Global Themes /
Sub Sahara Africa

Key factors for fintech success in Africa

  • The African fintech space has recorded impressive growth over the past decade.

  • Major drivers of growth in the fintech ecosystem include demographics, mobile phone access and poor financial inclusion

  • What makes a winner in African fintech? Our survey of 160 companies helped us find the answer

Key factors for fintech success in Africa
Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

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Contributors
Rohit Kumar
Nkemdilim Nwadialor
Tellimer Research
15 April 2020
Published byTellimer Research

In our research into the landscape for Africa fintech we analysed a sample of 160 fintech companies across the continent and identified the most common success factors for these businesses. These were the top 10:

Figure 1: Top 10 success factors


Source: Tellimer Research, Company disclosures

 

Targeting unbanked customers

This is most common among payments, lending, insurance and remittance fintechs, which, by focusing on certain niches of underserved customer segments, can grow due to high visibility, lower competition and word-of-mouth referrals. Examples include Nigerian payment firm Paga, which targets rural populations with little access to banks, South African lender GetBucks, which focuses on bottom-of-the-pyramid borrowers, and Ugandan remittance provider Remit, which enable users to pay bills for family and friends who are unable to do so themselves.

Innovation in service offerings

This is a widespread success factor across all segments, as creating new products or new ways of using existing products enables fintech companies to become more relevant to existing customers and/or to reach new ones. Notable examples include WorldRemit (available in various African markets including Algeria, Kenya, Nigeria, Tanzania and South Africa) launching its business/merchant payment options and Branch (Nigerian lender) introducing longer tenor loans.

Strategic partnerships

This approach is most prevalent among payment, lending and remittance fintechs. Payment fintechs commonly partner with larger or more widely accepted payment systems to boost their usability (e.g. Tala’s partnership with PayPal). Lending fintechs often partner with banks (to use their capital base) or Mobile Money platforms (to improve convenience) when providing quick loans and payday loans, and with merchants when offering Point-Of-Sale loans (for mobile device financing etc). Remittance fintechs partner with banks to provide into-bank cash-outs (e.g. WorldRemit, Transferwise) and payment systems to enable users to make payments using remitted funds (e.g. SureRemit, Xente).

Access to funding to gain scale

This approach is most relevant to lending fintechs (to underwrite loans) and insurtechs (to increase cover or acquire licenses). Examples are Migo (a Nigerian lender), which will use its recent funding round to launch the service in Brazil, and Pineapple (a South African insurer), which will fund the expansion of its motor insurance offering.

Competitive prices

This approach is adopted quite widely. Payment aggregators like OPay offering lower transaction charges, lending fintechs such as Numida (Uganda) lower interest rates, insurtechs such as Pineapple (South Africa), which charge lower premiums, and remittance providers like Hellopaisa, which has smaller bid-ask currency exchange spreads, enabling it to take market share from incumbents. 

First-mover advantage 

This is most common among payment and remittance fintechs; these are typically scale/ network businesses and moving first can boost brand recognition and customer loyalty. Notable examples are MTN MoMo (Ghana), M-Pesa (Kenya), EcoCash (Zimbabwe) and M-BIRR (Ethiopia).

Operating efficiencies

Across the board, fintechs invest heavily in technology infrastructure, both to boost their service quality and scalability, but also to generate efficiency gains through automation. Technology means bills can be paid using QR codes, loans can be disbursed using USSD codes, insurance products can be tailored via smartphone apps, and T-Bills investments can also be executed via mobile phones. Payments (eg OPay), investech (eg Piggyvest) blockchain fintechs (eg BitPesa) most usually cite this as a key competitive advantage over peers.

Widespread network

This approach is mainly adopted by payments and remittances fintechs, as having a strong agent distribution network makes it easier for customers (especially in rural areas) to make deposits. Their basic transactions are still predominately cash-based and a wide network makes it easier for users to perform cash-in transactions, transfer funds or make payments for utility and other relevant bills. This is important for fintechs like Paga (Nigeria), M-Pesa (Kenya), EcoCash (Zimbabwe) and MTN MoMo (Ghana).

Favourable regulations/ integration in central payment systems

This approach is common among payment, remittance and blockchain fintechs, as being denied regulatory backing would be extremely detrimental to the adoption of their products. Notable examples are M-Pesa in Kenya and Tunisia’s recent announcement of a national cryptocurrency. Ghana’s adoption of mobile money interoperability, which allows for transactions between different mobile money wallets, has contributed to mobile money transactions soaring by over 100% within the first year of its adoption.

Management expertise

This approach is most common among fintechs in lending (to enable them to better identify underserved markets and/or create better customer credit profiles) and insurtech (to better identify underserved markets). Examples include Branch (Nigeria and Kenya), which creates credit score ratings by combining customers personal information (phone number, National ID and mobile money account).

Other factors

Other factors that have supported the growth of African fintechs include rising mobile phone penetration, fintechs backed by large traditional financial incumbents such as Alat by Wema (Nigeria) and Equitel by Equity Bank (Kenya), business model scalability, and integration of the fintech with other mobile-centric activities.

 

Figure 2 Split of success factors by segment

Source: Tellimer Research 

Figure 3 Split of success factors by geography

Source: Tellimer Research. Note: * ROA = Rest of Africa.


For more detail on the fintech environment in Africa see our recently published in-depth report The Ultimate Guide to African Fintech.