The Growth And Challenges Of Fintechs In Africa

Over the past few years, African financial services have gone through a massive structural shift. 10% of all the financial transactions in Africa are digital. Additionally, with increased fintech penetration in the continent, the fintech industry managed to create a revenue of over six billion. This number is expected to grow eightfold and generate a revenue of $30 billion by 2025. In the coming years, Africa is in for a massive revolution because of the fintech sector. 

The Growth Of Fintech In Africa 

The number of tech industries in Africa boomed during the pandemic, with over 5,2000 tech startups and companies. Half of these companies offer financial services and now play a crucial role in the African economy. Ghana (15%), Francophone West Africa (13%) and Nigeria and Egypt (12%) have witnessed the highest fintech growth. However, even though fintech will grow across all 54 countries of Africa, it will not be consistent growth in the continent. 

Industry leaders believe that the fintech startups are not causing a financial disruption but an evolution in Africa. Both local and international investors now willing to invest more in fintech startups acknowledge this. The same is visible with increased fintech funding in Africa and larger deals. 

What Is Driving Fintech Growth In Africa?

African countries are witnessing a growth of 10% in a year in fintech companies. Currently, South Africa tops the list of fintech companies in terms of maturity. Numerous factors are contributing to the growth of fintech in the region. However, the most crucial factors are increased smartphone penetration, improved network coverage and reduced internet cost. For example, in one African country, it might be possible to buy Lottery Sambad tickets online; however, in another country, it might not be. These factors are then clubbed with Africa’s young and urban population, which is increasing. 

Additionally, the users also realize the value that the fintech companies are bringing with them. With digital transaction solutions, the cost is cut by 80%, and the savings increase by three folds. In such a scenario, events like Dhankesari can offer complimentary benefits instead of being a primary financial source. Furthermore, regulatory frameworks of the government, which are supportive of the industry resulting in increased funding in the sector, are ensuring the growth of fintech. 

The Disparity Of Fintech Across Africa 

As discussed above, not all the countries of Africa will witness equal growth in the sector. For example, South Africa will drive most of the revenue of the fintech industry. Therefore, it will see a mature banking system. On the other hand, the highest growth will occur in Ghana, francophone West Africa, Nigeria and Egypt. Furthermore, reports indicate that most fintech opportunities in Africa will stay concentrated in 11 key market areas. Therefore, different markets will support different opportunities for fintech startups. 

The Challenges Of Fintechs In Africa 

Even though fintech has a huge opportunity to grow in Africa, it will face its share of challenges, especially in its next growth stage. Currently, most of the companies in the ecosystem are still at the early stage, and this stage needs to be expanded. The expansion of the same is possible only through overcoming the challenges. The first challenge includes infrastructure constraints because of low and weak internet and mobile penetration in Africa. The infrastructural limitation varies geographically, and fintech needs to consider this variability when scaling. Moreover, the disposable income of the continent is still low, which can risk the profitability of the fintech’s business model. 

The second constraint for the fintech companies is the need for more resources in contexts of slow funding. The investment was high in Africa in the sector in 2021, after which it slowed down. It is especially valid for later-stage fintech startups. The problem is at a later stage; fintech needs to grow faster to become a disruptor. The same is not possible with slow finding. Therefore, resource management is an issue for the fintech with limited and slow funding. 

How To Overcome The Challenges For Growth? 

The priority of most fintech is to raise funding by matching the value proposition of the startup to the market. Secondly, the fintech companies should identify all the active users and work on acquiring them quickly. Also, a clear monetization strategy should be worked on and effectively implemented. Finally, another way to overcome the challenge includes identifying the needs of the offline market of the continent and solving the financial problems for them. It is only through these strategies African fintech can manage its growth. 


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