The fintech space in Africa has dominated funding activities so far on the continent, attracting over $3 billion of the overall investment going to tech companies on the continent.
African fintech companies have more than doubled in the last five years after Nigeria, Kenya, South Africa and Egypt dominated funding activities.
Global technology company, Mastercard, however, says there is a huge gap to be filled by financial technology companies operating on a continent still beleaguered by a huge financial exclusion gap despite considerable progress in availing financial services to Africans over the last decade.
Mark Elliott, president of Mastercard’s sub-Saharan Africa operations, highlights the sub-divisions in the fintech space including digital banks, cybersecurity companies, digital infrastructure companies, digital insurance, etc., all creating solutions aimed at reducing the high deficit in the banked population.
Mastercard’s ambition in the African fintech space is rooted in its vision to include 1 billion users globally by 2025.
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“In Africa when you think about financial inclusion 43 percent are banked with the banks and there is about 23 percent that is with mobile money players. So what we have to recognise is that if you really want to get reach into broader financial inclusion we need to work with the multiple partners,” Elliott said.
Mastercard has many of these partners in Africa and only recently announced an investment in MTN Group’s fintech business unit, deepening its relationship with telco businesses. It already has a partnership with Airtel Africa worth about $100 million.
According to Elliott, these partnerships are necessary in the quest to address the many pain points that many fintech companies in Africa face daily.
“Often a fintech would want to set up a digital bank. What they would need is some type of a relationship where they can avail virtual cards for example. The virtual cards are something which we can help with because we provide digital-first solutions. But if they don’t want to have a banking licence we can point them in the direction of a sponsorship relationship. If you are trying to build a marketplace, for example, you want to have your own eCommerce gateway, we have gateway capabilities as well. You can also come from the insurance side and you have to figure out what the pain points are and how to solve the problems,” Elliott said.
Ebehijie Momoh, Area Head, West Africa, Mastercard said although the investment coming to the segment has yet to address the gaps in the financial services industry, it is still significant as it gives the fintech companies leverage to get involved in creating solutions that will eventually impact the financially excluded.
As a result of the growing fintech activities, companies in the space are also paying special attention to what the customers need as against to the past when it was companies that decided what the customers would like. Momoh says this change became a trend following the COVID-19 pandemic. The growing number of people embracing digital payment also meant that they demanded more from the channels they were making those payments.
The evolving demand for different payment models also helped the adoption of solutions like embedded finance and Buy-Now-Pay-Later (BNPL). Embedded finance refers to the seamless integration of financial services adopted by nonfinancial companies. This merger between non-financial entities and embedded finance services has revolutionised the way people interact with money and businesses alike.
“What we are beginning to see is that because of the necessity of finance, certain changes are beginning to happen. Today we have solutions such as Buy-Now-Pay-Later (BNPL) which wasn’t there before,” Momoh said.
The BuyNow-Pay-Later business model is a type of short-term financing in the consumer loan space which allows customers to make purchases and pay for them in equal instalments at a future date with zero interest. While it has existed in different forms in the business space in Africa, it has recently been upgraded and identified as a viable model to improve consumer experience.
Momoh also notes fintech companies’ increasing use of data to arrive at consumer decisions. This is now prevalent in the lending segment of the fintech space. Issuing loans to businesses and individuals is now made with the help of data sources like social media.
She also said that going forward the big trend would be companies trying to figure out how to drive cost acceptance.
“It is a big problem in the market because if there is no place to tap your card; if there is no place to swipe it there is an issue. I see acceptance as a very important area and solutions like tap-on-phone, QR and pay link become very important to drive up that dominant area of cash which is a big problem,” Momoh said.