Understanding Africa's fintechs

Innovation in the informal banking sector has led to growth in products and services for the unbanked

As population decline is set to take place in many countries, one thing to ponder:

Over the next three decades, the world’s working-age population will increase by 2bn, and almost 80 per cent of those workers will be coming of age in Africa.

With a growing young population, is Africa ripe for fintech innovation?

Research by the Boston Consulting Group forecasts that fintech revenue on the continent will go from $5bn in 2021 to $65bn by 2030. In the same period, fintech revenue in North America will grow from $130bn to $520bn, and in Europe, it will grow from $34.5bn to $190bn.

The revenue growth multiple is forecasted to be 13x in Africa, 4x in North America, and 5.5x in Europe. While the absolute growth numbers are smaller in Africa, the growth multiple is much higher.

The numbers look attractive, but there are many challenges. Scalability is one issue.

Data shows that a few markets are responsible for most of the fintech companies in Africa. It should be no surprise that, in general, these economies are the largest in Africa. One exception is Kenya. It isn’t the third largest economy in Africa, but it has become a regional hub for fintech innovation. Data from BCG Fintech Control.

It’s possible to operate across the EU via a single entity located in one market, and the USA itself is a market of 330m. Africa - with its population of 1.2bn, split across 54 countries - doesn’t have a single regulatory framework. And it’s not easy for companies to operate on a cross-border basis. Often, national authorities require legal entities to be set up within each country of operation. Companies may need staff on the ground to interact with regulators in person.