Tech startups raised close to $5 billion in Africa in the year 2021, as more and bigger deals closed. Nine times what was raised five years ago was raised this year, an indication of how much the startup scene has changed over the last few years.
A report by markets insights firm Briter Bridges shows that Fintechs accounted for two thirds of all the investment realized by startups across the continent last year. This amount was more than double the amount raised in 2020 and triple the amount in 2019.
Opay raised $400 million in Series C funding, while TymeBank raised $180 million in Series B and Flutterwave got $170 million in a Series C round. The Series E financing for Zepz raised $292 million, while Chipper Cash raised $250 million, and the Wave sealed $200 million in funding.
Capital injected into the startup is likely to increase with the growth of mobile phone usage and internet penetration.
The number of mobile subscribers in Africa is predicted to increase by four percentage points to reach half of the population by the year 2025. As the adoption of lending, digital payments, banking and insurance services grows, it is poised for greater growth.
Financial Technology Partners, an investment banking firm focused exclusively on fintech, in a past review of the sector in Africa said that the continent with its rapidly growing population, some of the fastest-growing economies and an underdeveloped financial services ecosystems presents an attractive opportunity for fintechs.
The next few years are likely to see increased use of payment providers such as Visa, Mastercard, and Jumo. Director at Briter Bridges, Dario Giuliani, told TechCrunch that there was more M&A activity as the ecosystems moves towards maturity and consolidation.
Deals in Africa over the years. Briter Bridges is an image.
Banking/lending and insurtechs have received the most financing over the years.
Digital payments space in Africa has experienced the greatest growth in terms of funding received and total transactions volume over the last decade when compared to other sub-sectors within the fintech space. The growth experienced by fintechs is against the backdrop of the increasing phone ownership and a deeper penetration of mobile money technology and the internet, all of which have made it possible to circumvent the sometimes restrictive traditional banking infrastructure.
Digital and mobile payments have allowed for the processing of payments online and offline through USSD or STK commands.
Africa has a massive underbanked and unbanked population, but its growing middle class, increasing mobile penetration and improving communications infrastructure make it uniquely conducive to innovation and mobile financial services.
Financial inclusion has been driven up by emerging fintech services that have banked the unbanked and solved some of the greatest pain points experienced by businesses and individuals. Wari, sureRemit, and Paga have made it possible for African residents to receive money from overseas easily and cheaply.
The image is from the genic images.
There are opportunities for growth.
According to a McKinsey study, Africa is the second-fastest growing and profitable payments and banking market after Latin America, and this means that the fintech sector is likely to continue to attract investors.
The number of mobile money accounts on the continent rose by over 40% in the year that ended in 2020 and the continent is already a global leader in mobile money adoption.
M-Pesa, a mobile money service by East Africa's biggest telco, Safaricom, does not require internet connection for its customers to send and receive money, as well as to pay utility bills, because the wallet turns subscribers' phone numbers into a sort of proxy for bank accounts. The service recently surpassed voice to become the top earner at the platform.
M-Pesa has been an anchor for a number of new services that are coming online in the region. When it first launched M- Shwari, in 2012 Safaricom laid the groundwork for the adoption of lending apps. Silicon Valley-backed lending apps have emerged in the market. These lending apps use customers' mobile money transaction history to determine the amount of instant credit to extend to borrowers, and then the money is deposited into customers' mobile money wallet.
A lack of banking history data has made it difficult for people with no credit scores to get a loan.
Over the last few years, insurtechs have flourished with the birth of innovative products that are affordable, allowing micropayments, and covering growing risks including those brought by climate change. Even though the penetration of insurance products in Africa is low, innovative products around insurtech have encouraged the use of insurance products.
The majority of funding went to a small number of companies. According to analysis by Briter, an estimated $3 billion of the total amount raised went to 20 companies, as over 700 other startups raised nearly $2 billion.
