Africa is at the forefront of financial innovation, with the fintech sector accounting for the highest number of venture capital (VC) start-up deals closed across Africa in 2021.
This is one of the key findings of Mastercard’s white paper “The Future of Fintech: Rapid Growth Attracts Smart Capital” which provides a landscape of the fintech sector throughout Africa.
The report details Africa’s success in the fintech industry and how the continent has leapfrogged to position itself at the forefront of payment innovation.
The report found the fintech sector made up 61% of the $2.7 billion start-up funding channelled towards African start-ups in 2021. The sector also accounted for 27% of the record-high number of deals closed in the same period.
Fintech start-ups on the continent grew by 81% in 2021, with South Africa, Nigeria, and Kenya emerging as key hubs on the continent, attracting the largest rand value of investments from VC firms and fund managers in 2021, according to the research.
The three countries are also among the countries leading the transition to digital payments, with governments introducing infrastructure and policy frameworks that enable this growth firmly in place.
Large deals worth more than $100 million each have characterised the industry in the region, with innovation largely driven by the need to resolve multiple pain points, with a focus on increasing financial and digital inclusion.
“It is encouraging to witness the growth of the fintech landscape across the region, creating multiple opportunities for start-ups, scale-ups, enablers and micro, small and medium enterprises (MSMEs) to bring more people into the digital fold,” explains Ngozi Megwa, senior VP for digital partners and enablers, Eastern Europe, Middle East and Africa, Mastercard.
“The growth in the number of fintech companies in Africa is reflective of global fintech funding which jumped to a new record of $131.5 billion in 2021. The number of fintech unicorns reached 235 with 34 alone born in Q42021. Fintech companies now represent more than 20% of total tech unicorn value, compared to 15% in the previous year.”
Regulators bank on collaborations
The study shows that on the demand side, the role of MSMEs has been crucial to fintech’s growth.
MSMEs use fintech and e-commerce solutions to scale, source, and reach. The growth in alternative payment rails and emerging platforms are shaping the commercial landscape.
Like in the rest of the world, the COVID-19 crisis lit a fire under the local e-commerce space, leading online retailers to reap the benefits of this major shift in shopping trends.
Last year’s Mastercard Economics Institute: 2022 Economic Outlook found South African consumers bought up to 30% more online in 2021, compared to the year before, with a significant surge in e-commerce subscriptions.
As the fintech ecosystem in Africa increasingly adopts new technologies to deliver financial services, governments, regulators, financial institutions, payment and technology companies, funders, and entrepreneurs are collaborating to be at the forefront of financial innovation and developing use cases.
Around 45% of the population in Africa does not have an official identity, making eKYC a seamless entry point for fintech.
“Regulators across various countries in Africa have adopted a collaborative approach to enable the introduction of new solutions by fintech companies. Africa has proactive regulators who foster innovation for financial, digital, and economic inclusion,” notes the study.
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