Air escapes from Africa fintech bubble

In depth
This article is part of the dossier: Africa in 2023

By David Whitehouse

Posted on Wednesday, 1 February 2023 15:21
A woman looks at Nigerian banks apps on a smart phone in Abuja, Nigeria September 21, 2020. Picture taken September 21, 2020. REUTERS/Afolabi Sotunde

The period of exponential growth in African fintech investment may be drawing to a close as financing becomes more selective.

Venture-capital investment into African fintech surged to $1.6bn in 2021 from $230m in 2020, according to the PitchBook financial data provider. PitchBook’s figure for the first nine months of this year – $1.3bn – suggests a full-year figure roughly in line with 2021.

Despite all the hype, Africa still has only a handful of unicorns or start-ups with a $1bn valuation. As McKinsey notes in research published in October, African fintech investment has been slowing down in line with global trends.

The continent’s total addressable market, McKinsey argues, is limited by infrastructure constraints, such as weak mobile and internet penetration in some markets, lack of identification, and limited payment rails. Only three countries have real-time payments and the necessary payment-rail infrastructure, the firm says.

More targeted investment

Prospects for growth are still real: McKinsey forecasts that African fintech revenues could reach eight times their current value by 2025. However, investment may become targeted at specific functions within the broad fintech theme. McKinsey says economies with mature financial systems, such as South Africa and Nigeria, will attract innovation in more advanced financial services, such as business-to-business (B2B) liquidity, and anti–money–laundering and know-your-customer (KYC) technology.

Markets with less developed financial infrastructure are likely to see advances in the likes of banking as a service, and buy now, pay later in retail and small and medium-sized enterprise (SME) lending.

That’s a positive development, argues Buhle Goslar, CEO for Africa at the Jumo fintech. Until recently, she says, only middle-class African consumers in major cities could shop on e-commerce platforms. “There was no viable business case for business-to-customer (B2C) e-commerce platforms for middle- to low-income African consumers”, mainly due to limited internet access and other logistical limitations.

“This is rapidly changing,” says Goslar, who is also on the board at the Copia Global B2C platform. Africa’s low-to-middle-income consumer, she says, can be “instrumental” in the growth of e-commerce, while building new digital and financial solutions into e-commerce offers will underpin future growth.

New cycle?

New unicorns keep being born, too. The latest is Egyptian MNT-Halan, which has raised $400m from local and international investors over the last year.

Their sector of activity? … Fintech.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options
Also in this in Depth:

Putting Africa at the heart of the global energy transition, thanks to its ‘critical minerals’

Shinkolobwe means nothing to most people, despite the fact this city of Katanga has changed the course of history. It was from a mine located near this city that the uranium for the American Manhattan atomic programme came. At a time when the global energy transition is accelerating, Shinkolobwe, DRC, and more broadly Africa, have the opportunity to participate again in changing the world, in a peaceful way, thanks to their resources in “critical minerals”.

Nigeria, Libya, DRC… Top elections to watch in Africa in 2023

Let us state the obvious: Africa is a big continent with 54 countries (according to the United Nations). Thus it should come as no surprise that there are many elections to watch in 2023.

Political year ahead in Africa: Which governments will lose power in 2023?

The dust is just beginning to settle on President Teodoro Obiang Nguema Mbasogo’s farcical election victory in Equatorial Guinea. Not satisfied with ruling the country since 1979, he engineered one of the most one-sided elections the world has ever seen. This included giving himself 97% of the vote in the presidential election and preventing the opposition from winning a single legislative seat. Equatorial Guinea is now a one-party state in all, but name.

Nigeria 2023: The Battleground States

About 93.4 million Nigerian voters scattered across the 36 states and the nation’s capital will next month elect a new president. However, each state has its own peculiarity and voting patterns that can shape the overall outcome of a poll. Read on for our 8-part series on the key swing states, and the political personalities who define them.

Africa’s extractive landscape…what to look out for in 2023

Accelerating activity across Africa’s extractives landscape in 2023 will show whether, and how, the continent’s resources can contribute to an inclusive energy transition.

DRC, Niger, Senegal: The trio driving growth in 2023

With an average growth forecast of 3.5%, sub-Saharan Africa is resisting global malaise, but inflation and debt remain a threat to the continent’s economies.

South Africa: 10 things on Ramaphosa’s economic team to-do list for 2023

After South Africa’s President Cyril Ramaphosa secured the top spot in his party in December, attention has now turned to decisions his government is expected to make in 2023, the fourth year of his five-year stint.

Africa in 2023: Ghana’s debt restructuring sets tone for Africa’s ‘Year of Austerity’

A long year lies ahead for the African governments which have borrowed too much. While Ghana's torment is under the spotlight, Tunisia, Kenya and Nigeria will all face tough challenges in the year ahead, experts say.

DRC: Can Congolese cassava conquer wheat?

In order for the Democratic Republic of the Congo to become less dependent on grain exports, the state and professional sectors must work to ensure that cassava flour, of which the DRC is the world’s second largest producer, becomes a leading ingredient in the manufacturing of domestically made breads and pastries.

Nigeria’s AgroEknor bets gluten-free fonio can become global mainstream health food

Fonio is the most famous health food that the West has never heard of. A Nigerian company is betting that the gluten-free grain can break through into the global mainstream.