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GFA Weekend Feature – African Fintech Funding; 2020 & Beyond

a) Introduction

Still on our Fintech focus; last weekend GetFundedAfrica presented a summary of 2019, the state of affairs for fintech investments on the continent, and a peek at the potential/future especially through the eyes of some notable names in the African Fintech space.

This weekend, we intend to focus on the last phrase above – the potential and future of fintech investments and funding on the continent, especially in 2020.

In 2019, we witnessed investors plowing money into the space to make returns relentlessly from scalable ventures. From a business view, these investments and funding are getting wrapped around the peculiarities of the continent’s markets, and solutions that can climb rapidly. Migo’s VP of growth in 2019, Adia Sowho commented, “To create durable solutions, it is important to combine the audacity of cutting-edge technology with humility to the nuances of local markets,”.

b) Some Emerging Trends

Top investors in 2019 included regional accelerators and incubators, such as Go Global Africa, Startupbootcamp Africa, AlphaCode Incubate and Google Launchpad Accelerator. Top pure play VC firms investing in the region are Trinity Ventures and Andreessen Horowitz.

Looking ahead in 2020, mobile devices will continue to drive fintech innovation in the region. With more investment — and supportive regulators — Africa’s population should increasingly move online and into the global financial system.

Several emerging lending startups are transforming into a focal point for fintech innovation, in providing to underserved consumers and SMEs, on the back of the continent lacking developed financial infrastructure.

Fintech startups are moving out of niche use cases and are beginning to operate at scale. Where they once catered to specific demographics, the sector is now providing services across the financial services value chain — to all demographics, in a much larger playing field.

Telcos setting up banks – Meanwhile, mobile money providers are not necessarily staying within their lane.

Mobile money is a major driver of financial inclusion, giving anyone with a phone and a SIM card the ability to save money and transfer funds without having to hold a bank account.

The medium has seen substantial success across Africa, and doubly so south of the Sahara. Competitors in the space are now trying to work together to create an interconnected payment ecosystem.

Deputy CEO at Orange Money Paul De Leusse said to Fin Tech Futures – “Traditional banks did not react to what we did”. Orange Money launched in 2008, he adds and the banks have still done nothing”.

De Leusse says Orange is set to launch its ‘Bank Africa’ later this year in Ivory Coast, with plans to follow this launch with one in Senegal.

As part of this launch, Orange Bank – which until now has headed up a rather different business arm for the company in Europe – has also been testing micro credit and micro savings solutions in Madagascar.

“Most of us [telcos in Africa] are considering launching micro loans, because we don’t see anyone else doing this,” says De Leusse.

Fintech lenders are already tapping this space in Sub-Saharan Africa, such as Branch, Tala, Jumo, OneFi and Migo. Some players have also teamed up across sectors to deliver micro loans too, including Jumo & MTN, and Safaricom & Commercial Bank of Africa.

c) Potential Big Plays

This year could potentially see $1 billion Chinese tech investment in Africa – especially across Nigeria, Kenya, Egypt, and South Africa – to top up the $400 million invested in the second half of 2019 alone.

Fintech is the driving force; it receives the largest share of funding.

Traditionally, China’s Africa investment portfolio has focused squarely on infrastructure and commodity deals. 2019 saw a marked shift towards the technology sector as China dug deeper both in terms of hardware (through the likes of Tecno phones) and technology, as well as leading on deals with OPay and PalmPay as well as logistics platform Lori Systems, which secured an undisclosed Series A raise, also from Chinese investors.

African fintech building financial services products and infrastructure are a big draw for Silicon Valley venture capitalists as well as for international finance institutions and global payments giants.

Opera, the payments service operating in Nigeria, raised an unprecedented $170 million in two rounds last year, led mainly by Chinese investors. Opera wants to build a super app ecosystem similar to WeChat in China.

Chinese conventional tech firms, particularly in fintech and handsets, led the pack last year, but 2020 promises more diverse Chinese private investment in Africa, according to Quartz Africa.

