At the end of 2022, the Africa tech ecosystem passed the US$3 billion mark in investments, increasing by 55.1% from 2021. South Africa specifically is experiencing a fintech revolution, with new innovative solutions transforming the financial landscape weekly. Investors are increasingly drawn to local fintechs due to two key factors: scale and company growth. South Africa’s large population, exceeding 59 million people coupled with 23.5% of this population being unbanked present a significant market for financial services and fintech solutions. Additionally, Africa’s slower adoption of fintech technologies compared to first-world countries creates opportunities for company growth and the emergence of unicorns in sectors such as payments, document reading, and remittance. Investors recognise the untapped potential of Africa’s fintech landscape and the transformative power of technology to bridge the financial inclusion gap, making it an attractive investment opportunity. Here are 5 sectors attracting investor attention:
Alternative funding solutions
With 130 and counting alternative lenders in South Africa, these funding solutions and marketplace platforms have emerged as transformative forces within the fintech industry. The innovative models connect borrowers and lenders, providing an alternative to traditional financial institutions and revolutionising the way businesses access funding. FundingHub, has emerged as a leader in the business finance marketplace landscape, allowing SMEs to compare offers from multiple lenders. The platform’s technology allows for live end-to-end offers. FundingHub was acquired by Finch Technologies in 2020, and since then has continued to improve their seamless comparison platform. Another alternative lender which has received significant funding is Merchant Capital, who aim to create disruptive financial service products for SMEs in emerging markets. They’ve received support and investment from Alphacode, the incubator from of Rand Merchant Investment Holdings. Alphacode’s involvement demonstrates their commitment to fostering entrepreneurship and driving the development of disruptive fintech solutions.
Online Payment Processing
“Africa’s domestic e-payments market has an estimated CAGR of 20%, with projections reaching around $40 billion by 2025. As the market continues to evolve, more startups like Paystack, Yoco and Revio will emerge to redefine the ways in which Africans transact.” Ryan Hodgson, Fundraising Analyst, The Delta. The growth of e-commerce and digital transactions in Africa has created a pressing need for secure, efficient, and convenient payment solutions. Fintech companies specialising in online payment processing are meeting this demand head-on. Investors are eager to support ventures that facilitate seamless, cross-border payment experiences for businesses and consumers. A pioneer in mobile card readers, Yoco enables SMEs to accept card payments effortlessly. The payments startup, successfully secured US$83 million in a series-C funding round in 2021. This significant investment was driven by the high demand from small businesses seeking digital payment solutions. Prominent investors participating in this funding round included Dragoneer Investment Group, making its first foray into African investments, as well as Breyer Capital, HOF Capital, The Raba Partnership, 4DX Ventures and TO Ventures.
Regtech and Fraud Analysis Software
Regulatory technology and fraud analysis software are gaining traction as investors seek solutions that enhance compliance, mitigate risk, and combat financial crime, especially in open banking landscapes. These technologies offer sophisticated tools for monitoring and ensuring regulatory compliance, bolstering the integrity of financial institutions. KYC solutions like Gathr reduce human error and fraud, while assisting with onboarding more customers. With an expected global market reach of $22.3 billion by 2027, coupled with a 19.8% CAGR, investors recognise the importance of robust regtech and fraud analysis systems in an increasingly digitised financial landscape.
Solar Finance
Africa’s vast solar energy potential has spurred the growth of solar finance solutions. Fintech companies in this sector are developing innovative financing models that enable individuals and businesses to access clean energy solutions. Investors are attracted to the sustainable nature of solar finance and the opportunities it presents for achieving both environmental and financial goals.
One notable example is Sun Exchange, a solar leasing platform that allows individuals and corporations to own and earn from solar assets located in emerging markets. According to the company’s founder, Abe Cambridge, “Our platform was initially developed to allow individuals around the world to buy solar cells in projects that power schools and other organisations in South Africa. Since then, corporate sustainability imperatives have been broadening this demographic, and now over a hundred businesses, corporations and investment funds from around the world have now also participated in our solar project crowdsales. These organisations are using their balance sheets and ESG funding to drive sustainable energy development.”
Sun Exchange has attracted equity investments into its core business from prominent investors, including Techstars, Alphabit Fund and ARCH Emerging Markets Partners, highlighting the support and interest from local and international venture capitalists.
Remittance
The Digital Remittances industry in South Africa is expected to experience a growth rate of 6.02% between 2023 and 2027, ultimately reaching a market volume of US$345.30 million. Fintech startups focusing on payments and remittance are revolutionising the way money moves across borders. Investors are keen to support ventures that facilitate low-cost, secure, and transparent remittance services, tapping into the significant market of Africans living abroad who regularly send money back home. South African fintech startup Mukuru has made remarkable strides in this area. Mukuru offers low-cost international money transfers, primarily targeting African migrants sending money back home. The company which is majority private equity backed has also garnered support from investors such as Emerging Capital Partners, demonstrating the backing of local funders in the payments and remittance sector.
The key sectors attracting investor attention are also the ones transforming finance, driving financial inclusion, and addressing pressing needs in the market. As investors continue to explore opportunities, the African fintech landscape will undoubtedly witness further growth, innovation, and positive impact.
