investor wilt

Air escapes from Africa fintech bubble

in depth

This article is part of the dossier:

Africa in 2023


By David Whitehouse

Posted on February 1, 2023 14:21

 © 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
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.

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