5 reasons why the future of FinTech is African

by MMC
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Last week, 300 hundred venture capitalists came down to Nairobi for the Kauffman Fellows Summit, one of the largest venture capital gatherings in the world – and the first time it has been held in Africa.

In many ways, the story of technology in Africa is also the story of fintech. The majority of Africa’s 10+ unicorns are financial technology companies, most of which I have written about in this column. Between 2021 and 2022, between 40 to 60% of venture capital funding in Africa I turned to fintech.

At the end of the event, the resounding conclusion is that the future of fintech – and by extension, technology in general – in Africa is bright. Here are five reasons why.

Africa benefits from strong macroeconomic tailwinds

As Auguste Comte said, “demography is destiny”. Well perhaps by extending this logic, our destiny is African. Today, the continent has 1.2 billion inhabitants, 70% of whom are under 35 years old, according to the The United Nations. More than 40% are under fifteen years old. By 2050, 25% of the world population will be African.

Not only is the theoretical market growing, but the addressable technology market is growing as well. According to a study by Ingressive Capital, Africa has a mobile penetration rate of over 90% and an internet penetration rate of 88%. As a reminder, sub-Saharan Africa has more mobile users than the United States and the United Kingdom combined. Africans spend a third of their daily lives on their phone.

The African fintech market is expected to reach $65 billion by 2030which represents a 13-fold increase compared to 2021.

The technology sector is particularly affected by tailwinds. While venture capital spending exploded around the world in 2022 and 2023, according to a McKinsey study presented at the conference, in Africa it increased by almost 10%.

The entrepreneurial flywheel starts

There are over 10 unicorns in Africa (depending on how you count). This is 10 times more than ten years ago. And the time it took for local startups to reach this stage was significantly reduced. Interswitch took 14 years to reach this milestone. Andela took seven. Most recently, Kuda took only three years.

And these companies aren’t just growing, they’re training the next generation of founders. The local ecosystem is now equipped with early-stage venture capital, mentors, and an idea of ​​how to start and grow.

Exits are the lifeblood of venture capital. We are still early, but data is emerging. Shola Akinlade, the CEO of Paystack, sold her company for $200 million for Stripe. Kopo Kopo recently sold to Moniepoint. Flutterwave should IPO in the coming years.

The effect of mafias – groups of particular businesses that have outsized effects on their ecosystems – is well documented. The United States has the PayPal Mafia, while the Middle East, North Africa, Afghanistan, and Pakistan have the Careem Mafia, and Latin America has the Rappi Mafia (among others). A few tech mafias may soon emerge across the continent. Shola explained that more than a dozen startups have been founded by Paystack alumni for example.

Global categories are built from Africa

The best ideas come from anywhere and spread everywhere. Many of these best ideas emerged in Africa.

Mobile money was successfully deployed in Africa for the first time by M-Pesa. More than 75% of the country’s GDP flows come from M-Pesa and is single-handedly responsible for banking the population. Where M-Pesa is almost ubiquitous in Kenya, in many of its in neighboring markets, financial exclusion remains the norm.

On 300 mobile money deployments exist in nearly 100 countries, all inspired by the original. What’s more, mobile money has become a platform that others have relied on.

In the panel that I moderated at the Kauffman Fellows Summit, Lawrence Kiambi, CFO
of KCB (one of Kenya’s largest banks) and Chad Larson, CEO of Kopo Kopo (which recently sold to Moniepoint) described the range of services that were possible, affordable and economical through M-Pesa – ranging from domestic solar lanterns, merchant acceptance, automobile financing.

African companies are also expanding internationally. Flutterwave, for example, announced its intention to across India. As GB Agboola, co-founder and CEO of Flutterwave, told me: “Africa does not exist in isolation. While building local solutions that work perfectly for the continent, it is also important for Fintechs to think about collaborations that will deepen ties between Africa and the rest of the world, particularly with its major trading partners.

Emerging Market Startups Are Real Businesses

Emerging market startups are being created camels instead of unicorns. That is, they build startups with real, reliable unit economics and a solid foundation. They don’t grow at all costs.

As a result, they are better prepared to weather the economic downturn when times are tough. A lack of venture capital is less likely to bring down a Camel – they weren’t so dependent on it to begin with.

This may be one of the reasons why venture capital continues to grow in the region.

Allen Taylor, managing partner of Endeavor Catalyst (which has 33 investments across the continent) told me in an interview: “Emerging market founders are simply more resilient. We have been investing in Africa for almost 10 years now and the level of ambition and talent is on par with anywhere in the world, including Silicon Valley. What sets the founders of the African continent apart is that this ambition and talent is combined with an unparalleled resilience to “stay alive” in tougher times.

Leading African entrepreneurs are creating industries with significant impact

Why would you support a startup connecting you with dog walkers? This is the question that the governor of Nairobi asked the conference participants. He continued: “Startups (in Africa) are creating meaningful technologies – access to food, economic empowerment to water. »

Technological innovation has the potential to do much more than make our lives easier. This can help make this possible.

In emerging ecosystems around the world, startups are creating markets rather than disrupting them – and that’s where the most important results come from. This is why fintech in Africa is not about creating something faster or cheaper, but rather about providing real value to customers and, in some cases, literally changing their lives.

Jeff Harbach, CEO of Kauffman Fellows, told me: “After spending the last two weeks in Kenya, I believe the future of technology has a place in Africa. And that future will be driven by Kenya’s (and Africa’s) greatest resource: people. People’s talent, drive and mindset continue to grow and strengthen.

The future is African

We started the macros by understanding why, demographically, the future is African. But for the reasons discussed above, (at least in part) so is the future of technology.

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