Fintech bright spot as Africa catches up in bumper funding year

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

The continent saw fintech funding, including mergers & acquisitions (M&A), grow to $1.35bn in 2020 from $1bn 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 SA, according to the report, which surveyed 177 start-ups and 33 impact investors across emerging markets.

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

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

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

Though total funding for emerging market fintech companies increased in 2020, it still accounts for a small portion of global investment. Of the $105bn received by fintech firms in 2020, $76bn 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 $3bn 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.

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