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Analysis > Analysis and Strategy

Fintech ecosystem in Africa is entering into a new phase

Edmund Higenbottam, Managing Director, Verdant Capital
Oct. 21, 2021, 2:39 p.m.

Word count: 1167

The financial technology (fintech) ecosystem in Africa is entering into a new, exciting and challenging phase with more capital, more competition from incumbents from different quarters and more consolidation (M&A). As key segments grow, the rewards and risks grow for challengers and incumbents.  

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The financial technology (fintech) ecosystem in Africa is entering into a new, exciting and challenging phase with more capital, more competition from incumbents from different quarters and more consolidation (M&A). As key segments grow, the rewards and risks grow for challengers and incumbents.  

The amount and breadth of capital available to the sector in Africa have grown significantly over the last 2-3 years. Many have flourished and have progressed to raise second or third generation funds. “Home grown” funds specialising on the fintech sector in Africa, funded in many cases with strong support from the international development finance institutions, have become a core part of the investor group. Generalist investors from the African continent have also taken a more active role, with most generalists having made one or more investments in the fintech sector from their most recent fund vintage.  

As the fintech sector in Africa has scaled and grown, the larger, more mature players have started to catch the eye of global Tier 1 venture funds. The recent Softbank-led $400m round into Opay is a case in point. Verdant Capital’s own transactions in the fintech sector over the last 12 months have involved investors from the US, Japan, China, Netherlands, Switzerland, France and the Baltics. Certain major global venture capital (VC) investors, such a Partech Global, investor in tech-enabled asset finance business Tugende, and many others such as Wave in Senegal, have invested from the dedicated Africa Fund since 2018.  Many more global VCs are now investing directly from their global funds.  

Furthermore, large corporates have entered the competitive landscape through minority investments, such as incumbent payment businesses such as Mastercard or Visa, or through corporate repositioning.  An example of this corporate repositioning is the recent decision by Airtel to partially spin-off its mobile money business, a strategy we expect to the replicated by other large mobile network operators.  

Availability of capital is crucial for the fintech sector. Fintech is by its nature disrupting a sector, i.e. the financial services sector, which is both (i) fundamentally in need of disruption and renewal, and (ii) enjoys major barriers to entry in terms of brand, scale, regulatory capital etc. We say that the financial services sector is fundamentally in need of disruption because of human- and opex- heavy product life cycle (e.g. lending or insurance), its over-reliance on legacy infrastructure, e.g. bank branches, and inflexible products, which are not consistent with evolving customer preferences. However, barriers to entry are high, including significant minimum capitalisation for bank, insurance and other licences, long application processes for regulatory approval and the importance of brand in the sector. The movement of financial capital and human capital to the sector has been a significant enabler of the fintech sector to overcome these barriers.

Priority for scale

Scale is becoming an ever more important differentiator in the success of the funding rounds.“It’s good to be the best, but it’s better to be the biggest”. In some ways, this represents convergence with the major tech and venture ecosystems elsewhere, where growth is prioritised over all other things, including profitability. In theory, this priority for scale over profitability is justified by platform economics, i.e. the theory that the additional revenue from each additional “node” has a more linear impact on the aggregate revenues.  Notwithstanding the solid logical basis of this theory, many fabled unicorns such as Uber and WeWork remain unprofitable after multiple successful funding rounds.  

In Africa, in contrast, previously, most fintech players have had to “eat what that kill”, i.e. prioritise profitability over growth to achieve profitability sooner. The latent potential of many fintechs, including disrupters to credit and payments, has still provided for rampant growth in many of the best operators, for example, Zeepay, a pan-Africa, pan-diaspora electronic payment disrupter, has grown its revenues 13x in three-and-a-half years while maintaining constant profitability.  

As discussed above, the preference for scale has also been driven by the entry into the African deals landscape of the Tier 1 global VCs.  This has given fintechs in Africa an additional incentive to grow to obtain the higher cheque amounts and typically higher valuations which can thereby be obtained. It has also been driven by the competitive threat presented by the entry into the market by leading strategics from the region and from outside, which is discussed above.  

The focus on scale and growth, and the strategic threat from larger competitors, has also prompted consolidation both from a push and a pull perspective. Africa is a continent with an aggregate population and GDP similar to India’s but is fragmented into 54 countries. This fragmentation has prompted cross-border M&A as the sector has matured, and the larger players have pursued platform economics by adding additional national markets.  Horizontal consolidation across segments is also an exciting trend, with payments and credit-tech increasingly seen as highly synergistic. The “rails” to reach lower and lower-middle market customers, as well as receive data and repayments in the other direction, is a critical component in many credit tech and tech-enabled credit businesses. Crossfin’s shareholding in Retail Capital, a leading South African tech-enabled SME-lender, is just one example of a payment platform acquiring interests in the credit segment.

 The “push” factors of strategic threats, as mentioned earlier, including by global payments groups and by regional telcos, has led to some larger fintechs in the growth phase to take the approach of pursuing either an ever-larger capital round or an exit. In some cases, the “status quo” is not considered an option. 

The early-stage VC scene (angel, seed stage, and series A) has recently been pushed out of the headlines by the larger transactions, but activity levels are growing. Newer disrupters are focusing on more recent themes, such as insurtech, and several interesting ventures are targeting the cross-section between fintech and cleantech, for example, OWatt from Nigeria. Insurtech has seen a number of interesting players getting closer to “escape velocity”, including Briisk in South Africa, Alpha Direct in Botswana and Kalibre, a global insurtech with roots in South Africa. Insurtech has greater barriers to entry than many other fintech segments, including the fact that real domain expertise in insurance is less commonplace and a longer cycle to build revenues, albeit such revenues are much stickier once built.  Credit tech still has a range of interesting start-ups and earlier stage businesses, including Finclusion, an embedded credit-player in Southern and Eastern Africa, and asset financing businesses such as Planet42 in South Africa and Mexico. As the cohort of African start-ups from the early and mid-2010s reach a global audience, there is a fascinating new cohort arising.  


Verdant Capital is a specialist corporate finance firm with exceptional experience transacting across the African continent. Verdant Capital operates in four segments: Specialist Funds, Mergers and Acquisitions, Financial Institutions and Restructuring. Verdant Capital and its partner firm in Morocco are the IMAP partner firms for Africa.

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