Clear monetisation strategies and regulatory engagement: How African fintechs can position for growth

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September 1, 2022
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3 mins read
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Key takeaways

  • According to a recent report by McKinsey, Ghana is set to lead growth in Africa’s fintech sector, with the country projected to experience a 15% annual growth rate until 2025.
  • Francophone West Africa is expected to follow with a 13% growth rate, while Nigeria and Egypt are expected to record 12% growth rates despite raising significantly more money than these other regions.

According to the International Finance Corporation, over 300 million Africans accessed the Internet for the first time between 2010 and 2019. This growth also coincided with the explosion of fintech services in Africa, with the industry accounting for most of the funding the continent received in 2021. 

Although South Africa has the most advanced banking system and Kenya has high financial inclusion numbers, it is in Nigeria that the most growth has occurred, with the country’s fintech startups responsible for 74.1% of the total funding that came to the country in 2021. 

Despite these developments, Ghana (15%) and Francophone West Africa (13%) are expected to experience the fastest growth until 2025. This is according to a report by McKinsey titled “Fintech in Africa: The end of the beginning.” The report also predicts that growth in the fintech space will occur in 11 markets: Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South Africa, Tanzania, and Uganda.

Despite the similarities in many African countries, fintech developments are expected to grow at varying degrees. While Nigeria and South Africa are expected to see more products tackling regulatory and compliance issues, developing markets such as Egypt are predicted to see a rise in SME lending, embedded finance, Banking-as-a-Service, and buy now, pay later.

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Building sustainable fintech startups

Although fintech startups continuously receive more investment than other sectors, most of these startups have existed for less than five years, indicating the potential for more growth. The report also details some challenges fintechs could face, including regulations, achieving profitability, building corporate governance, and managing scarcity.

It goes further to say that the continent’s most successful fintech companies share six characteristics: rapid customer acquisition, adapting their solutions to local context, clear monetisation strategies, reaching customers offline, engaging with regulators, and adapting to the lower incomes/purchasing power of the market.

With most of Africa’s startup funding coming from outside the continent, many startups have adopted strategies that have worked in markets in America and Europe. However, the peculiarity of the African market means that these strategies have not always been successful, and many stakeholders are beginning to speak against growth for growth’s sake. 

Jumanne Mtambalike, Sahara Ventures CEO, commented, “We can not afford to build startups for valuations and exits. We don't have the Silicon Valley luxury, while, eventually, any startup should exit at some point in time. At least a real value should be created on the ground.”

The role of regulators is one that has bedevilled the ecosystem. In Nigeria, for example, cryptocurrency startups have seen a slew of regulations restrict their ability to carry out their activities seamlessly. In Kenya, Flutterwave has also seen its operations questioned, with regulators freezing the company’s accounts in the country. 

While some have opined that the company’s travails are politically motivated, it is clear that regulation in the East African country has adversely affected its operations. 

The low purchasing power of consumers on the continent is another thorny issue for fintechs. Consequently, many startups have opted to offer some of their services for free to aid their customer acquisition. 

For example, Kuda, a digital bank, entered the market on the back of its promise to offer its customers free transfers. However, the Central Bank of Nigeria's policy on stamp duties has forced it to charge its customers, drawing the ire of many in the process. 

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Africa's challenges present opportunities for any sector, including the fintech industry, but overcoming them is key to building profitable businesses.

Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.
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