Covid-19 and African Fintech sector: a new possible development

As known, the global economy is facing a challenging time due to the COVID-19 pandemic, and the African banking sector is not an exception.

The sector’s ROE is expected to fall by 5%-15% and to return to pre-crisis level only after 2022–2024.




Despite this fall, the sector is still considered one of the keys to solve the economic crisis in most of African countries, so its importance will not be lost but on the contrary will become even higher for the national and continental economic growth. Indeed, real per capita GDP is expected to fall of 3.9% in 2020, so it is essential to have a financial market providing loans to customers whose income was negatively impacted by this crisis.

This is why numerous countries are extending state-sponsored loans and in general are applying various measures to support the lending activity of banks.

Despite this importance given to banks, the sector still needs a lot before being considered an evolved one.

Banks processes are not totally digitalized and automatics, so that it was estimated by McKinsey that the waiting time for a customer loan approval can be weeks.

In general, digital sales for personal for personal loans is even lower than 9%, against a percentage around 53% in developed countries.

This lack of digitalization is an adding reason for which a large part of the market of potential clients is still not satisfied. It was estimated that less than 10% of SMEs have access for financial services.

So, we described a scenario where the banking sector doesn’t seem evolved and efficient. Nonetheless, fintech players in the continent grew in numbers in recent years, helping the continent to start its digitalization process.

In addition to that, the COVID 19 crisis brings a new trend in Africa, stimulating numerous clients to be open to new technologies and innovations.

All along the continent, digital banking processes were stimulated and grew, as shown in the graph below, provided by an analysis made by McKinsey.


So, how fintech is actually evolving in the country and who are the main players that are conducting this digital revolution?

Most of them are startups, that were able to raise funds and to develop from early stage even gaining the access to the third annual Fintech 250, that list the top Fintech companies of the year.

Opay resulted the first fintech company in Africa, receiving an investment of over 170 million dollars. It acts in Nigeria, where it offers a new and digital way of paying through smartphones.

PalmPay provides a support to blockchain and currencies through a simplified accounting and tax reporting and a fast transaction time (3 seconds). It raised 40 million dollars of investments.

Yoco raised 33 million dollars. It acts in South Africa and it offers an online platform for payments and other financial transactions.

So, in conclusion, we can say that banking system is not completely digitalized, but however, because of COVID — 19 wide spreading and fintech startups initiatives, it’s speeding up this process.


Bocconi Students Fintech Society


Authors:


Antonio Macaluso


Michele Pacifico


Francesca Barbaglia


References:

https://www.mckinsey.com/featured-insights/middle-east-and-africa/african-banking-after-the-crisis#

https://furtherafrica.com/2020/09/14/africas-top-fintech-companies-of-2020/

https://www.odi.org/blogs/17013-impact-covid-19-africa-s-banking-system