Servicing the underbanked and migrant workforce has also created unique pain points for innovative financial solutions in Africa. With such vast pain points, the addressable user markets are huge and with the right targeted solutions, the potential for rapid growth is significant. As an investment segment, the fintech industry made up more than 25% of all venture capital rounds in the last two to three years, with South Africa joining other regional leaders, such as Egypt, Nigeria, and Kenya. The heated attention in the sector has led some to speculate whether the situation for African fintech is sustainable in the current global market, where current VC startup valuations have been falling. The South African payments sub-sector is already said to be saturated and ripe for consolidation. But the figures tell a different story. In the first quarter of this year, Africa was the only region to record triple digit growth, according to some databases monitoring venture funding, and the bulk of this is pouring into fintech. The party clearly isn’t over just yet and it looks like there is still plenty of room in the sky for new entrants.
Nigeria and Kenya have been two of the African fintech hotbeds garnering the most attention. Kenya’s fintech explosion is largely because the general African fintech wave followed the penetration of mobile phone technology and infrastructure. Kenya’s current mobile penetration surpasses the country’s entire population by 12%. Kenya’s fintech industry was originally focused on mobile money transfer services and rode the wave of exponential market adoption between 2007 and today. Building on technology akin to GSM text messaging, major players in the market were able to expand its offering to users who did not have internet or data connection but had access to cellular phone towers and basic mobile devices. The African fintech scene has shown incredible resilience to the pandemic and even after the turmoil in global markets in 2022. This goes to show that the momentum is not only driven by the availability of capital, but also by the creation of value that comes with solving real problems within large user markets. The biggest challenge fintech may face is global ‘stagflation’ and that investors are going to be more careful in their investment choices and the risks they are willing to take. Nonetheless, while some sub-segments such as payments may be in their peak (which is debatable), there is a lot more room in others, such as alternative lending, digital investment, and neo-banking. There are also many other African countries that have not yet reached the heights achieved by Nigeria, Kenya South Africa, and others that are in their fintech development. Overall, the growth of the fintech in Africa has a lot of runways still left.