In the year 2021, more and bigger deals were struck in Africa, as tech startups across the continent picked up nearly $5 billion. This amount was double the investment of the previous year, and nine times what was raised five years ago, an indication of how much the startup scene has transformed in recent years.
Fintechs dominated fundraising, accounting for nearly $3 billion, or two-thirds of all investment made by startups across the continent last year. report through market insights, Briter Bridges shows. This amount was also more than double the $1.35 billion investment that fintechs in Africa raised in 2020, and will triple the amount in 2019.
Among the largest beneficiaries of the fintech capital were Opay, which raised $400 million in Series C financing, Flutterwave, which received $170 million in a Series C round, and TymeBank, which raised $180 million in Series B. Jumo and MNT Halan took out $120 million on rounds, while digital payment gateway MFS Africa took home $100 million. This was when Zepz (formerly WorldRemit) raised $292 million in Series E funding, while Chipper raised Cash $250 million Tala $145 million while Wave sealed $200 million in funding.
And given the increasing funding for fintechs in Africa over the years, the capital injected into these startups will likely only increase as cell phone use and internet penetration increase.
The penetration of mobile subscribers across the continent is expected to increase by four percentage points to 615 million – half of the continent’s population – by 2025 according to the GSM Association. It is also poised for more growth as adoption of lending, digital payments, banking and insurance services grows.
Financial Technology Partners, an investment banking firm focused solely on fintech, in a previous assessment of the sector in Africa said that the continent, with its rapidly growing population, some of the fastest growing economies and an underdeveloped financial services ecosystem, presents an attractive opportunity for fintechs.
“As the payments space begins to see scale-ups such as Flutterwave, Chipper, MFS Africa, Cellulant, Jumo play alongside global, established providers such as Visa, Mastercard and Stripe, the coming years are likely (in fact, we already will) see more moves in other fintech industries, from lending to KYC, SME management software and decentralized finance. This, and more M&A activity, as the ecosystem moves into maturity and consolidation,” Dario Giuliani, director of Briter Bridges, told BestFitnessBands.
Startups specializing in digital/mobile payments have received the most funding over the years, followed by banking/loan and insurtech start-ups.
The last data shows that the digital payments space in Africa has also seen the fastest growth in terms of funding received and total transaction volume over the past ten years compared to other subsectors within the fintech space. The growth that fintechs have experienced has been set against the backdrop of increasing phone ownership and increasing penetration of mobile money technology and the internet – all of which have made it possible to bypass the sometimes restrictive traditional banking infrastructure.
Innovations around mobile money and digital payments have enabled payment processing online and offline via USSD or STK commands, via apps or using NFC technology.
“Africa has a huge under-banked and unbanked population, but its growing middle class, increasing mobile penetration and improved communications infrastructure make it uniquely conducive to fintech innovation and mobile financial services,” said Financial Technology Partners.
Emerging fintech services have launched bankless banks, driving financial inclusion as their adoption solves some of the biggest pain points of businesses and individuals, such as sending and receiving money and accepting payments. For example, startups in the remittance space such as Wari, SureRemit and Paga have made it possible for African residents to receive money from abroad easily and affordably.
Opportunities for growth
According to Latin America, Africa is considered the world’s second fastest growing and profitable payment and banking market this one McKinsey study, and this only means that the fintech sector is likely to continue to attract investors who take advantage of the increasing growth opportunities.
The continent is already a global leader in mobile money adoption, accounting for the bulk of mobile money transactions in 2020 – a year in which the number of mobile money accounts grew by 43%. The success of mobile money across the continent is probably due to its ease of access as a result of advances in telecommunications technology.
For example, M-Pesa, a mobile money service from Safaricom, East Africa’s largest telco, doesn’t require an internet connection for its customers to send and receive money, as well as pay utility bills – the wallet turns subscribers’ phone numbers into a kind of proxy for bank accounts. The service recently surpassed speech to become Safaricom’s top earner after the platform’s revenues reached $745 million for the fiscal year ending March 2021.
Across the region (especially in Kenya), M-Pesa has served as the anchor for a series of new services coming online. For example, in 2012, Safaricom laid the groundwork for lending app adoption when it first launched M-Shwari – a mobile savings and loan product. Since then, many more credit apps have hit the market, including Tala and Branch, backed by Silicon Valley. This now popular lend apps Use customers’ mobile money transaction history to determine the amount of instant credit to be extended to borrowers – money that is then deposited into customers’ mobile money wallets.
Such lending and banking start-ups have made credit accessible to a majority of people with no credit scores, previously shut down by formal financial institutions due to a lack of data on banking history.
Insurtechs have also thrived in recent years with the birth of innovative products that are affordable, enable micropayments and cover growing risks, including that of climate change. Innovative products around insurtech have also encouraged the introduction of insurance products, although penetration in Sub-Saharan Africa (excluding South Africa) remains low compared to other regions.
As investment grew in 2021, most of the funding went to a small number of startups. Analysis by Briter, which includes data from both disclosed and undisclosed deals, shows that an estimated $3 billion of the total raised went to 20 companies, while more than 700 other startups raised nearly $2 billion.