Africa is the Future of Fintech

Fintech is not new technology. In the 1950s, renditions of modernizing finance via technology began in the United States with the development of credit cards as an efficient way for payment and extension of credit. However, the US lost its industry leadership in the 2000s. For the past decade, the fintech industry has been strongly led by China: in 2018, China’s $25.5 billion fintech market made up 46% of global fintech investments. Now, another shift in fintech’s center is expected. This third wave is said to be centered in Africa and defined by inclusive mobile banking services.

Africa has an ideal set of characteristics and circumstances to facilitate an innovative fintech environment; hence why investment into the region’s fintech industry has been on the rise. A growing population, skyrocketing smartphone usage, and more affordable internet costs prime the continent for technological modernization. Also, 66 percent of sub-Saharan Africans are “unbanked,” meaning they don’t use banks or financial services at all. Investors see this as untapped potential to capitalize on.

Despite the COVID-19 pandemic, funding for African fintech companies grew from $1 billion in 2019 to $1.35 billion in 2020 while comparable emerging markets, like Latin America, saw a decline in funding. Although overall funding is decreasing, Latin American fintech companies still raised more total funding than their African counterparts and are seeing an increasing amount of mega-deals. African funding growth is mostly from pre-seed and seed deals.

M-Pesa has made Kenya a leader in mobile money. This platform is a mobile phone-based money transfer, payment, and micro-financing service. In Kenya, the value of mobile commerce transactions reached $14.9 billion in the third quarter of 2018. Ghana also is a pillar of the African fintech industry. In 2018, the country initiated a system which supported transactions between various mobile service providers. The payments hit $57 million across the country.

Africa is largely considered to be the future of fintech-- and a key player in many other technological industries. In our next few posts we’ll talk about Africa's role in energy -, logistics-, and health-tech, as well as touch on their involvement in other tech industries.