Fintech refers to integrating technology into financial services, enabling faster, more efficient, and cost-effective transactions. It encompasses various products and services such as mobile money, digital banking, online lending platforms, cryptocurrency trading and insurance tech. The emergence of Fintech, short for financial technology, has revolutionized the way people conduct transactions and manage their finances.
The popularity of smartphones and digital platforms among Africans has opened up many possibilities for fintech firms to provide access to digital services. GSMA figures released in 2022 demonstrated a 17% rise in registered mobile wallets in Africa, bringing the total number to 621 million.
Consequently, this surge in mobile usage has caused rapid growth of fintech in Africa. In this blog post, we will explore what Fintech is all about, its current state in Africa, and its benefits to the region’s economy while shedding light on some challenges faced by Fintech startups operating in Africa.
The global fintech market
The global fintech market is growing gradually, with new players entering the market and existing players expanding their offerings. Fintech firms provide innovative solutions to traditional financial problems, and the market will grow in the coming years.
According to Vantage Market Research, the Global Fintech Market was valued at USD 133.84 Billion in 2022 and will grow to USD 556.58 Billion by 2030. Equally important, data suggests that the Market will grow to a Compound Annual Growth Rate (CAGR) of 19.50% over the forecast period. The study indicates that Fintech money transfers and payment services have grown in popularity due to the enormous development in online digital-only banks and Mobile phone payments. With a total transaction value of USD 880 billion in 2021, digital payment is the top market sector.
The State of Fintech in Africa
The Fintech industry in Africa is rapidly growing and evolving. With a population of over 1.2 billion people, the continent is a prime location for digital payment solutions that improve access to financial services for many Africans.
According to the latest report by Statista, The market’s largest segment will be Digital Investment, with a total transaction value of US$994.40m in 2023.
Additionally, the Digital Assets segment will show a revenue growth of 36.1% in 2024. The findings further suggest that In the Digital Payments segment, the number of users will amount to 610.90m users by 2027.Some significant developments in the African Fintech space have been the emergence of mobile money platforms like M-Pesa and payment gateways like Tingg. These platforms originated in Kenya and have since spread across other parts of the continent. Moreover, these channels have enabled millions of unbanked individuals to access financial services using mobile phones.
Impact on the continent
Below are some of the notable impacts that the industry has on the continent:
- Financial inclusion
The World Bank notes that Sub-Saharan Africa accounts for about 350 million unbanked adults, translating to 17% of the global total. Fintech companies are helping to address this problem by providing digital solutions that are accessible to everyone. For example, mobile money platforms like M-Pesa allow people to send and receive money without a bank account.
- Economic growth
Fintech is also helping to drive economic growth in Africa. By making it easier for businesses to access finance, fintech is crucial in supporting entrepreneurship and small business growth. In addition, the industry is also facilitating trade and commerce by making it easier for businesses to make and receive payments.
- Social development
The impact of fintech is not confined to the economic sphere. Fintech also contributes to social development by improving access to education, health care and other essential services. In addition, fintech is helping empower women and promote inclusion by providing access to financial services for those traditionally excluded from the formal financial system.
Types of Fintech
Fintech is an umbrella term that encompasses a wide range of financial technology. This technology includes mobile banking, payments, investing and personal finance management tools. There are many different types of fintech, each with its unique offerings. Here are some of the most popular:
1. Mobile Banking:
Mobile banking apps allow users to manage their finances on the go. These apps typically offer features like checking account balances, transferring money, paying bills, and sending or receiving payments.
2. Payments: Payment platforms make sending and receiving money online or in person easy. Common payment fintech includes PayPal, Square, and Venmo.
3. Investing: Investment platforms provide users with access to a variety of investment products and services, including stocks, bonds, ETFs, and mutual funds. Popular investing fintech includes Robinhood and Acorns.
4. Personal Finance Management: Personal finance management (PFM) tools help users track their spending, budget for upcoming expenses, and reach their goals. Standard PFM tools include Moneysmart and 22seven.
5. Insurance: There are a variety of fintech companies that offer insurance products and services. These companies use technology to give consumers a more efficient and convenient way to purchase and manage their insurance policies.
Challenges Facing Fintech
Below are some of the challenges facing fintech in Africa:
- Lack of access to capital:
Fewer sources of capital are available, and fintech startups may need help raising money from traditional investors. For example, venture capital firms tend to invest in companies based in developed countries, so African startups may need help attracting this type of investment. Finally, Africa has a large informal economy, which makes it challenging to track and assess the risks associated with investing in startups. Such economies make it harder for investors to justify putting money into these companies.
- Regulatory clarity
The fast-paced nature of the finance industry means that regulations are often needed to catch up to the latest innovations. A fast-paced environment creates an uncertain environment for many startups, which may need clarification on whether their products or services comply with the law. However, recent developments indicate a positive trajectory in easing government regulations in recent years. These steps have created a more conducive environment for fintech companies to operate and scale up their businesses.
- Limited infrastructure
To expand access to financial services, companies must partner with local banks and other financial institutions. However, these partnerships can be challenging to establish due to the limited infrastructure in many African countries. In addition, these companies face challenges in terms of internet connectivity. Many parts of Africa need more internet penetration to provide their services.
Fintech has increased access to financial services for many people across the continent. It also provides new opportunities for business owners and entrepreneurs who can now use these affordable, safe payment solutions and improved convenience through mobile banking applications. Fintech shows no sign of slowing down; we can only expect further innovation that will lead to even more financial inclusion throughout the continent, ultimately enabling individuals and businesses across Africa to harness the power of digital payments with confidence. Learn more about how we are providing payment solutions in Africa here.