Africa: The next frontier in Fintech innovation

Data from Forbes reports that the majority of Africa’s 10+ unicorns, such as Interswitch, Flutterwave, Wave, OPay, and Chipper Cash, are fintech businesses. Notably, between 40-60% of VC funding in Africa went towards fintech ventures, which indicates Africa’s giant role as the next frontier and leading player for financial innovation globally. This upsurge of investment is not just a function of the flow of funds into the African markets. Still, it is a realisation of the distinct market necessities, an untapped customer base and the mobile platform revolution. Given the increasing youth demography, the failure of the conventional banking models, and the emerging need for innovation in the African financial sectors, fintech is not just developing but revolutionising how people conceive the future of financial services.

It is also interesting to mention that these prominent fintech companies in Africa are not only coming in numbers but setting the pace for the world. These are not only the champions of financial inclusion across Africa but also role models of entrepreneurship for the world of innovators and start-up pioneers outside the African continent. Current African fintech businesses have made a commendable impact, showing that some of the fintech’s most vibrant and revolutionary solutions originate from this part of the world. From what can be described as remittance products and services’ niches targeting the unbanked population of Africa to mobile-based banking solutions, Africa in question is co-authoring the financial history.

The innovation is not limited to local problems—people are building solutions that can effect change worldwide. Even though fintech challenges like cross-border payments, financial inclusion, and identity are being solved, the solutions proposed by the continent’s fintech innovators are flexible. They can accommodate the markets of the continent and beyond. Also, they are taking their models to other emergent economies, indicating that Africa is not only trying to chase the rest of the world but, in fact, it is helping to define the financial systems of the future. This catalytic growth is beginning to create a brand-new era where African fintech participates in the growth and sets new trends in the financial industry.

Flutterwave, for instance, announced plans to scale up in India. As GB Agboola, Flutterwave’s co-founder and CEO, told Forbes: “Africa does not exist in isolation. While building local solutions that work great for the continent, it’s also important that Fintechs think of collaborations that will deepen the connection between Africa and the rest of the world, especially with its key trading partners.”

Another main factor explaining why fintech’s future is in Africa can be attributed to investors’ dedication to Africa’s growing ecosystem. The financial technology firms in the African region are anchored by a competent and strategic executive leadership team, which is a vital asset, especially when dealing with the volatile market. These are not ordinary leaders struggling to make startups thrive but leaders who can go head-to-head with top league leaders across the globe. In particular, one major characteristic of the African fintech leadership that has attracted attention is resilience, which has been noticed as the signature feature of the African fintech industry.

Africa’s infrastructure is shaky, and the continent’s regulations trigger creativity that cannot be replicated elsewhere. These companies create solutions required in different localities and establish competence to design and implement systems that can sustain unstable conditions. This versatility means that more solutions intended in Africa can be adapted to the global market. Many of the solutions have been designed to survive some of the worst abuses of fintech. Like it or not, African fintech is proving itself to be adept at engineering resilient, global solutions that can be used anywhere in the world.

An article by RMB also backs up my point, stating that in 2022, African fintechs attracted the eye of international investors and saw the emergence of several exciting new companies, such as Moove, MNT Halan and Paymob. Most of the funding from fintechs was deployed to companies with operations in Nigeria, Kenya, Egypt, and South Africa. International Finance Corporation (IFC) has also been a key investor in Africa’s fintech space, having invested in Nigeria’s Interswitch, Egyptian e-payment platform Fawry, West-Africa-based mobile money operator Wave, South Africa’s Adumo and Lulalend, and pan-African player TerraPay. According to a report by Fintech Global Research, over 400 investors backed African FinTech companies in the first nine months of 2022. Some of these investors include Future Africa, Y Combinator, Google, Ingressive Capital, and much more.

However, one will agree that the fintech industry has tremendously grown over the years and has the potential to solve both financial and social issues. The main setbacks for financial service providers include legal restraints and a lack of infrastructure. Legal systems in African countries are complex and still developing, leading to fragmentation of regulatory policies for Fintechs, which limits their expansion across the continent. Some of the issues of concern in the continent also include internet connectivity and reliable electricity. Despite increased funding to African fintech, it is still significantly below that of other markets.

Furthermore, there is a growing problem with data protection. As the range of services offered online grows, fintech companies face technological and legal aspects of data protection for users. Last but not least, extending and spreading new financial technologies for a largely unbanked and underbanked population poses problems, especially where literacy with technologies is minimal, particularly in rural regions.

However, this is gradually changing as most African governments adopt fintech’s achievements as crucial to economic development and increased financial inclusion. More efforts are needed to push for better infrastructure. Major tech players, including governments and organisations, are planning and investing in better internet connectivity and digital infrastructure.

On the aspect of data security, African fintech firms are quickly imitating their counterparts across the globe in embracing the best standards and, more often competing to be among the first to introduce new security features in this sector. Others are developing solutions suitable for the risks faced in Africa, which positions them well to compete internationally. Finally, the challenge of educating consumers could be viewed as a chance to actively use mobile applications, games, and community-based methods to increase the level of financial literacy of their clients, thus helping them to understand the complexity of their products.

Despite facing these significant challenges, Africa has great potential to leapfrog and become the global hub for innovative financial services. The continent’s unique position and untapped potential offer immense opportunities for growth and development in the financial sector.

Africa’s youthful population, increasing urbanisation, and rising mobile phone penetration are fertile grounds for financial innovation. The continent’s untapped potential and growing digital economy can drive the adoption of cutting-edge financial technologies.

If Africa leverages these opportunities, we can leapfrog traditional financial systems and create a more inclusive and accessible financial landscape. This will benefit its citizens and contribute to global economic growth and development.

Policymakers, investors, and other international players must step up their engagement in Africa’s FT sector. Regulations should be reviewed to establish a coherent ecosystem that supports fintech’s expansion across borders. Fintech’s future is in Africa, provided it receives the adequate backing it needs to transform the continent’s economies, spread financial inclusion, and spur technological advancement that could otherwise impact a global stage.

Joshua Oguntade is the Senior Product Manager at Moment, an integrated payments platform across Africa, and the founder of Onboardly, a digital HR management company for startups. He contributes to the expansion of digital financial services across the continent.