Frankfurt (Germany), June 2018.This week, we are happy to share the following KPMG Report “Forging the Future with Fintech” with some of our own observations. One of the subjects which has become virtually synonymous with the African technology sector is Fintech. Considered one of the biggest current disruptors, Fintech is a broad term encompassing a range of financial services which fall outside the purview of traditional financial institutions. Empowered by a rapidly developing ecosystem of innovative technologies, new financial services and offerings are providing competition to traditional financial institutions on their own turf. To address these challenges, the report outlines several strategies for corporates to adopt and position themselves within the rapidly evolving Fintech landscape.
We take several lessons from the report, which we believe are salient to investments in the African tech ecosystem. First, currently there is no market leader and organizations should adopt strategies that provide them with agile, long-term positioning. Fintech is a staggeringly broad definition which encompasses a dizzying number of companies, technologies, and solutions that provide access to or elements of financial services. In many cases larger financial companies are choosing to stay competitive through partnerships and acquisitions, and in some cases staying current by supporting a range of solutions through accelerators and incubators. This may in part explain the consistent fundraising success of African Fintech start-ups, which received one third of the $195 Million US raised by African start-ups in 2017. Next, a statistic which should be unsurprising, is that 72% of innovation was driven by start-ups. A large part of the disruption Fintech causes lies in the democratisation of technological and software developments which allows start-ups to develop financial services solutions that can compete with established financial services companies. Next, the report found that 20% of financial service providers were being directly challenged by emerging Fintech solutions. Take for example, Nigerian Piggybank, which recently raised an impressive $1.1 Million in funding. The company offers an innovative online savings accounts as well as a range of payments services aimed at Nigerian Millennials and the large informal savings market in Africa. Although offering a lower rate of return than traditional banks in Nigeria, Piggybank competes by knowing its customers and tailoring its services to their needs. Thus, if Fintechs are changing the financial industry’s status quo in Europe, then in Africa, Fintech’s are bridging gaps which in Africa have never been serviced. With the proliferation of mobile devices and mobile wallets, Fintech challenges the idea of “what a bank is” even more so in Africa. In many cases, Mobile Money users are technically unbanked, where Mobile Money provides an entry point to formalization for the multitude of informal businesses across Africa.
No discussion of African Fintech would be complete without mention of M-Pesa, the Kenyan company which has become the posterchild for Fintech globally. M-pesa revolutionized payment services with its Mobile Money offering and since, 2007, the company has acquired more than 25 million users across ten markets in Africa, Asia, and Europe. M-pesa and Mobile Money’s success in Africa has driven the convergence of the telecom and financial sectors. It is often noted that more Africans use electronic payments that Europeans, but the significance of this statistic is underappreciated. The true revolution that Mobile Money brought to Africa was a simple, transparent, and secure way to transfer money, which is the underpinning of security that any small business needs, providing an infrastructure on which commerce and institutions can develop. In fact, on average $1 Billion US in Mobile Money is transferred daily, with the average user transferring around $188 USD per month. More advanced Mobile Money offerings are also being developed, including savings, loans, and even insurance. Many of our current investees are using or planning to implement Mobile Money payments in their solutions to improve their businesses and their impacts.
As African populations increase and the volume of commerce increases, Fintech options from new actors and established financial institutions will find ample room to develop new and efficient ways to channel those cash flows. One area we see great potential for growth and impact in is the expansion of additional financial services, such as insurance companies offering a wider range of products and services. Insurance companies are important agents of risk management and essential to driving investment and development. Our Nigerian investees Farmcrowdy have successfully been implementing agricultural insurance on sponsored farm projects, mitigating risk and exposing farmers to the benefits of insurance. With the potential growth of a value-added services to meet the needs of Africa’s growing populations. GreenTec plans to increase its exposure to the African Fintech sector in the coming year.