Connectivity in Africa is becoming ubiquitous, with mobile and other technologies facilitating efficient and secure means of doing business. Furthermore, a rising smartphone penetration rate; a vibrant, youthful population and regulatory attempts at financial inclusion and a cashless society are creating a watershed moment for banking with many stepping up to develop improved propositions across the value chain.
In Nigeria alone, the total number of FinTech companies and solutions (offered by banks and telcos) is over 200. Between Q1 and Q2 of 2020, The African FinTech scene raised over $250 million in funding, attracting 60% of the $480m million raised by African tech startups in 2020. This traction cannot come at a better time, as Africa needs its Digital banks.
A tale of low competitive intensity:
The use of cash is still considerably prevalent in most African economies as people and SMEs grapple with access to remittance, financing and other value added banking services. Nigeria makes an immediate and compelling illustration, with a population of 200 million – A whopping 40% of Africa’s largest economy – is financially excluded. Looking past this “low hanging fruit” case in point, there are opportunities across multiple product ranges and user segments, to address known pain points of the banked, unbanked and underbanked. Consumer lending and, all forms of insurance are strong focal points for FinTech activity. Activity is also expanding into flexible savings, asset management and investments as users look for more profitable returns on investment, locally and internationally.
REALISING AFRICA’S DIGITAL BANKING POTENTIAL
Drawing from global research, along with real-world examples from across Africa’s banking sector, increased FinTech activity has the potential to stimulate economic activity and drive progress towards development goals. This economic impact will fundamentally come from growing revenue pools and inviting foreign direct investment to the continent. The sector can also stimulate the digital economy by providing business-to-consumer (B2C) marketplace tools and enabling the African e-commerce industry. This, however, is only possible if all stakeholders work together, to unhitch the full potential of Africa’s Digital Banking Economy.
For FinTech Startups :
The vast majority of FinTechs have existed for less than a decade, and only a few are profitable. This could either make them vulnerable or serve to strengthen them depending on the strategy employed. Startups with limited access to resources should always adjust their business models to account for market dynamism. It requires a focus on solutions, a clear path towards revenue and certainty on the goals and objectives that lead to results. For example micro-mobility platform Awabike was hard-hit during the pandemic. All its 13 locations in Nigeria were closed due to the lockdown. As a result, the team had to pivot into food deliveries to withstand the lockdown.
To Legacy Banks :
An uptick in FinTech activity and the COVID-19 pandemic is driving many legacy banks to embrace new tactics to remain competitive. At this time, banks should consider not just competing in concentrated areas, but should leverage existing assets to collaborate with other smaller, more agile players. Notably in new market areas, such
as agent banking, SME lending, and digital loans at ‘point of sale’..
To serve these emerging revenue pools and compete effectively with industry peers, legacy banks will need to acquire new talent and tools; and follow local and global examples of banks that adopted the lean startup culture and the use emerging technology to evolve and remain relevant.
Leveraging trusted partnership:
FinTechs and banks are the most common for a symbiotic relationship, through which they can provide banking services without the hassle of meeting many regulatory requirements. Open banking and APIs have made it so much easier to offer banking services like loans, remittances and payments on mobile. Creating new opportunities for collaboration in sub-Saharan Africa where FinTechs and Banks can enter into value-added partnerships with Telcos. Telcos can now provide regulated services like quick credit, money transfers, and banks/FinTechs can extend their reach to a broader market by offering their services on mobile phones.
FUELLING DIGITAL BANKING IN AFRICA
Traditionally, FinTech investments have gone to FinTechs, but there are opportunities outside these prospects to be considered. Such as a logistics company or any other non-financial firm looking to addon financial services. Investors must also be willing to look beyond capital injection at a broader landscape, at investments that facilitate infrastructure for FinTechs and the acceleration of the digital economy. Finally, investors need a practical outlook on the market headwinds, to plan and adjust their expectations and investments. This ambidexterity will make it easier
to deliver smart capital, when and where it’s needed to fuel the FinTech space. Ultimately plugging a gap and creating value that is notably greater than the sum of its parts