Although African Fintech is expected to have a 32% CAGR by 2030, there are still some challenges that need to be tackled.
Fintech is steering Africa towards economic growth and financial inclusion, welcoming more people to a digital-first era. Although payments are its biggest vertical, the ecosystem accommodates other segments like insurtech and lendtech.
Where other sectors suffered thanks to the economic uncertainty induced by the pandemic, the African fintech industry thrived. In 2020, it recorded a revenue of $3.8 billion, according to Statista.
Despite 2022 being an underwhelming year for fintech fundraising in Africa, a report titled “Global Fintech 2023: Reimagining the Future of Finance” forecasts that the region will generate $65 billion, with a CAGR (Compound Annual Growth Rate) of 32% by 2030. It identifies South Africa, Egypt, Nigeria, and Kenya as the major markets.
For the uninitiated, the compound annual growth rate (CAGR) is the annualized average revenue growth rate between two given years, assuming growth occurs at an exponentially compounded rate.
Although most African countries remain over-reliant on cash for payments, digital transactions are making inroads into the scene. This trend will play a vital role in reducing the number of unbanked and underbanked citizens. That’s why the legacy infrastructure offered by most traditional banking institutions must be overhauled to make room for innovative technologies like artificial intelligence and blockchain.
Companies across various industries have been tapping into AI, improving service delivery and other areas. AI is becoming a major topic in fintech, with brands leveraging the technology to optimize fraud detection, properly understand customer behaviour, and many more.
Similarly, blockchain technology brings loads of potential benefits to the fintech space and can help nations build their respective digital economies. Nigeria recently signed a national blockchain policy into law, saying it will pave the way for secure transactions, data sharing, and value exchange among individuals, businesses, and the government.
Payments will keep booming by 2030, but…
The report acknowledges that payments have contributed greatly to the rise of fintech, with individuals and businesses seeking newer and better ways to send and receive money without borders. In Africa, payments enjoy the lion’s share of the market. Even with a high presence of cash, electronic transactions are easy to perform, offer better security, and are fast.
It explains how M-Pesa – a mobile money service launched in 2007 by Vodafone’s subsidiary Safaricom – excelled in Kenya and recently extended to other countries, including Ethiopia. However, the fintech cake comprises several layers that present diverse growth and development opportunities.
Lending, for instance, is dangerously untapped.
Consider the average SME, which, like many micro businesses, contributes to job creation, wealth growth, and economic development. Although they promise great benefits, legacy challenges like infrastructure deficits and limited access to credit make it difficult to succeed. Traditional banks aren’t always eager to finance SMEs, mainly because of strict lending policies favouring mostly corporate bodies.
Read also: AfDB approves $525k grant to create a digital hub for African fintechs
Winds against the growth of African fintechs
Mckinsey’s “Fintech in Africa: The end of the beginning” predicts that revenues from this space could “reach $30 billion by 2025” with an 8X growth rate. The market holds lots of promise, but certain issues must be addressed.
Africa lacks a uniform regulatory framework, meaning that a fintech in one country may struggle to thrive in another market because of varying financial regulation laws. While Nigeria and Kenya have established regulatory sandboxes to complement fintech efforts, other markets should follow suit and review their license approval requirements.
Will Green – a strategic advisor to many high-growth technology founders – identifies another potential roadblock to the growth of fintechs in Africa. He believes while fintechs can capitalize on the growing conversation around AI to integrate the technology into their services, he’s doubtful that every fintech will seize this opportunity immediately.
“I believe the approach which regulators and fintechs take in terms of leveraging AI will determine whether that market will accelerate or get left behind,” he says. Regulations promoting the responsible use of AI should also be introduced.
African fintechs will face infrastructural problems like low internet penetration and problematic know-your-customer (KYC) systems. A glaring talent shortage and overreliance on cash may also stand in the way of growth.
Regulators must step up
For the African fintech scene to experience monumental development, the government of Nations must be more proactive. Tosin Eniolorunda – CEO of Moniepoint – shares insights into what regulators can do.
“A great way to start will be making laws that support the adoption of financial technology in a way that benefits businesses. Alongside this, regulators on the continent need to adopt a collaborative role as they design new policies and frameworks,” he explained.
Blockchain – a web3 offering – generated plenty of conversations last year. Although AI may have drowned out the hype of distributed ledger technology, the latter has a major role in achieving financial inclusion for all.
“For startups looking to play in the trade, cross-border remittances/payment space, blockchain can be a viable infrastructure for facilitating these types of transactions,” Eniolorunda states.
Nigeria approved a national blockchain policy early this month, demonstrating its intent to transform many industries. This, alongside last year’s startup act, is among a growing list of policies intended to help the digital economy grow.
Although Green also sees the vast opportunities in blockchain use, he remains sceptical of government involvement. “Who controls the keys of power, and are there incentives for this power to be corrupted?” he asks.
Get the best of Africa’s daily tech to your inbox – first thing every morning.
Join the community now!