The African opportunity for the Fintech industry 14 February 2023.

Edited by: Muluken Alemu 

The African houses more than a billion people today, and yet the entirety of the continent seems to suffer from the state of being ignored. The continent, while currently underdeveloped and in parts still in turmoil, has many nations that are actually in the state of becoming rising democracies and growing economies. Yet, as the counties on the continent grow and become more impressive, Fintech companies that could be changing the lives of millions are still ignoring it. While the nations might not be developed by the standard definition of European countries, they are in the process of becoming of a higher calibre than they have ever been, and capturing these young markets that could become captive or breeding grounds for innovation and testing would be a great way for a number of Fintech companies to actually be able to grow and create a better market for their own operation. The objections to this are many, some of them being the issues of logistics and available infrastructure, while others being issues of actually finding the customers required in order to build a stable business model within the country. 

The hidden opportunity

It is true that seeing an opportunity within Africa, especially for a Fintech company, is not easy. After all, the majority of the continent suffers from extreme poverty and social disturbances that get in the way of any kind of innovation that a Fintech company would be able to provide. Although, while the majority of the continent has been having a hard time developing, there is a significant number of nations in the continent that have been seeing a steady rate of economic development. Countries like Kenya, Ethiopia, Ghana are definitely rising and growing economies with huge potential to become economic powerhouses within their respective regions of the country. Even Nigeria, which might have seen a fall in economic development in the past year, could act as a good area to introduce some new and interesting Fintech. 

The benefits of participating in such an economy and introducing your product the re might not be easy to see, but they are very much present. One of the biggest benefits is the creation of a market that is very aware of your product and has a higher propensity to introduce people to your product. Think of it this way – if you are a Fintech company that offers payment solutions and you end up working in a country where you have little to no competition, the probability of capturing a significant part of the eligible market is high. As the economy develops and more people become capable of consuming the product you provide, the more likely they will be to take what you have to offer. With the growing market, your brand will grow and so will the number of people consuming your product. This supplies a relatively steady, if not large, stream of revenue that can be used to develop your product.

Furthermore, markets like these can be used in order to beta test certain features that you would not be necessarily testing in other parts of the world. While not all markets are the same, certain features of comfort that might be causing bugs are easy enough to test in areas like these, without the danger of losing customers. A beta test field would be a benefit to all Fintech companies looking to bring innovation around the world and into any developed market, including the European and American markets. 

One more thing that might be worth alluding to is the saturation of the developed markets with Fintech companies that are offering services that you might be looking to improve on. It is much harder to convert customers from their preferred platform to a new one, as compared to simply bringing in new clients from markets that are lacking in the product you are providing. This means that if you are struggling to compete in the developed markets, even despite the fact that you are innovating and introducing some high-quality new product, it might be a good idea to capture an alternative, smaller market first. This will allow the company a relatively steady revenue from the market that can be used in order to build a better business model within the developed economy. Of course, this comes with all kinds of hurdles, and the opportunity cost of investing in a business in a small economy versus a developed one might be much higher for certain Fintech companies as compared to others. 

Helping the developing world

While the Fintech company might be looking to increase its own revenue and gain more customers, they miss out on the benefits the locals gain from new technologies. It is often assumed that some of the developing nations might benefit most from using new and existing, cutting edge technologies in their development. It is not required for developing economies to go through the same stages of industrialization and energy security, as well as information technology development, in order to be able to become a modern and strong economy. 

Fintech companies might be able to assist in increasing the quality of life of the local African nations by simply introducing their technologies to them. If payments are made easier, digital currencies are easier to manage, savings and loans systems are simplified, digitized and made available without the need for an office, many users would benefit. Having more time to handle things other than financial management might allow the locals to dedicate more time to become financially secure enough to become better Fintech customers. 

Furthermore, Fintech companies that seek to educate and assist their customers in financial planning would be extremely beneficial to local economies. INtroducing financial literacy into communities where financial literacy is a key challenge in the development of the African consumer economies. Fintech companies and startups from around the world would be able to assist in this goal simply by deciding to stop ignoring the African economies and attempting to participate in them. 

The opportunity is there, especially multiplied by the fact that large populations within Africa remain bankless. The lack of banks, access to them or otherwise issues might be an opportunity for digital banking Fintech companies to get introduced into the markets and become significant players by utilizing this uncaptured market. 

A lively local startup scene

In the absence of international presence, African communities have started producing their own Fintech startups. These startups range anywhere from digital payment solutions, online banking solutions all the way to financial management and cryptocurrency wallet applications. The startups are spring up left end right and are all vying for attention from the investors who are interested in the local markets. Some of them are already growing into respectable companies with a pretty big customer base. If an international company wanted to get involved in the local Fintech scene and start providing their own services locally, they might even be able to do so by getting in touch with the local startups. Acquiring or partnering with local startups would allow Fintech companies to overcome some of the challenges of operating from outside the country. It would provide local representation, a prepared customer base, as well as a team of locals that would be able to assist the international team in establishing the company in the area. There are stat ups appearing in nations all over Africa, with Kenya, Capetown, Uganda and a number of other countries being the hot spots for the appearance of these new tech innovators into the African economy. 

Beyond the startups, there is evidence of a successful Fintech product within the countries. Forex has been rising in popularity within the developing African countries quickly, thanks to the higher availability of the internet and the existence of a middle class with a disposable income. The product is highly successful and is seen being used by many who have even a little disposable income. This proves that Fintech products with low barriers of entry not only have a future but also the potential to become extremely popular within the African continent. 

The challenge is big

While the opportunities are there, we cannot deny that introducing Fintech companies into Africa would be one of the biggest challenges they will have to face. After all, Africa is vast and the infrastructure that would be needed in order to support such Fintech companies is not necessarily present in the country. Internet, while available, is not widely used by the majority of the populations even in the countries with economies that are growing right now, and the internet is the key tool required by the people in order to be able to make use of the products that Fintech companies would be providing. Although, the people who would be using the products would laos be living in population centres, where internet is much more ubiquitous and many more people have access to it on a daily basis, without an issue. So there is potential for investment while the governments invest in the growth of their own infrastructure. 

Another significant challenge presented by the African opportunity is the fact that there is the possibility that the consumer market, a solid middle class might not be available in the numbers that would be required for the success of a Fintech product. A consumer base that has regular income is available, but the size is a defining characteristic: some countries have large middle classes than others, and those that have a small middle class might not be able to support a Fintech company. Although, the issue can simply be avoided by working with a country that has a stable economy with a middle class that would be able to consume the product without much of an issue. 

The final challenge is the logistics of an international company investing and moving to an African country. The development and maintenance teams are expensive to hire and maintain while moving them to Africa would be a huge cost to the company. One way that this could be avoided is by establishing relationships with local, already existing companies and startups and either buying or partnering with them in order to create a local presence. This way, there is no need to move countries for an entire company, while the locals will be able to handle some of the tasks of maintaining the product at a high level of performance. 

In the end, the opportunity of African investment for Fintech companies is undeniably present and definitely one that should be considered. There are issues, but all issues have relatively cheap or easily employable solutions. The benefits of investing in the African continent by Fintech companies would be far-reaching for both the companies that do so and for the country itself. The example of Forex brokers is the simplest one. It is the first Fintech product that is available en masse on the continent and is already seeing a huge rise in popularity, proving the viability of Fintech products within the African countries.