The year of fintech
If investment is anything to go by, 2015 will be remembered as a milestone for financial technology. According to Forbes, In 2013 an estimated US$3 billion was invested globally in fintech startups. This number quadrupled in 2014 with over US$12 billion in investment. But 2015 is set to be the biggest yet with forecasts suggesting as much as double 2014’s number. Where is this money going, and what does that mean for African fintech startups?
Most investment is unsurprisingly focused on the US market, with as much as 75% of venture capital in fintech going to American companies. These investors are also not looking outside of the USA for opportunities, contrary to popular belief.
Investment in the rest of the world has been increasing, however, with companies such as Mondo in the UK catching the spotlight. In Africa we’ve seen both local companies such as Kenya’s BitPesa, and South African AlphaCode Members Entersekt and SnapScan getting attention internationally. Investment by local groups, such as Naspers taking a lead in the US$4 million Series A round of Singapore’s BitX - a cryptocurrency startup that houses its development team in South Africa - has also shown that Africa isn’t being left behind.
In terms of focus, the majority of fintech startups are currently zoned in on lending and payments. Venture Scanner tracks 1130 of the top fintech startups in 18 categories across 53 countries and recently revealed that 274 of these are focused on lending. Another 269 are working on payments, with only 40 working in remittances and 32 in consumer banking.
In terms of global distribution, it is true that most innovation is taking place in the USA, but Asia is also rising in prominence and South America has also seen increased activity. Kenya and South Africa are noted on the list, but other African countries are not prominent. This suggests a lot of opportunity in Africa.
It should also be noted that Africa is considered the biggest potential market for fintech innovation both in terms of scale and market readiness.
In its recent State of Bitcoin Q1 2015 report, CoinDesk remarked that, "Factoring in remittance fees makes Sub-Saharan Africa the most fertile market for Bitcoin … "- as just one example.
Reasons for Africa’s appeal include the current state of financial services in the region and that consumers in Africa trust mobile devices, such as smartphones, as their primary computing devices. We have also seen the success of mobile money platforms such as MPesa in Kenya and MTN Mobile Money in South Africa, whereas such products are yet to make an impact on more developed markets.
Whether it’s a business-to-business solution capable of transforming retail payments or a consumer service that offers disruptive banking products, Africa’s fintech startups have the potential to make a big impact in some of the world’s most interesting markets - and there’s clearly space for many more.