How big is the financial services market in Africa in dollar terms?
This is one of the most frequently asked questions when investors evaluate the potential of African fintech startups. One says that in 2020, the figure was about $150 billion from insurance, retail and SME loans. Report by McKinsey and Company Published this week. “This market is expected to grow by 10 percent annually to reach approximately $230 billion by 2025,” the report said. Blockchain, payments and wallets have been cited as areas of financial services that could grow rapidly.
The context of the report and the general interest with fintech in Africa is that it is the most funded of the tech industries. Last year, fintech received more than half of venture capital investment in African startups. The continent’s most valuable startups — Flutterwave, OPay, Chipper Cash — are fast becoming multinational companies serving thousands of businesses and individuals.
These digital native startups are turning the tide on everyday use cases among low-income people such as buying airtime, transferring funds, and paying bills, leaving Africans deprived for years of brick-and-mortar methods of service delivery. are
Challenges of fintech development in Africa
That said, cash still dominates 90% of transactions in Africa. While this suggests a huge opportunity is set for fintech to potentially generate $30 billion by 2025 (between $4.5 billion and $6 billion in 2020), closing the gap will be no mean feat. Because there are challenges to overcome, McKinsey says.
One such challenge is the path to scale and profitability. Fintech startups are “struggling to monetize their customer base because, after using low prices or free services to attract customers, they are discovering that their revenue repeatability is limited. ,” the report said, citing Africa’s Internet penetration of about 50 percent. Only Egypt, Ghana and Nigeria have the real-time payment infrastructure needed to scale fintech services.
Managing various national regulations and establishing mature corporate governance practices are issues that have become more prominent this year. Filterwave’s troubles in Kenya and Ghana, as well as its leadership, have come under intense scrutiny over alleged abuses. Just yesterday, it was reported that the CEO of a Nigerian fintech, Risewest Stepped down to allow an investigation. Allegations of sexual misconduct leveled against him.
Where are the growth opportunities for African fintech?
Managing shortages, including of talent around Big Tech, is another challenge. However, fintech startups that want to lead in their markets can follow an emerging playbook based on six actions, McKinsey says, with the first two being the ability to match products to market needs and As a result, a large number of active users has to be gathered quickly.
African fintech funding focuses on four countries – Nigeria, Kenya, South Africa and Egypt. But seven other markets show strong growth opportunities for fintech, namely: Cameroon, Côte d’Ivoire, Ghana, Morocco, Senegal, Tanzania and Uganda.
Ghana’s fintech growth is estimated at 15% annually although it is unclear how its current inflationary problems will affect this expectation. In Francophone West Africa, where the mobile money startup wave became a unicorn last year, fintech could grow at 13%, while MacKenzie estimates 12% for Nigeria and Egypt.