Michael Bowren, co-founder of Finch Technologies | image provided
Fintech is Africa’s fastest growing startup industry, with more than 5,200 companies spread across the continent in 2022. The rapid expansion has been driven in part by the increasingly young, tech-savvy, urbane population. These consumers are looking for advanced and easy-to-use digital finance solutions, rather than traditional and often slow services.
If fintech startups are to dominate their respective industries, there are three trends expected to gain momentum in 2023 and beyond:
1. Financial inclusion driven by strategic partnerships
At the forefront of fintech’s triumph in Africa is the need to serve the unbanked. Financial inclusion has long been a buzzword, but startups that truly use this goal as a catalyst will see much greater success.
According to Oxford’s Business Group, in 2022 23.5% of South Africans still do not have access to banks, but the flip side is that since 2011 there has been a 20% increase in Africans having access to formal financial services . inclusion is the ultimate goal, you need to leave room for everyone at the table. Technology companies that operate in silos and steer clear of their competitors won’t thrive at the pace of those that partner with their counterparts.
Strategic partnerships are essential to create better products and improve digital literacy. Companies like PayFast, Finch Technologies and Loop have seen the value of partnering with innovative startups and solution providers. 2023 will see an even more focused effort by startups to collaborate and integrate with other technology solution providers. Essentially fintech startups need to focus on their core product to be successful, and if there is a gap in their current solutions, they should seek out partners who offer these solutions.
In the lending space, we’ve seen the rise of financial comparison platforms like Hippo and FundingHub. This has been prompted by consumers who want easier, simpler and more affordable access to finance. FundingHub saw the value in building strong partnerships with lenders, and because of this, they were able to create a platform that benefits consumers and enables them to make more informed financial decisions.
2. Africa continues to be a hotbed of investment
The startup landscape has matured significantly with banks and government organizations creating enabling mechanisms that support the startup community.
With over 200 incubators in South Africa alone, there will not only be an increase in incubators and accelerators, but also fintech startups who see the value in joining these networks. Powerhouses like Google Launchpad Accelerator Africa, Grindstone and Antler continue to catapult African fintech startups into international markets.
On the other hand, we are seeing an increasing number of “The Big 5” banks, such as Standard Bank and FNB, investing in accelerator programs. Banks are using incubators as an opportunity to seek out the best talent and products, with fintech startups accessing the finance and guidance they need to boost their business.
African fintechs secured nearly $900 million from local and foreign investors in 2022, of which 25% was allocated to South Africa. The continent is emerging as a hotbed for foreign investment, this is mainly due to increased mobile penetration, better internet infrastructure and growing fintech startup ecosystem.
Over a third of venture capital investment in Africa comes from the United States, as well as large international companies such as Visa and Fidelity which are taking large stakes in South African fintechs. One payment model to watch out for in 2023, which has attracted significant investment interest in 2022, is the buy-now-pay-later (BNPL). These fintech startups have become attractive to consumers, thanks to their easy payout payment models, simple approval process, and lack of interest rates.
3. The growing need for a low-code/no-code infrastructure
Startups that can build solutions that offer low-code/no-code infrastructure for entrepreneurs will be of growing importance in the new year. According to Gartner, 70% of new applications developed by enterprises by 2025 will use no-code or low-code technology.
Essentially low-code/no-code fintech infrastructures allow companies to offer their consumers financial services without the need to spend a lot of capital to build an engineering team. These products are designed for quick and easy implementation without the need for coding skills.
Microsoft estimates that more than 500 million new apps will be created by 2026. If businesses are to be able to meet the growing needs of their consumers, they need to set aside their legacy infrastructure and let low-code solutions ease the burden.