An Overview on Investments Leading African Fintech Revolution
In the last decade, the African fintech landscape drew the attention of several venture capitalists, which were tempted by the rapid growth of this sector in the continent and the opportunity to expand globally.
The statistics can give a clearer definition of this growth. According to Ernst & Young, the number of fintechs in Africa has recorded a compound annual gross rate (CAGR) of 24% over the past 10 years, which means that every year the number of fintech firms increased, on average, by almost a quarter respect to the previous one.
An analysis made by Partech Partners on African tech venture capital tells us that only in 2019 the fintech sector attracted $836 mln fundings, 41.4% of the total. This percentage spikes to 62% if we look at Nigeria’s total fundings, whose biggest city, Lagos, has become the center for the continent fintech sector.
The main reason for the fast growth can be found in the high rate of unbanked population in the continent. In fact, in Sub Saharan Africa, the fastest-growing fintech investment zone, about 66% of adults did not own a bank account as of December 2018. As a matter of fact, this factor contributed dramatically to the increase of fintech inclusion, as local and global investors saw the opportunity to fill this gap.
From the VCs perspective, this means potential high returns and the possibility to create digital sustainability-oriented ecosystems. In addition, the continent is undergoing a demographical transformation, with the population getting younger, the direct benefits include the availability of a younger workforce and a growing customer base.
A key role in this scenario is played, among all, by global corporates and Chinese investors, whose huge amount of fundings is still unmatched in the field.
In November 2019 alone, almost $400 mln were put in three payments startups based in Nigeria.
Opay, the Chinese-backed payments company founded by Opera, announced that it had raised $120 mln Series B round from a group of investors including Sequoia Capital China and SoftBank Ventures Asia, following a $50 mln fundraising in June.
Some days earlier, thanks to Visa’s $200 mln investment, Interswitch reached unicorn status ($1B valuation). With Visa’s partnership all seemed set up for the long-awaited IPO (after a previous failed attempt) which had to take place in early 2020, but the COVID-19 pandemic stalled the operation.
Lastly, PalmPay raised a $40 mln seed funding led by Chinese mobile-phone maker Transsion; as part of the investment, PalmPay entered a strategic partnership with Transsion’s brands Tecno, Infinix and Itel that includes pre-installation of the startup’s app on 20 million phones in 2020.
The above-mentioned Visa’s operation was a strategic response to Mastercard’s $300 mln IPO investment for 9.99 % shares of Network International, the payments group that operates in Middle East and Africa. Mastercard will become Network’s fourth-largest shareholder behind its current owners General Atlantic, Warburg Pincus and Emirates NBD.
Earlier this year the American fintech firm Stripe picked up $600 mln in funding intending to invest them to expand the payments platform into more geographies. This desire was fulfilled with the acquisition for $200+ mln of Paystack, the Nigerian startup that, like Stripe, provides APIs that let merchants, with just a few lines of code, build online payment features. The size of the transaction made it the biggest startup acquisition to come out from Nigeria, so far.
Nevertheless, Africa requires a powerful regulatory framework to keep up with this trend. Some governments are already adapting to the growing demand for fintechs and countries such as South Africa, Kenya, Ghana and Uganda have developed an advanced data regulation framework, with the aim to balance the growth of the sector whilst providing appropriate protection for consumers.
Bocconi Students Fintech Society
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References
- https://www.ft.com/content/124aa0c0-0aec-11ea-bb52-34c8d9dc6d84
- https://techcrunch.com/2020/10/15/stripe-acquires-nigerias-paystack-for-200m-to-expand-into-the-african-continent/
- https://internationalfinance.com/african-fintechs-are-riding-global-investor-sentiments/
- https://www.ft.com/content/80397772-4f9a-11e9-b401-8d9ef1626294
- https://partechpartners.com/documents/12/2020.01_Partech_Africa_-_2019_Africa_Tech_VC_Report_FINAL.pdf
- https://techcrunch.com/2019/11/12/palmpay-launches-in-nigeria-on-40m-round-led-by-chinas-transsion/#:~:text=Africa%2Dfocused%20payment%20startup%20PalmPay,Chinese%20mobile%2Dphone%20maker%20Transsion.&text=The%20startup%20aims%20to%20become,platform%2C%20according%20to%20a%20statement.
