Is South Africa the next hub for FinTec?
The fintech sector is growing throughout Africa as more startups receive funding. As of 2021, this sector is worth more than US$2 billion. According to a Mastercard report, African fintech startups expanded by 81 percent in 2021 alone. Three countries are leading this surge: Kenya, Nigeria, and South Africa (Africa’s second-largest economy).
The same report also revealed that newly formed fintech companies are getting a big share of closed deals and funding deployed throughout the continent. Digital payment solutions are part of the boom in the sector. Forex trading South Africa is taking advantage of these developments to provide more options to traders via regulated brokers.
Nigeria, Kenya, and South Africa are creating an enabling environment through infrastructure and policy frameworks. Innovation in this space aims to resolve several pain points, including the need for greater financial inclusion.
For its part, Mastercard supports the sector’s growth through strategic partnerships and other initiatives. African fitechs gain access to Mastercard’s advanced technology, expertise, and network. There are startup programs, developer tools, and APIs that can help turn countries like South Africa (RSA) into continental fintech hubs.
South Africa’s fintech ecosystem
As an economic powerhouse in Africa, RSA has immense capacity to develop successful fintech projects. It also boasts considerable technological expertise and infrastructure, which local startups can tap into. In addition, its home to the continent’s largest financial institutions like FNB, Absa, Nedbank, and the Standard Bank Group.
Over the years, the country has developed a robust fintech ecosystem. As a result, many newly formed businesses thrive in a sector capable of solving some of the continent’s most pressing economic challenges. Many new ventures are active in SaaS and e-commerce. Some notable e-commerce players include Wantitall, Bidorbuy, and Takealot.
The country boasts one of the continent’s highest penetration rates in banking and insurance. Another key factor is high mobile penetration rates, with 95 percent of South Africans owning a mobile phone. This statistic bodes well with the development of a vibrant fintech sector. What’s more, 91 percent of the devices used in the country are smartphones.
Although mobile money platforms like M-Pesa struggled to capture the SA market, local network providers have revived this initiative. Vodacom and MTN are working tirelessly to lure unbanked South Africans onto mobile money platforms. MTN launched the Momo wallet to allow users to store, send, and receive funds. Meanwhile, Vodacom offers the Vodapay platform to mobile phone users.
These mobile phone operators want to disrupt the traditional banking system like Zimbabwe’s Ecocash did. On the downside, the South African mobile money landscape is also struggling due to restrictive regulatory requirements. Unlike in East Africa, RSA entities require a financial service provider licence.
Fintech venture capital funding in South Africa
SA is one of the continent’s leading countries in venture capital funding for promising projects. Nigeria gets the top spot and Kenya second, while South Africa and Egypt are third and fourth, respectively. Between 2015 and 2022, SA fintechs have secured close to $1 billion in VC funding.
Among the fintech startups that secured funding, subsectors like payments, lending, investech, and blockchain got the biggest chunks of the capital. Financial management is the other fintech subsector attracting considerable venture capital funds.
On the other hand, the buy now pay later (BNPL) segment is showing promising signs of growth in RSA. Analysts predict that growth in the space will top 100 percent by the end of 2023. Therefore, funding opportunities are more likely to rise in tandem with the anticipated boom.
Although SA boasts the continent’s advanced insurance and financial services sectors, there’s still room for improvement if it wants to cement its position as Africa’s fintech hub. The number of small and medium businesses applying for funding is still too low compared to SA’s peers on the continent.
As of October 2021, only 2 percent of the SMEs in the country lodged applications with banks and other sources. Almost half of the applications were still pending.
Final thoughts
Despite some niggles, South Africa is still a prominent player in Africa’s fintech space. It has a vibrant digital currency market, enabling innovative startups to tap into the area. The country is among the leading users of cryptocurrencies alongside Togo, Kenya, and Nigeria (Africa’s largest economy). Meanwhile, forex trading platforms using proprietary trading platforms and Metatrader4 have a good chance of making it big.
