• Between 2021 and 2022, funding for the fintech industry fell by more than 30%, only amounting to roughly US$1.5 billion in 2017
  • In Africa, roughly 90% of payments are still being conducted in cash
  • 2022 set a record for finance deals, with 135 announced deals taking place in Africa

Harare- Africa's fintech sector expanded in 2022, with significant capital rounds closing, businesses becoming unicorns, and ground-breaking solutions gaining momentum with clients. According to recent research by Financial Technology (FT) Partners, the momentum prepares the region's fintech sector for additional growth and success in 2023. The fintech-focused investment bank looks back on the expansion of the fintech ecosystem in Africa and trends emerging in 2022, offering predictions for the following year in a study titled Fintech in Africa: Momentum is Rising and the World is Taking Note. In line with general financing trends, the report claims that fintech startup funding saw significant difficulties in 2022. Between 2021 and 2022, funding for the fintech industry fell by more than 30%, only amounting to roughly US$1.5 billion in 2017.

Despite the turnaround, 2022 set a record for finance deals, with 135 announced deals taking place in Africa. The figure, which represents a 17% increase from 2021, sets a new industry record and demonstrates that investors remain upbeat about the potential of fintech in Africa, enthusiastically supporting fresh and emerging firms in the sector. The payment and banking/lending tech subsectors have received the most funding since 2017, according to data, garnering a combined total of US$2 billion and US$1.6 billion, respectively. About 50% of fintech financing deals were closed in the payment and banking/lending tech categories, which each concluded 157 and 91 deals.

Notable fintech deals secured last year by both Africa-based fintech companies and international fintech companies focused on Africa, include Interswitch’s US$110 million round (Nigeria), MFS Africa’s US$100 million debt and equity round (South Africa), Wasoko’s US$125 million Series B (Kenya) and Flutterwave’s US$250 million Series D (USA).

Interswitch is an African integrated payment and digital commerce platform company headquartered in Lagos; MFS Africa is a digital payment company that offers mobile financial solutions for senders, money users, and service providers headquartered in Johannesburg; Wasoko, formerly known as Sokowatch, is a business-to-business (B2B) e-commerce startup which connects informal retailers directly to local and multinational suppliers; and Flutterwave is a US-headquartered company that provides a payment infrastructure for global merchants and payment service providers across Africa.

Fintech departures also increased in 2022, a sign of the industry's maturation. There were several notable merger and acquisition (M&A) deals last year, including the acquisition of Orchestrate, a payment orchestration startup from Nigeria, in July by the fintech and banking-as-a-service (BaaS) infrastructure provider Bloc; the acquisition of Underlie, an open banking startup from Egypt, in December by the United Arab Emirates-based open finance platform Fintech Galaxy; and the acquisition of Retail Capital, a renowned business lending firm from South Africa, in December.

Rising fintech adoption

Fintech adoption has increased steadily over the past couple of years but has accelerated since the beginning of COVID-19. With the usage of cash on the decline, fintech has provided solutions for many consumers and merchants in the region to transact.

The FT Partners report outlines a handful of key fintech markets in the continent: South Africa, a tertiary-driven economy, has developed into one of the most sophisticated financial and fintech ecosystems in Africa; Nigeria has grown to become the largest fintech ecosystem in Africa heavily focusing on consumers and small and medium-sized enterprises (SMEs); Egypt, one of the largest economies in the continent, has been among the earliest fintech pioneers in Africa, benefiting from its close ties with the Gulf; Kenya, one of the fastest-growing economies in the continent, was a trailblazer in mobile money payments which it has since expanded to other African nations.

 Moving forward, FT Partners expects the fintech momentum to carry on, building on favourable market factors including the region’s massive, young, unbanked and underbanked, tech-savvy population, high reliance on cash, increasing mobile penetration, and a generally favourable regulatory environment along with governments pushing for greater financial inclusion and digitization.

 In Africa, roughly 90% of payments are still being conducted in cash, and more than half of the continent’s popularity is unbanked or underbanked. This makes Africa one of the “greatest long-term secular growth opportunities for fintech globally,” FT Partners claims.A 2022 McKinsey report reveals that fintech revenues reached US$4-6 billion in 2020, with average penetration levels ranging between 3% and 5% (excluding South Africa). African fintech revenues are projected to reach eight times their current value by 2025, soaring to an estimated US$30 billion.

Fintech has grown to become the most vibrant startup sector in Africa. In 2021, the fintech sector accounted for 27% of the number of deals closed, and 61% of the region’s total funding, according to a 2022 Mastercard report.

Equity Axis News