Africa is in the midst of a fintech transformation. Powered by venture capital and boosted by gains in mobile internet, hundreds of start-ups are connecting hundreds of millions of Africans to financial services.

This opportunity stems partially from an inability overtime of the big local financial players to scale payment products to the masses. Still, that does not render Africa’s traditional banks powerless in the face of disruption by start-ups.

With the right mix of innovation and partnerships, Africa’s established commercial banks can gain an edge over VC-backed ventures in the continent’s digital finance revolution.

Massive Market

Funding that revolution is a mass mobilisation of venture investment toward Africa with the bulk of it—roughly 50% annually—going to fintech focused companies.

VC spending on the continent rose from $400 million in 2015, reached $1 billion in 2018 and is on track to surpass $2 billion in 2021.

While those figures represent a day and a week in Silicon Valley, it makes Africa one of the fastest-growing tech markets in the world by year-over-year VC growth.

The opportunity investors and founders are chasing is bringing large segments of the continent’s unbanked online. By several estimates—including The Global Findex Database—Africa is home to the largest percentage of the world’s unbanked population, with a sizable number of underbanked SMEs and consumers.

In that respect, the continent represents a reciprocal opportunity for savvy financial actors. Those who find product market fit can grow revenue streams from online payment products while driving financial inclusion for 1.2 billion people across 54 countries.

Start-ups Surge

The rise of the M-Pesa mobile-money service in Kenya provided a compelling use case for start-ups on the viability of phone-based apps to scale financial services in Africa. Launched by Kenyan telco Safaricom in 2007, the P2P payment product went on to acquire over 20 million users, process billions of transactions annually, and helped earn Kenya one of the highest mobile-money penetration rates in the world.

While M-Pesa wasn’t a VC backed endeavour, investors and future founders took note. Over the last decade, hundreds of fintech start-ups have emerged in Africa’s key markets—namely those with large economies and populations—to launch app-based payments platforms. A number of those companies have built notable customer bases and more recently, several African payments companies have garnered global headlines.

Since going live in 2018, Pan-African digital payments venture Chipper Cash has scaled its business to 3 million users, 80,000 daily transactions and $100 million in monthly payment value.  In 2020, U.S. payment giant Stripe affirmed the potential of Africa’s digital finance market—and the value of start-ups to access it—when it acquired Nigerian fintech Paystack for a reported $200 million.

Additional global financial players, such as Visa and PayPal, have also pursued partnerships with young VC backed outfits to expand in Africa.

Start-ups are not the only players on the continent, however, when it comes to expanding online payments adoption. Established banks in Africa are also building on legacy infrastructure and client networks to offer novel digital finance services.

Fintech Collaboration

Many longstanding financial institutions in Africa are pursuing innovation—such as online wallets and digital payments services—to bank the unbanked and meet the preferences of an on-demand generation. It’s important that the continent’s established banks be a part of the innovation transformation occurring in Africa, given their longstanding client networks and more defined regulatory environment. Africa’s banks shouldn’t make this journey alone, however. partnering with fintech start-ups and technology partners can accelerate their route to success. We’re seeing a growing tally of case studies that demonstrate this.

In 2018, Ethiopia’s Dashen Bank and Addis Ababa based Fintech Moneta Technologies launched the Amole digital wallet, underpinned by CR2’s digital banking platform. Since its launch, Amole has opened up the ability for millions of Ethiopians to conveniently transact a diverse range of payments and services entirely online.