There’s usually something at the cause of a shift in pattern, and looking past Black Friday’s whirlwind, there was a definite shift in consumer…
South Africa’s fintech revolution is in full swing, with innovative solutions reshaping the financial landscape on a weekly basis. The country’s large population, coupled with a significant number of unbanked individuals, presents a vast market for fintech services.
In recognition of the untapped potential and transformative power of technology, investors are increasingly drawn to local fintech start-ups. Finch Technologies co-founder Michael Bowren highlights five sectors that are captivating investor attention and propelling the country’s fintech ecosystem to new heights.
Alternative funding solutions
With over 130 alternative lenders in South Africa, the fintech industry is witnessing a transformative shift in funding solutions and marketplace platforms. These innovative models connect borrowers and lenders, providing an alternative to traditional financial institutions and revolutionizing business access to funding.
Bowren notes, “FundingHub has emerged as a leader in the business finance marketplace landscape, allowing SMEs to compare offers from multiple lenders seamlessly.”
FundingHub, which was acquired by Finch Technologies in 2020, has continued to improve its seamless comparison platform. Another standout alternative lender, Merchant Capital, has garnered significant support and investment from Alphacode, the incubator of Rand Merchant Investment Holdings. This partnership highlights a commitment to fostering entrepreneurship and driving the development of disruptive fintech solutions.
Online payment processing
Africa’s e-commerce and digital transaction growth has given rise to a pressing need for secure, efficient, and convenient payment solutions. Fintech companies specialising in online payment processing are meeting this demand head-on.
Notable start-ups like Paystack, Yoco, and Revio are redefining the way Africans transact. Yoco, a pioneer in mobile card readers, enables SMEs to effortlessly accept card payments. In a substantial series-C funding round in 2021, Yoco secured $83 million, driven by high demand from small businesses seeking digital payment solutions.
Ryan Hodgson, fundraising analyst at The Delta, asserts, “Africa’s domestic e-payments market has an estimated CAGR of 20%, with projections reaching around $40 billion by 2025.”
Prominent investors participating in Yoco’s funding round included Dragoneer Investment Group, Breyer Capital, HOF Capital, The Raba Partnership, 4DX Ventures, and TO Ventures, underscoring the growing confidence in African fintech investments.
Regtech and fraud analysis software
Investors are increasingly seeking regulatory technology (“regtech”) and fraud analysis software solutions to enhance compliance, mitigate risks, and combat financial crime, particularly in open banking landscapes.
These technologies offer sophisticated tools for monitoring and ensuring regulatory compliance, bolstering the integrity of financial institutions. KYC solutions like Gathr are reducing human error and fraud while facilitating customer onboarding.
Bowren points out, “Investors recognise the importance of robust regtech and fraud analysis systems in an increasingly digitized financial landscape.” The global market for Regtech and fraud analysis software is projected to reach $22.3 billion by 2027, with a compound annual growth rate of 19.8%.
South Africa’s vast solar energy potential has spurred the growth of fintech companies offering innovative financing models that enable individuals and businesses to access clean energy solutions.
Solar finance start-ups have attracted investor attention due to the sustainable nature of solar energy and the opportunities it presents for achieving both environmental and financial goals. Sun Exchange, a notable player in this sector, operates a solar leasing platform that allows individuals and corporations to own and earn from solar assets in emerging markets.
Abe Cambridge, the founder of Sun Exchange, highlights the platform’s impact: “Our platform was initially developed to allow individuals around the world to buy solar cells in projects that power schools and other organizations in South Africa.”
Sun Exchange has received equity investments from prominent investors such as Techstars, Alphabit Fund, and ARCH Emerging Markets Partners, indicating strong support and interest from local and international venture capitalists.
Fintech start-ups focusing on payments and remittance are revolutionizing the way money moves across borders in South Africa. These ventures aim to facilitate low-cost, secure, and transparent remittance services, tapping into the significant market of Africans living abroad who regularly send money back home.
Mukuru, a South African fintech start-up, has achieved remarkable success in this sector. By offering low-cost international money transfers primarily targeted at African migrants, Mukuru has become a leading player.
The company has garnered support from investors such as Emerging Capital Partners, demonstrating the backing of local funders in the payments and remittance sector. The digital remittances industry in South Africa is expected to experience a growth rate of 6.02% between 2023 and 2027, reaching a market volume of $345.30 million.
South Africa’s fintech landscape is attracting significant investor attention across various sectors, driving innovation and addressing pressing market needs. The transformative power of technology, coupled with the country’s large unbanked population, presents a lucrative investment opportunity.
As investors continue to explore and support the fintech ecosystem, the country’s financial landscape will witness further growth, innovation, and positive impact. The alternative funding, online payment processing, regtech, solar finance, and remittance sectors are at the forefront of this transformative revolution, poised to reshape the financial industry and drive financial inclusion in South Africa and beyond.