The fintech (financial-technology) landscape of sub-Saharan Africa (SSA) has experienced rapid growth over the past decade, making big impacts on the broader financial-services industry. With the combination of the conducive environment and regulatory support from governments in the region behind it, fintech has the ability to shake up the industry further and bring about greater financial inclusion to fuel social and economic development.
Sub-Saharan Africa: the land of opportunity
The SSA region has a population of more than one billion people in 46 countries. At present, about 60 percent of that adult population does not have access to traditional means of financial services, and a huge proportion of Africans are underbanked. These factors, coupled with a substantial mobile-penetration rate of 44 percent as of 2018, have set a fertile foundation for the expansion of fintechs.
Also, there is capital to be invested in the SSA fintech sector, with investments of more than US$100 million in 2017 and 2018. The increase in investment flowing into this sector aligns with its impressive expansion in recent years and accentuates its considerable potential for further growth.
While fintechs received considerable funding from the private sector, funding support from governments is expanding. For example, in Nigeria, small and medium-sized enterprises (SMEs) can receive funding from dedicated funds or can take out loans at friendlier rates. One way to do so is through the Bank of Industry (BOI), which provides funding to small businesses by offering customer-friendly rates through the Youth Entrepreneurship Support (YES) Programme and the National Youth Service Fund, with a focus on technology companies. SMEs can also obtain funding from the Aliko Dangote Foundation, the Tony Elumelu Foundation and the National Information Technology Development Fund.
Another factor in SSA’s favor is its rapidly growing workforce. As well as having a large workforce at their disposal, SSA states are looking to train and develop the skilled pool of talent required to supplement the growing fintech sector in their countries.
This trend is evident in SSA fintech hubs, such as South Africa and Kenya. For example, in South Africa, universities are taking measures to offer relevant skills to strengthen the talent pool. In 2018, the University of Cape Town offered a new program: Master of Philosophy in Data Science of Financial Technology. In Kenya, academic institutions are developing entrepreneurial skills among students through incubation centers, such as the Kenyatta University (KU), Chandaria Business Innovation and Incubation Centre and the Strathmore University @iLabAfrica.
Dynamic fintechs are revolutionizing financial services and solving societal pain-points
According to the EY report “FinTechs in Sub-Saharan Africa”, which highlights market developments and investment opportunities, the SSA fintech landscape has experienced an impressive CAGR (compound annual growth rate) of 24 percent over the past 10 years, with the number of fintechs in SSA growing from 47 in 2009 to more than 260 in 2018.
With the chief pain-point among African citizens being lack of financial-services access, fintechs in the region have emerged to solve it. In the digital-banking space, TymeBank, which was established in South Africa in 2015, provides access to banking services for the unbanked and underbanked. TymeBank, the country’s first digital-only bank, has redefined what it means to be a bank, as it does not own any banking branches and relies solely on digital to support and service its customers.
Pezesha, initially launched in Kenya in 2016, is a peer-to-business micro-lending marketplace that allows users to acquire instant loans on their mobile phones via SMS (short message service), providing minimum criteria are met. Potential borrowers cannot have pending payments on their previous loans, must have paid both their first and second installments on time and must qualify through Pezesha’s credit-scoring system. Pezesha’s services are also extended to SMEs, which employ 80 percent of Africa’s workforce, offering a solution to a segment that has traditionally grappled with access to financial services.
In another Kenyan example, M-Pesa, a mobile payment system launched in 2007, allows people without bank accounts to transfer funds as quickly as sending a text message. M-Pesa had 21 million active users as of February 2019, which has translated to 93 percent of the Kenyan population having access to mobile payments and handling more than 17 million transactions a day.
Regulation eases the path ahead for fintechs
Governments are showing interest in supporting fintechs and innovation in the financial-services sector.
The Central Bank of Nigeria, along with the Nigeria Inter-Bank Settlement System, introduced a regulatory sandbox in 2018 with the aim to facilitate digital innovation by fintech companies.
South Africa’s central bank, the South African Reserve Bank, established its Financial Technology Programme in 2018 to assess the emergence of fintech in a structured manner and to consider its regulatory implications. Under the program, the South African Reserve Bank has reviewed policies related to cryptocurrencies, decided on the applicability of innovation facilitators and launched Project Khokha to experiment with distributed-ledger technologies.
Outlook: More to come from sub-Saharan African fintech
According to the EY FinTech Adoption Index 2017 (which studies the fintech adoption rates of 20 markets, the forces driving these adoption rates and the outlook of fintech adoption), the key drivers of fast SSA fintech adoption are the favorable demographics and high use of internet and mobile technology. The 2017 study found that South Africa had a high fintech adoption rate of 35 percent compared to the global average adoption rate of 33 percent. It is expected that a similar adoption rate will follow in other SSA countries.
Payment solutions will continue to dominate the SSA fintech sector until the need for financial inclusion is sufficiently addressed. Smaller segments such as financial e-marketplaces, aggregators and “investech” will expand their footprints, as consumers shift their attention to solutions that satisfy other previously underserved financial needs.
The three main SSA fintech areas—South Africa, Nigeria and Kenya—are likely to continue providing innovative financial solutions, as fintechs expand regionally within SSA in order to provide services to a larger number of customers. Other SSA countries have also shown tremendous growth and investment potential in recent years, with Rwanda, for example, recently launching a fintech hub to boost its fintech sector.
The increase in investors’ confidence, paired with the success of multiple fintechs across the industry, will continue to drive investment in the sector. The combination of these trends reinforces the view that the SSA fintech sector has high growth potential and presents significant opportunities for future investment.
The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.