Of 5,200 tech startups created across Africa between 2020 and 2021, almost half are in financial technology, aka FinTech. And although cash is still king across the continent – accounting for around 90% of transactions – and 57% of the population in Africa is unbanked, local and international investors and venture capitalists (VCS) are taking note. They see Africa as a blank canvas where FinTech revenues have considerable potential to grow.

According to a report by McKinsey titled FinTech in Africa: The End of the Beginning, Kenya has one of the highest levels of FinTech penetration in the world. If the rest of the continent can catch up, the predictions are that African FinTech revenues could grow at about 10% per year, and reach eight times their current value by 2025. This will see the continent able to compete with more mature markets such as India, Vietnam, and Indonesia.

The FinTech disruption – or eruption as some refer to it – reaches beyond the intersection between finance and technology; all business sectors, from logistics and blockchain to education, and green energy, can be boosted by FinTech solutions. Taking a general view, companies that embrace FinTech can immediately improve efficiency and reduce operating costs. But the solutions can also have real-world benefits, such as enabling seamless, real-time customer transactions and driving hyper-personalisation by improving an understanding of the needs and behaviour of customers.

Other areas where FinTech can make a significant impact on everyday businesses are accounting and payroll, cybersecurity and data management, payments, marketplaces, and management platforms. Opportunities presented by FinTech can also hugely influence businesses’ strategy and innovation, maximising competitiveness and profit.

Factors that define FinTech in Africa

According to McKinsey, the success of FinTech in Africa is being fueled by several factors, the most important of which are:

  • Increasing smartphone ownership
  • Declining internet costs
  • Expanded network coverage
  • A young, fast-growing, and rapidly urbanising population

At the same time, those who want to build FinTech into their businesses will have to consider the availability of big data and capacity for artificial intelligence, both of which are needed to design and tailor FinTech solutions. Features of any product will have to take a customer-centric approach and include digitisation, automation of processes, and robust data security.

Currently, the lion’s share of value in the FinTech market is concentrated in South Africa, the largest market on the continent and the country with the most mature banking system. Other countries with the most anticipated growth are Ghana, West Africa, Nigeria, Egypt, Cameroon, Morocco, Senegal, Tanzania, Uganda, and Cote d’Ivoire.

South Africa and Nigeria are expected to be innovators in advanced financial services, such as business-to-business liquidity and regulatory technology, including anti-money laundering and know-your-customer (KYC) compliance.

As digital becomes a way of life in Africa and teething problems are ironed out, the next phase of FinTech growth can begin. However, McKinsey sees the continent facing four key challenges to FinTech sustainability:

  1. Reaching scale and profitability
  2. Navigating an uncertain regulatory environment
  3. Managing scarcity
  4. Building robust corporate governance foundations

Regulation as the Mediator in the FinTech Revolution

The spectacular crash of the world’s second-largest crypto exchange, FTX, has brought the need for regulation – how and by whom – of both FinTech and BigTech to the fore. But despite concerns that over-regulating can impact innovation and the FinTech revolution itself, security and trust are cornerstones of healthy FinTech solution growth.

Here a subset of FinTech companies called RegTech, short for “regulatory technology’, promises to improve cyber security and support the digitisation of regulatory compliance, so minimising risk and ensuring compliance.

As a FinTech frontrunner, South Africa has seen several recent regulatory developments evolve to fully adopt FinTech and its various sub-segments. We also have specific compliance and due diligence processes that have to be addressed before and during FinTech transactions, making the country a safe bet for VCs.

If Africa is indeed set to become the next big thing in FinTech, the AFIS Advisory Board, a network of leading financial industry decision-makers in Africa, suggests that an Africa-wide regulatory platform be established to accommodate different markets at different stages of developing FinTech regulation. This would harness the continent’s potential for innovation in financial technology and ensure trust is built in.

Prepare your business for FinTech

Whatever the challenges, FinTech is guaranteed to be a part of Africa’s financial and business systems in future, benefiting both individual countries’ economies and citizens. That’s why it is important that business leaders and entrepreneurs alike learn what role FinTech can play in their business models, structures, processes, culture, and talent.

MasterStart’s state-of-the-art FinTech online short course demystifies the jargon and teaches how businesses can be enabled by FinTech, regardless of whether you’re a small business owner, a startup, or a multinational. Starting on 25th January and running for seven weeks, it’s one of the best investments you’ll make to ensure your business is part of the future. Contact us now to reserve your spot.