BODO: Africa's fintech catches global eye – Business Daily
Africa’s fintech start-ups continue to attract a lot of funding. PHOTO | POOL
Africa’s fintech start-ups continue to attract a lot of funding and 2021 was a big year for the continent’s fintech.
According to Africa: The Big Deal, the Start-up database run by Max Cuvellier and Maxine Bayen, African startups had received a total of $4.27 billion in investment funding as of December 2021.
That is over 2.5 times rise over 2020 funding totals. The ‘Big Four’, namely Nigeria, South Africa, Egypt and Kenya topped the charts accounting for 80 per cent of totals raised.
Topping the list was Nigeria (of course) with $1.37 billion in fundraising totals (or just 32 per cent of totals raised) with the single largest deal being OPay which raised some $384 million (or just 28 per cent of Nigeria’s total raise).
Kenya was fourth on the log with $375 million total fundraising with the largest deal being Gro Intelligence’s $85 million Series B.
A growing fintech inflexion is a back-end cross-border digital infrastructure, which received nearly half of the total funding. Back-end infrastructure start-ups aim to provide platforms that enable payments across multiple platforms in a seamless manner.
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This is a critical gap especially in facilitating intra-Africa cross-border payments (which the World Bank estimates to be around $14 billion a year).
There are nine identified migration corridors in Africa; Burkina Faso-Côte d’Ivoire (reflecting migrant workers in the Ivorian cocoa plantations); South Sudan-Uganda; South Sudan-Sudan (reflecting historical ties); Mozambique-South Africa; Mali-Côte d’Ivoire (also reflecting migrant workers in the Ivorian cocoa plantations); Somalia-Ethiopia; South Sudan-Ethiopia; Somalia-Kenya (reflecting Kenya playing a host to Somali refugees); and Zimbabwe-South Africa (reflecting economic migrants seeking better opportunities).
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To provide more perspective, in 2019, South Africa, Côte d’Ivoire, Sudan and Uganda were the top remittance senders in the region, sending out a total of $2.5 billion.
Most of these transfers went through the tedious and expensive processes of commercial banks and money transfer organisations. It now appears this space is being re-imagined, albeit gradually.
The biggest name in this re-imagination in the continent has been Flutterwave which, in total, raised some $225 million (becoming one of the few African startups to have secured more than $200 million in funding). Wapipay, a payments platform focusing on the Africa-Asia corridor, raised $2.2 million in pre-seed funding.
Far more important, this underscores the fact that back-end infrastructure is now proving to be a hot cake within Africa’s fintech space.
Indeed, a business being able to accept and make payments across the core card and banking networks, as well as most offline and online wallets (that are now active across the continent) is the next growth story. And surely funders have smelt the cheese.
Kenya’s M-Pesa has now become a force in the remittance business. As the most preferred last-mile platform, it is now processing over 90 per cent of inbound cross-border remittances.
This is why being a $1 billion business in 2022, it needs to be released into the blue sky by way of Safaricom spinning it off into a separate entity (and possibly even listing it).
That said, there is an expectation of increased funding towards back-end infrastructure solutions in 2022 and into 2023.
Africa’s Fintech Summit had some bold predictions for 2022 at the beginning of the year: first, they predicted that total funding could reach $8 billion (of which more than half will go towards infrastructure platforms).
Second, they held the view that the global capital market will witness a major African fintech initial public offer (IPO) announcement (Flutterwave has already taken a giant step to go public and list on the NASDAQ stock exchange).
Finally, central bank digital currencies will be launched by three additional countries. Recall that Nigeria’s e-Naira went live at the tail end of 2021.
Next in line could be Ghana and two other countries. Digital currencies have a stronger proposition for cross-border trade and could form a critical part of the infrastructure offering in the not-so-distant future.
The writer is an investment analyst.