Africa to lead global fintech growth with 32% CAGR and $65bn revenue by 2030

Africa is on track to become the fastest-growing region in terms of fintech revenue. This is according to a recent report by Boston Consulting Group (BCG) and QED Investors. With a compound annual growth rate (CAGR) of 32% from now until 2030, Africa’s fintech market, led by South Africa, Nigeria, Egypt, and Kenya, is projected to expand thirteenfold, reaching an impressive $65 billion by 2030.

Caio Anteghini, a partner at BCG, Johannesburg, highlighted that, Africa’s advantage lies in its lack of legacy infrastructure, allowing it to leapfrog into a new financial ecosystem that can address the challenges faced by its predominantly unbanked or underbanked population.

“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. Nearly 500 million adults in the Middle East and Africa (MEA) region are unbanked – that is 52% – while 43% are underbanked,”

Caio Anteghini

Fintech holds the potential to bridge the access gap, especially through the use of smartphones. Payments and lending are key areas where smartphones offer significant opportunities. Fintech companies with comprehensive models can take advantage of these opportunities and drive financial inclusion in the region.

Globally, financial technology revenues are projected to witness a six-fold increase, projected to go from $245 billion to $1.5 trillion by 2030. Emerging economies, particularly the Asia-Pacific (APAC) region, are expected to lead the fintech revolution, surpassing the United States as the world’s largest fintech market by 2030, with a projected CAGR of 27%.

Anteghini emphasizes that both globally and in Africa, the fintech journey is still in its early stages and holds the potential to revolutionize the financial services industry.

“Even though financial services remains one of the most profitable sectors of the economy worldwide, it struggles with innovation and customer experience remains poor,” Anteghini said.

“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,” he continued.

The report, however, believes that the challenges faced by fintechs will be short-lived. An excerpt says, “We believe that the challenges fintechs have recently faced represent a short-term correction in an otherwise long-term growth story, as the fundamentals of the sector haven’t changed.”

That is certainly the case for African fintechs as mobile and Internet penetration are expected to grow, opening up new vistas. Regulatory improvement could also prove to be key. Kenya appears to have relaxed its stance on cryptocurrencies after stating its intention to tax its usage in amendments to the Finance Bill 2023.

Nigeria, on the other hand, recently unveiled guidelines for open banking, which experts believe will drive competition in the sector. Similarly, despite being viewed as cruel by many Nigerians, the Central Bank of Nigeria’s recent cashless policy drive accelerated fintech adoption for many who had previously stayed away from patronizing fintechs.

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Africa’s fintech future

In Africa, although cash is still king, fintech could be a vehicle to solve the access issue, as most of the population is still either underserved by banks or fully unbanked. As the youngest and fastest-growing region globally with a median age of roughly 19 and projected population growth of an additional 1.2 billion people by 2050, demographic shifts and earning-power increases will deepen the need for financial access, according to the report

BCG and QED Investors expect some degree of leapfrogging in technology, particularly when it comes to cashless payments. In Nigeria, 73% of adults have a smartphone, but a mere 2% have credit cards.

“Most Africans’ first interaction with the financial services sector may be through their smartphones – presenting major fintech opportunities in payments and lending for regional champions with full-stack attacker models,” the report said.

Historically, telco-backed fintech players, such as Safaricom’s M-Pesa and MTN Mobile Money have led much of the segment’s growth in the region. Such players are expected to maintain their major role, alongside grassroots fintechs.

Challenges faced by African fintechs

African fintechs, despite their potential, face several challenges that hinder their ability to fulfill their huge promise. The macroeconomic environment stands as the first obstacle. Countries like Nigeria, Egypt, and Kenya, where most fintech innovations occur, are experiencing slow economic growth, with single-digit growth projections for 2023. This economic slowdown could impede fintechs from unlocking value beyond payments.

The choice of business models adopted by fintechs also plays a significant role. In Nigeria, for instance, many startups initially adopted a freemium model to attract a larger user base. However, with funding becoming more difficult to secure, many are transitioning to charging for services they previously provided at no cost.

This shift places them in direct competition with traditional financial institutions that are launching rival products. For example, GTCO, the holding company of Guaranty Trust Bank, has introduced Investment One and Squad, a payment gateway, to compete directly with fintechs.

Ensuring the sustainability of their business models is another challenge for fintechs. While some have experienced growth in user numbers due to tightened forex access regulations imposed by the Central Bank of Nigeria (CBN), a relaxation of these regulations could pose challenges for startups built around this value proposition. Although fintechs are agile and can pivot, the fact that most of their customers are already banked may still present difficulties.

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Access to capital is a crucial hurdle as the majority of African funding comes from foreign investors. This reliance on external investment becomes particularly significant as global venture capitalists tighten their purse strings. African startup funding will undoubtedly be affected, despite local investors increasingly raising funds. However, the amounts raised by local investors remain significantly lower than their Western counterparts, limiting the financial resources accessible to fintechs.

Furthermore, local investors may prioritize supporting their existing portfolio companies during economic downturns, further reducing the available funding for African fintechs. A 2022 fintech report by McKinsey highlighted this growing challenge, suggesting that stimulating participation from local investors could be key to survival.