Fintech Emerging As Africa’s Most Vibrant Sector

Fintech Emerging As Africa's Most Vibrant Sector

Fintech startups in Africa grew 81% in 2021, with South Africa, Nigeria, and Kenya emerging as key hubs on the continent, found a Mastercard study on the state of fintech in African markets.

The white paper titled ‘The Future of Fintech: Rapid Growth Attracts Smart Capital’, was released at Mobile World Congress (MWC) Africa, one of the continent’s most influential connectivity events, of which Mastercard is a founding partner.

Some of the key findings from the paper include how the fintech sector accounted for 27% of the record-high number of deals closed and 61% of the US$2.7 billion deployed across Africa in 2021. The space was further characterized by mega deals of more than US$100 million each.

The white paper went on to find how fintech innovation in Africa has been driven by the need to resolve multiple pain points, with a focus on increasing financial and digital inclusion. South Africa, Nigeria and Kenya were also seen as among the countries leading the transition to digital payments, with infrastructure and policy frameworks that enable this growth firmly in place.

“It is encouraging to witness the growth of the fintech landscape across the region, creating multiple opportunities for start-ups, scale-ups, enablers and micro, small and medium enterprises (MSMEs) to bring more people into the digital fold. At Mastercard, we are helping to fuel fintech acceleration by offering access to our expertise, network and technology. We provide a portfolio of technology solutions, APIs, developer tools, partner network, startup programs and a community experience for every fintech company and payments developer, helping turn their bold ideas into reality,” said Ngozi Megwa, Senior Vice President, Digital Partners and Enablers, Eastern Europe, Middle East and Africa, Mastercard.

The growth in the number of fintech companies in Africa is reflective of global fintech funding which jumped to a new record of US$131.5 billion in 2021. The number of fintech unicorns reached 235 with 34 alone born in Q4-2021. Fintech companies now represent more than 20% of total tech unicorn value, compared to 15% in the previous year.

The study showed that on the demand side, the role of MSMEs has been crucial to fintech’s growth. MSMEs use fintech and e-commerce solutions to scale, source, and reach. The growth in alternative payment rails and emerging platforms are shaping the commercial landscape. Buoyed by demand, fintech has seen products based on multi-faceted innovation in emerging and mature economies. Providing scalable financial services using the internet, blockchain, and algorithms, fintech companies have widened the reach of financial services traditionally offered by banks, including loans, payments, investments, or wealth management.

The white paper also explored the African fintech landscape with regards to the ecosystem, funding and regulation, with the following findings included in the study:

  • The fintech ecosystem in Africa is adopting new technologies to deliver financial services
    • Governments, regulators, financial institutions, payment and technology companies, funders, and entrepreneurs are collaborating to be at the forefront of financial innovation, developing use cases such as mobile money and using fintech as a vehicle for financial inclusion.
    • Recent years have seen a faster rate of digitization, driving the adoption of neobanks and digital payments. Cryptocurrency, nonfungible tokens (NFTs), and blockchain-backed technologies have come into the mainstream, often backed by dynamic regulation that supports the growth of more affordable financial services.
  • Africa fintech start-ups showed exponential growth in 2021
    • In terms of funding, the study showed that Africa’s fintech startups recorded 894% year-on-year growth in funding in 2021, the second highest in the Middle East and Africa region.
    • Nigeria emerged as a leading fintech hub across the Middle East and Africa as start-ups there accounted for a third of all funding deployed into fintech in 2021.
    • The rapidly growing sector comprises sub-segments of particular interest, including digital payments, e-money, international remittances, peer to peer (P2P) lending, and equity crowdfunding
  • Regulators showed an increase in collaboration
    • Regulators across various countries in Africa have adopted a collaborative approach to enable the introduction of new solutions by fintech companies. Africa has proactive regulators who foster innovation for financial, digital, and economic inclusion.
    • 45% of the population in Africa does not have an official identity, making eKYC a seamless entry point for fintech.
    • Nigeria is one of the first regulators in Africa to mandate open banking frameworks, along with financial services data protection rules.