Fintechs in Africa continue to outperform all other startups in terms of funding raised

In 2021, more and larger deals were closed in Africa, with tech startups across the continent raising nearly $5 billion. This amount was more than double the previous year’s investment and nine times what was raised five years ago, demonstrating how much the startup scene has changed in recent years.

According to a report by market insights firm Briter Bridges, fintechs dominated fundraising, accounting for nearly $3 billion, or two-thirds of all investment realized by startups across the continent last year. This amount was also more than double the $1.35 billion investment raised by African fintechs in 2020, and three times the amount raised in 2019.

Opay, which received $400 million in Series C funding; Flutterwave, which received $170 million in a Series C round; and TymeBank, which received $180 million in a Series B round, were among the biggest beneficiaries of the fintech capital. Jumo and MNT Halan each received $120 million in funding, while MFS Africa, a digital payments gateway, received $100 million. This came as Zepz (formerly WorldRemit) secured $292 million in Series E funding, while Chipper Cash secured $250 million, Tala $145 million, and Wave secured $200 million.

And, given the incremental funding for African fintechs over the years, capital injected into these startups is only likely to increase as mobile phone and internet penetration grows.

According to the GSM Association, mobile subscriber penetration across the continent is expected to rise by four percentage points to 615 million — half of the continent’s population — by 2025. It is also expected to expand further as lending, digital payments, banking, and insurance services become more popular.

In a previous review of the sector in Africa, Financial Technology Partners, an investment banking firm focused solely on fintech, stated that the continent, with its rapidly growing population, some of the fastest-growing economies, and an underdeveloped financial services ecosystem, presents an appealing opportunity for fintechs.

“While scale-ups such as Flutterwave, Chipper, MFS Africa, Cellulant, and Jumo begin to compete alongside global, established providers such as Visa, Mastercard, and Stripe in the payment space, the next few years are likely to (and already are) see increased movement across other fintech verticals, from lending to KYC, SME management software, and decentralized finance.” This, as well as increased M&A activity, as the ecosystem matures and consolidates,” Dario Giuliani, director at Briter Bridges, told TechCrunch.

Startups specializing in digital/mobile payments have received the most funding over the years, followed by startups specializing in banking/lending and insurtechs.

According to the most recent data, the digital payments space in Africa has also seen the most growth in terms of funding received and total transaction volume over the last decade when compared to other sub-sectors within the fintech space. The growth of fintechs is occurring against the backdrop of increasing phone ownership and a deeper penetration of mobile money technology and the internet, all of which have made it possible to circumvent the sometimes restrictive traditional banking infrastructure.

Payments can now be processed online and offline using USSD or STK commands, apps, or NFC technology thanks to advancements in mobile money and digital payments.

“Africa has a massive underbanked and unbanked population, but its growing middle class, increasing mobile penetration, and improving communications infrastructure make it uniquely conducive to fintech innovation and mobile financial services,” Financial Technology Partners explained.

Emerging fintech services have banked the unbanked, increasing financial inclusion by addressing some of the most significant pain points for businesses and individuals, such as sending and receiving money and accepting payments. Startups in the remittance space, such as Wari, SureRemit, and Paga, have made it possible for African residents to receive money from abroad in an easy and affordable manner.

Opportunities for advancement

According to this McKinsey study, Africa is the world’s second-fastest growing and profitable payments and banking market after Latin America, which only means that the fintech sector will continue to attract investors looking to capitalize on the increasing growth opportunities.

The continent is already a global leader in mobile money adoption, accounting for the majority of mobile money transactions in 2020 — a year in which the number of mobile money accounts increased by 43%. The success of mobile money across the continent is most likely due to the ease of access provided by advancements in telecommunications technology.

For example, M-Pesa, a mobile money service offered by East Africa’s largest telco, Safaricom, does not require internet access for customers to send and receive money or pay utility bills — the wallet converts subscribers’ phone numbers into a sort of proxy for bank accounts. After the platform’s revenues reached $745 million for the fiscal year ending March 2021, the service recently surpassed voice to become Safaricom’s top earner.

M-Pesa has served as an anchor for a slew of new services that are coming online across the region (particularly in Kenya). Safaricom, for example, laid the groundwork for the adoption of lending apps in 2012 when it launched M-Shwari, a mobile-based savings and loans product.

Since then, a slew of new lending apps have entered the market, including the Silicon Valley-backed Tala and Branch. Customers’ mobile money transaction history is used by these now-popular lending apps to determine the amount of instant credit to extend to borrowers — funds that are then deposited in customers’ mobile money wallets.

Such lending and banking startups have made credit available to the vast majority of people who previously had no credit scores and were turned down by traditional financial institutions due to a lack of banking history data.

Insurtechs have also thrived in recent years, thanks to the development of innovative products that are affordable, allow micropayments, and cover growing risks, such as those caused by climate change. Innovative insurtech products have also encouraged the adoption of insurance products, even though penetration in Sub-Saharan Africa (with the exception of South Africa) remains low in comparison to other regions.

While investments increased in 2021, the majority of the money went to a small number of startups. According to Briter’s analysis, which includes data from both disclosed and undisclosed deals, 20 companies raised an estimated $3 billion of the total amount raised, while over 700 other startups raised nearly $2 billion.