Money is pouring into African fintechs

Fintech companies in Africa raised more capital in 2020 despite the Covid-19 pandemic, standing in contrast to their emerging market peers such as Latin America that saw a decline.

The continent saw fintech funding, including mergers and acquisitions, grow to US$1.35-billion (R19.3-billion) last year from $1-billion in 2019, according to a report by BFA Global’s Catalyst Fund and Briter Bridges published on Thursday. While Indian and Latin American fintech companies still raised more money than those in Africa, their volumes fell from the previous year as they battled to close later-stage deals.

“The numbers of pre-seed and seed deals in Africa are increasing,” the report said. “While Latin America and India are seeing a growing number of mega-deals, African markets are only beginning to see a few such late-stage deals.”

Africa’s growing population of 1.2 billion people, rising smartphone ownership and a drop in Internet costs are among the factors contributing to the region’s allure. Investors also see opportunity among its large unbanked population of 350 million, which accounts for 17% of the global total.

Most investments on the continent flowed to Nigeria, Kenya and South Africa, according to the report, which surveyed 177 start-ups and 33 impact investors across emerging markets.

M&A activity

The region’s fintechs haven’t yet raised funding through an initial public offering but they have enjoyed fast growing merger-and-acquisition activity, with international companies including Visa, Network International Holdings and Stripe growing their interests in the region.

Nigeria has especially benefited from the fintech boom that has put much of Africa at the cutting edge of the revolution in mobile money. In 2020, Stripe paid $200-million to acquire Nigerian start-up Paystack.

Flutterwave, based in Lagos and San Francisco, raised $170-million this year, becoming Nigeria’s second fintech startup with a valuation above $1-billion, after Interswitch.

Though total funding for emerging market fintech companies increased last year, it still accounts for a small portion of global investment. Of the $105-billion received by fintech firms in 2020, $76-billion flowed to the US.

In Latin America, Brazil, Mexico, Uruguay and Colombia made up 99% of regional fintech investment, while India, Singapore and Indonesia were the most popular destination for funds in South Asia and Southeast Asia. India netted $3-billion for fintechs alone.

“After the initial shock of the pandemic wore off, many investors continued to close deals, albeit remotely,” the report said. Investors preferred to pour cash into payments over other product categories, it said.  — Reported by Roxanne Henderson, (c) 2021 Bloomberg LP

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