Africa's FinTech ecosystem is booming and poised for long-term growth opportunities. With a massive, young, unbanked and tech-savvy population, traditionally heavy cash usage, and increasing mobile penetration, Africa has all the ingredients needed to develop a robust FinTech ecosystem that pushes for better financial inclusion and digitization.
According to the New FT Partners Report for 2023, FinTech in Africa has a bright future ahead. Large financing rounds and unicorns emerging in the region are attracting global investors, and the potential for growth is enormous. With the world's fastest-growing population at a rate of 2.7%, the UN predicts that Africa's share of the entire world's population will reach 40% by 2100, a total of 4.3 billion people. Additionally, the continent's median age is just 20 years old, representing a sizable generation of highly digitally-savvy individuals.
Home to nearly half of the world's mobile money customers, Africa is clearly a global leader in mobile money. Mobile wallets and the use of mobile money are often the first step in financial inclusion, and Africa is paving the way with mobile money schemes that provide the added layer of credentializing the unbanked. These schemes add new use cases and functionalities that pave the way for a new FinTech ecosystem to solidify in the continent and connect consumers, merchants and other providers.
However, limited bank infrastructure in Africa has led to the rise of challenger players that are leveraging existing infrastructure to increase penetration into the market. For example, South Africa's TymeBank has utilized existing retail store infrastructure to provide low-cost financial access to millions of unbanked South Africans. By leveraging innovative business models and technology, these new entrants are able to address market gaps and provide affordable and accessible financial services to underserviced populations.
Mobile money is not the only innovation driving Africa's FinTech ecosystem. FinTech companies are finding new ways to determine if someone is trustworthy to lend money to by looking at other types of data. For example, Tala, a FinTech company focused on emerging markets, uses phone data to decide if someone qualifies for a loan. This has helped more people get access to credit who were previously ignored, opening up new opportunities for financial inclusion and making credit accessible to previously underserviced populations.
Kenya is a prime example of a country where the digital economy has been growing rapidly in recent years, with a focus on financial inclusion and innovation. The country's government has been committed to developing a supportive ecosystem for FinTech companies, including the establishment of a regulatory sandbox for testing innovative financial products and services.
Nigeria's fintech sector has been also rapidly growing, attracting significant investment and driving innovation in the country's financial services industry. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the funds raised by African tech startups in 2019 alone — second only to Kenya, which attracted $149 million.
Finally, South Africa's advanced financial services infrastructure and high mobile and smartphone penetration make it an attractive market for FinTech innovation, despite a large informal cash-based economy and limited access to basic financial services. The country's strict reforms and investments are crucial to promoting economic prosperity and reducing poverty.
In conclusion, Africa's demographic trends and increasing digital readiness are driving the upcoming FinTech boom. The continent has all the ingredients for developing a robust FinTech ecosystem that pushes for better financial inclusion and digitization, and the rise of mobile money, alternative data, and challenger players are contributing to bridging the cash-to-digital divide in the continent. The potential for growth is enormous, and financial services companies that can capture this market opportunity are poised to reap significant rewards.