African Fintech Sector: Growing up with Covid
In the December 2020 issue of the Africa Global Funds magazine, Verdant Capital’s Edmund Higenbottam discussed the trends driving growth in the African fintech sector, including drivers during the Covid-19 pandemic.
The well-documented themes for the success of African fintechs include the under-penetration of financial services, but also the nominally low income levels and low density of its populations. “Last-mile” fintech businesses such as Baxi in Nigeria, whereby tens of thousands of merchants and micro-entrepreneurs “double” as agents in Baxi’s national network as well as in its digital platform provide critical “last mile” solutions to these challenges.
Furthermore, a well-trained and cost efficient population of software engineers contrasted by a structurally deficient and outdated base of installed technology contribute to the development “leapfrogging” technologies such as mobile wallets and QSR codes (over plastic cards). One area of such innovation is in remittances, which continue to provide a large share of income in Africa as in other developing economies. Digital termination of remittances is not only a key business model, but also a “launch pad” for broader set of innovative mobile financial services products. A prime recent example of this business model is that of the Ghanaian fintech Zeepay.
The Covid-19 crisis has accelerated certain sector trends, such as the adoption of digital payments. To the extent individuals were unwilling to or prevented from leaving their homes means an increase in demand for digital banking services and online payment platforms. Second order effects include bricks and mortar banks and microfinance banks, looking for quick wins to reduce cost. This may be through partnerships with fintech, or it may be through “switching off traditional channels”, for example reducing branch footprint and forcing customers to borrow and repay through mobile money.
In many ways, Africa is a fulcrum between East and West, and African Fintech is no different. Leaving aside private equity and looking at strategic investors only (whether minority investments or outright acquisitions), the US accounts for two transactions for every one from China. In terms of Verdant Capital’s own fintech transactions, in 2020, the Company has transacted with buyers from the US, the EU, Switzerland and Japan. This competitive tension is a tailwind for African fintechs.
A link to the full article can in the AGF December 2020 here.