Not only payments: African fintech apps that will lead the change

There are more than 400 active fintech companies across Africa and 80% of them are home-grown. According to Ernst & Young, the number of fintech firms in the continent has recorded a compound annual growth rate (CAGR) of 24% over the past 10 years.


The broadening of the Fintech solutions offered in Africa is mainly due to three favorable conditions: a more IT-literate demographic, high levels of mobile phone access and poor levels of financial inclusion among the continent. Africa is young and more than 60% of the population is under 25 years of age (while the European Union’s youth profile hits just 20%) and over 50% of Africans have mobile phones. Banks have focused mainly on the African elite for decades and have clearly avoided to deal with a market of “unwaged” people.


What they fail to acknowledge is that millions of Africans are in desperate need of basic banking and financial technologies.


Although Africa’s fintech panorama is mainly dominated by payments solution providers, that represent 38% of the fintech landscape, there are many other solutions and companies that provide fintech services.

Lending is the second in terms of popularity of fintech products, reaching more than 24% of the market. The fintech and alternative lender landscape in Africa isn’t yet as robust as it is in some other regions, but this sector is undergoing rapid expansion. In the sector, we can find two main business models: Linear Lending and Lending Marketplaces. The difference between the two is simple, in the first case money is lent from very few financial institutions while Lending Market Places lend money coming from many investors — both peers and businesses. The most relevant enterprises which offer linear landing are Tala, Branch International and Jumo: they all focus on delivering financial services in emerging markets. Jumo is the only company founded in Africa (Cape Town, 2014) and it has raised over 164.7 M of Capital. The lending market place is much smaller, but there are two African companies that are rapidly growing: Pezesha and Lipa Later, both founded in Kenya.


In the African landscape we can see how digitized payments, microcredit and digital identities are booming. If these products are highly demanded by poorer consumers, insurance-enabled financial inclusion has not taken off accordingly. The majority of the insurance companies have catered to the wealthier segments of the population or the emerging middle class. Despite having close to 16% of the global population, the current insurance penetration in Africa is about 3.5%. South Africa leads with 17%, while others lack behind.


Pineapple (South Africa), is a peer-to-peer insurance provider, which aims to remove the conflict of interest inherent in all insurance products, by returning all unused premiums back to the hands of the consumer. DabaDoc (Algeria), provides access to nearby hospitals, pharmacies and doctors thanks to its health insurance program mPharma (Ghana), which provides users with access to pharmacies.


The rapid development of all these revolutionary Fintech companies illuminates the huge scope for the integration of financial technology in Africa. All these emerging startups are key catalysts towards the digitalization of the continent as well as the creation of new jobs and business opportunities. Through FinTech, vital tertiary industries such as banking and insurance are now easily available to the masses which have been neglected for years.


However, behind the astronomical growth numbers and statistics, there still lie a range of drawbacks in the overall system. Firstly, connectivity is a key issue that needs to be focused on. In order to utilize all these financial instruments and applications, a strong and stable internet connection is required, something which is overlooked considering that less than one in four people in Africa have access to the internet. Therefore, the industry must place a huge focus on developing infrastructure and lowering data costs to ensure new applications are accessible and optimized to their fullest potential.


Additionally, while the number of people that own smartphones in Africa is rapidly rising, many places in Africa, such as sub-Saharan Africa which has the lowest rate of smartphone ownership of any geographic region, are lacking the sufficient technology needed to operate these FinTech services. This hinders the development of many digital platforms as the lack of sufficient internet and devices serve as barriers towards accessing online financial instruments.


Furthermore, many of these FinTech solutions are becoming a target for hackers and scammers. Hence, this industry has an enormous responsibility to keep user funds safe and ensure that all transactions are secure. If it fails to do so, it will lose the trust of many users and hinder the development of the overall industry.


To conclude, with the aid of globalization and innovation, it is evident that the FinTech industry in African is thriving at unprecedented rates, with new innovative applications being developed by the day. This gives the opportunity to billions of people to join the tertiary sector and carry out tasks they could not even imagine before. However, it is crucial for this industry to expand at sustainable and safe rates to ensure that the benefits of FinTech continue to outweigh the negatives.


Bocconi Students Fintech Society


Authors:

Riccardo Valobra

Denis Tonev

Francesca Barbaglia


References:

https://gomedici.com/insurtech-enabling-finclusion-africa-deep-dive https://tellimer.com/article/the-ultimate-guide-to-african-fintech https://hacks.applicoinc.com/post/406-the-imminent-opportunity-in-the-lending-sector-in-africa-check-out-the-complete-report 3 reasons why most Africans aren’t on the internet — and how …www.weforum.org › agenda › 2019/08 › 3-reasons-why-… https://www.cryptolive.co.za/fintech/state-of-fintech-in-south-africa/ https://www.pewresearch.org/global/2018/10/09/majorities-in-sub-saharan-africa-own-mobile-phones-but-smartphone-adoption-is-modest/

Bocconi Students Fintech Society