Reports on fundingThree reports on African startups show different funding totals for 2019. But Partech Ventures, WeeTracker, and Briter Bridges all report funding totals of over $1 billion.

The big picture is the dominance of Nigeria and Kenya, the rise of fintech, and the reinforcement of Chinese players.

Comments attributed to Tidjane Dème, Partech general partner  – “Our ecosystems may really need a lot more seed funds but investors need data to understand where the market is – and that data can be hard to come by. Ultimately, the whole market benefits from more transparency.”

The prediction could come to pass because there is now “a larger and stable pool of investors focused on Africa” with more investors doing multiple deals consistently in contrast to three years ago, Dème added.

 “Back then, it was a diverse pool of investors with most of them just testing the waters in Africa.”

Reports put Nigeria, Kenya, Egypt, and South Africa in the top five investment destinations.

While investor appetite is expected to hold and possibly increase, Maxime Bayen, a venture fund analyst, expects more activity outside the dominant investment destinations.

“Ecosystems like Ghana, Tanzania, Uganda in Anglophone Africa; and like Senegal, Cote d’Ivoire or Cameroon in Francophone Africa; should produce increasingly successful startups emerging on the regional scene,” he explained.

“I’d say those new markets are a few years behind Nigeria and Kenya, so their ecosystems are now reaching the maturity where Kenya and Nigeria were four or five years ago.”

d) GFA Assesses Where More Funding/Investment Action Could Happen

  • We expect more arrangements for payments platforms specific to linking continents and countries similar to Alibaba’s partnership with Nigeria’s Flutterwave, to provide digital payments between Africa and China on Alibaba’s Alipay service.
  • Mergers & acquisitions to increase as companies pool resources to scale opportunities.
  • We expect investments in more fintech platforms seeking secure Credit Rating status.
  • Increased investments in Digital Banking.
  • Investments to support expansion into other African countries and in some cases, beyond to other continents.
  • Funding into fintechs seeking to offer investment services on the back of different channels that would require basic Identification (ID) such as the “main-streaming” of asset management services and access to mutual funds to underserved and unserved the African population
  • Investments into fintechs seeking to provide solutions on financial education.
  • With the proliferation of fintech startups in Africa, and as investors become more savvy as regards the African business terrain, we may see more prudent investments into early-stage start-ups, unable to provide firm evidence of tangible progress, and which seek higher valuations mostly on the back of potential market opportunity.
  • Investments into companies seeking to train & produce fintech talent, required to build, manage and scale these increasing number of ventures.
  •  An increased number of IPOs will likely take place.
  • We could see more non-equity partnerships similar to Visa’s non-equity partnerships with African fintech startups, possibly leading to future equity investments. While Visa’s non-equity partnerships with MFS Africa and Paga does not include investments in both startups, Visa’s Head of Strategic Partnerships, Fintech and Ventures for Africa, Otto Williams says that the payments giant could invest in these African fintech companies later, even though the company’s focus right now is on making these non-equity collaborations.

“If we have a commercial partnership in place that creates the right investment thesis…you know those strategic partnerships inform venture investments,” Williams is quoted as saying.

As a wrap, we will take the view of Mobolaji Adeoye, Founder and Chief Investment Officer at Consonance Investment Managers.

African venture capital will continue to be an exciting space to watch considering the importance of fintech investments, but also new trends such as Chinese investments and opportunities in the creative industries. Given the massive growth yet to occur in fintech, gig platforms, and the creative sector, VC funding could soar to new heights and easily surpass the $2 billion mark in 2020.”

Link to referenced articles: https://getfundedafrica.com/2020/03/20/reference-articles-mar-21/

See links for feature weekend articles here:

1) Funding a Fintech in Africa https://getfundedafrica.com/2020/03/14/gfa-weekend-feature-funding-fintech-in-africa/

2) Funding a Hotel in Africa https://getfundedafrica.com/2020/02/22/gfa-weekend-feature-how-to-raise-funds-for-an-african-hotel/

GetFundedAfrica curates funding news across Africa and emerging markets. Subscribe for GetFundedAfrica Newsletters: https://getfundedafrica.com/pricing-plans/

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