth. B2B2X, which enables other players to better serve consumers and businesses, is projected to reach $440 billion in annual revenues by 2030.
The B2b fintech market, providing solutions to credit-starved and poorly served small businesses, is expected to generate $285 billion in annual revenue by 2030. This presents a substantial opportunity, especially in Africa, where SMEs contribute over 80% of all jobs on the continent.
While the report highlights the challenges faced by spread businesses, such as banks and neobanks, in accessing stable and low-cost sources of deposits in developed markets, it emphasises the crucial role of neobanks in expanding financial access and inclusion in emerging markets. Insurance and wealth management sectors also hold opportunities for growth, and B2B2X enablers are well-positioned to seize significant opportunities.
Regulation plays a crucial role in shaping the future of fintech. The report calls for regulators to create a level playing field and guardrails while avoiding stifling innovation through overregulation. Measures such as enabling faster pathways for licensing, supporting open banking ecosystems, and investing in digital public infrastructure are highlighted as ways to promote economic expansion, particularly in emerging markets.
Looking ahead, the report advises fintech companies to focus on core business operations, conserve cash, and pursue aggressive strategies such as talent acquisition, market expansion, and exploring M&A opportunities. Incumbent financial institutions are encouraged to form value-based partnerships with fintechs, allowing for independent operations while benefiting from mutually advantageous commercial arrangements.
“Incumbents typically find it difficult to be disruptive innovators and have tried to buy these capabilities by acquiring fintechs. To avoid failed acquisitions and shorten fintechs’ time and cost to market, incumbents and fintechs should form ‘value-based partnerships’ that allow fintechs to remain independent but with a clear commercial arrangement that is to the benefit of both partners,” the report suggests.
In conclusion, the report projects significant growth opportunities for the fintech industry globally, with Africa and other emerging markets at the forefront. By leveraging technology, fostering collaboration, and embracing forward-looking regulations, the industry can revolutionse the financial services landscape and improve access to financial products and services for billions of people worldwide.