“Africa is the future and fintech is booming in Africa merely solidifies that fact” - Janette G.V

Africa's potential to grow is limited only by human ingenuity. Our continent is blessed with ample fertile soil, natural resources, and abundant human capital.

Add to that the internet and mobile technology, and you're looking at incredible growth and endless possibilities.

At Anvil, we believe in helping our people unlock those possibilities. That's what this article will explore. 

Our spotlight goes to the finance sector because let's be real here, the industry has much to offer investors, professionals, and the African consumer when appropriately handled.

It could potentially be a win-win situation for all parties concerned. However, much must be done to make the finance sector more favorable to consumers. 

And this is where technology comes in. 

Technology promises advanced methods of solving financial issues and providing products and services to end users that meet their needs. 

Finance has always been a tricky subject in the history of the African people. Few are lucky to get proper financial education, and even fewer have access to reliable financial solutions. 

Micro-finance came into the picture to unlock opportunities for people who previously had little to no choice. But Fintech is taking that opportunity to a whole new level.

And that's probably why we're experiencing this sudden boom across several African countries, including but not limited to Kenya, Egypt, Nigeria, and South Africa. 

What exactly is Fintech, and what does it entail?

Fintech (Financial Technology) refers to using new technology to compete with traditional financial methods in delivering financial services.

At its core, Fintech is about improving, automating, and simplifying the management of financial operations. 

Fintech has three significant areas of focus: payments, lending, and asset and wealth management.

If you're wondering what the inner workings of these three areas are, rest assured that by the end of this intro crash course into the world of Fintech, you'll be informed and confident enough to impress everyone at the next company party.

We'll cover the prospects of Fintech in Africa and how to leverage existing opportunities. We'll also identify the challenges faced by Fintech stakeholders in Africa and possible solutions. And finally, we will take a peep at what the future holds for Fintech in Africa.

How is financial technology revolutionizing the financial industry in Africa?

Between 2020 and 2021, we witnessed an outburst of tech startups across several African countries. The number tripled to over 5,200 new startups. 

Of these companies, about half of them are Fintechs. The dawn of a new beginning where traditional banks have to watch their backs has begun as more and more Fintechs infiltrate the system.

To give you better context, let's use Nigeria as an example of this explosion of Fintech startups. Between 2014 and 2019, Nigeria's Fintech industry raised over $600 million in funding.

By 2019, it had 25% ($122 million) of the $491.6 million generated by all African tech startups – second only to the $149 million attracted by Kenya. [source]

According to a McKinsey analysis, African Fintech has significantly impacted the market by generating around $4 billion to $6 billion in revenue in 2020. A penetration level fixed at 3 to 5%. [source]

What makes African countries super receptive to Fintech solutions?

8 Reasons Why Fintech Companies Are Booming In Africa

Several reasons influence the rapid growth of Fintech in Africa. Let's explore some of the main ones.

#1: Increase in the availability and affordability of the internet and smartphones

 Smartphones are cheaper and more accessible in Africa than ever before. The expansion of phone companies such as Intel, Infinix, Techno, Xiaomi, and Apple into African countries is a significant development.

The availability of phones is gradually helping to increase awareness of new solutions since Fintechs reach out to prospective customers over social media platforms and offer them easy-to-use mobile applications.

#2: The need for an alternative to the incumbent/traditional banking system

Research shows that many Africans are fed up with the traditional banking system. People complain about the challenges of cross-border money transfers and how traditional banks' fees and conversion rates are outrageous, which calls for an alternative to the status quo. 

The African people want a change and readily welcome Fintech's promise to provide a lucrative shift.

#3: Ease, Convenience, and Profitability

Fintechs promise customers easy and seamless transactions. Some of these fintech startups even offer swift money transfers, allowing users to save in foreign currencies, and shop online right from the comfort of their homes. 

Another exciting aspect for the average African is the opportunity to invest, save and withdraw funds at will and without penalties.

Several Fintechs offer great rates and flexibility to consumers who crave more control over their money.

Evidence that access and convenience draw in customers in Africa can be seen in the success of platforms such as OPay and Quickteller in Nigeria.

OPay offers discounted payment for transportation and food, which account for about 50 percent of spending by individual customers.

This POS makes withdrawing cash easy, as people don't have to travel miles just to access an ATM. 

It has also proved to be a viable livelihood for many unemployed youths, especially in Nigeria. 

Walk around almost any neighborhood in Nigeria, and you're bound to spot a POS service every few meters. That's the kind of ease, and convenience African people want to enjoy.

#4: Juicy Lending/Loan Options

Some Fintech companies focus on lending to SMEs, startups, and farmers looking to expand to a commercial scale.

Fintech companies promise quick loans that require no security or any form of guarantee. And the significant part is that customers can access these loans in the comfort of their homes on their mobile phones.

People prefer this to the stringent process required to access bank loans.  

💡Recommended Tool: Quick Loan Calculator if you're in Kenya

#5: Fintech's Sync with Cryptocurrency

More Africans are opening accounts with Fintech companies today because these companies offer them effortless ways to transact in cryptocurrency. 

As more Africans discover the commercial practicality of cryptocurrency, demand continues to grow, and startups are swooping in to supply this demand. 

Crypto promises secure, safe, and fast transactions without intermediaries or the influence of the government.

You can see why it's an excellent proposition for people in Africa who have very little faith in their governments. 

Switching from using fiat currency (traditional hard money) to cryptocurrencies is an easy sell, provided it becomes easily accessible. Fintech companies make it easy for users to buy cryptocurrencies—with a simple swipe.

#6: Under service of Consumers by Traditional Banks

Banking is a desirable business sector in Africa. For example, Nigeria has over $9 billion in value pools. However, despite the high level of competition, most consumers are left underserved.

For the lower income earner in almost any African country, there is poor user experience and strict documentation requirements to open bank accounts. It also doesn't help that most rural areas lack access to banking facilities.

Fintechs, on the other hand, make it easy for anyone with a mobile phone to access their services. Yes, even in rural areas, you'll find services with Kiosks owned by Fintech companies scattered all around, facilitating the financial inclusion of the uneducated and less privileged.

💡A financial partner for the underserved in Kenya. Learn more here

#7: Referral Bonuses and Special Offers

The strategic use of referrals is another reason Fintech startups have rapidly gained momentum in Africa. Several companies have leveraged referrals to draw in customers by rewarding existing users who promote the brand to friends and families.

Sometimes the prize is in the form of cash. Other times, it's a redeemable perk that users value. 

Saas companies like Dropbox have seen excellent results with this model. It seems to work just as well with Fintech, especially if the actual service is enjoyable for the customer. 

#8: Use of Machine Learning and AI to Personalize Services

Fintech allows customers to receive a quality of service that was prior only available to higher-income earners.

Personalization and the ability to get assistance when needed were only for members with higher privileges within a banking institution. 

Today, however, artificial intelligence enables Fintech startups to use automation and chatbots to serve customers when they need assistance 24/7. 

Some of these robots are programmed to answer any possible customer question and even redirect them to the appropriate expert when the issue requires human intervention.

Advanced machine learning is also used to study the activities of individual customers. It is used to collect relevant data on their spending habit, among other things.

This allows companies to provide financial products that best serve customers' needs.

Continue reading to learn about the challenges Fintechs must learn to face and overcome in Africa. >>>> Challenges Fintechs In Africa Must Overcome in 2023 and beyond