The number is $31.4 million. Any guesses?
If you answered the amount of money raised by African fintech start-ups over the course of 2016, pour yourself a Bell's. This number represents by far the biggest piece of the start-up pie in Africa.
We know by now that fintech is big business. PwC believes that within the next three to five years, investment in fintech could exceed $150 billion. The question is how much of that will come from Africa. Could we see the next big fintech unicorn be born in an incubator in Nairobi or Cape Town?
Frost & Sullivan predicts Africa is poised for exponential growth, going as far as suggesting Africa could become the new China, if it plays its cards right. It's a bold statement, but one that points to a major paradigm shift: it is the developing world, not the US or Europe, where fintech is currently packing the most punch.Alibaba's Ant Financial service, which offers personal and peer-to-peer lending, is the biggest fintech in the world at $60 billion, with three other Chinese companies rounding up the top five. India has around 400 fintech start-ups, one of the highest numbers in the world.
Africa, India and China share several environmental conditions that make them prime candidates for fintech dominance. They have a relatively unbanked and cash-driven population compared to developed markets, combined with rising mobile rates and digitisation. They also have populations in excess of one billion people, a very lucrative market that is mostly untapped.
Driving the fintech innovation in these economies is a real need for innovative solutions. Whether it's a farmer in rural Kenya or a vendor in population-dense Lagos that's low on public transport, the challenges in emerging markets are starkly different to those faced by people in New York or London. And because these fintechs are more willing to incorporate the latest technologies to succeed, they are often the ones best positioned to meet these diverse challenges.
What this means is that Africa's fintechs tend to be cross-functional in purpose, serving more than just a financial need. One great example of this is M-Kopa, an initiative that aims to provide affordable solar power to one million homes in East Africa, using the M-Pesa platform to deliver at scale.
When the next great fintech giant does rise out of Africa, it will likely be one that addresses a pressing social or infrastructure need, in a way we've never seen before.
Every financial services company worth its mobile wallet has some sort of fintech programme in place. MMI has created Exponential Ventures, an innovation unit that invests in financial wellness start-ups. It's also partnered with startupbootcamp to establish a world-first insurance incubator programme. FNB has long been funding fintech start-ups, as well as supporting programmes like Codefest, WeThinkCode, Alpha Code and Foundery. And Standard Bank famously teamed up with (and now has a majority stake in) Firepay, the company behind SnapScan.
Let's not forget how companies are bringing in insurtech, fintech's equally disruptive little brother.
And let's not forget how companies are bringing in insurtech, fintech's equally disruptive little brother. Google Compare was Google's attempt to revolutionise the way people shop for auto insurance, by allowing people to comparison shop for cars and insurance at the same time. And while the platform may have ultimately failed, it's an indication the insurance market is ripe for disruption. Insurtech is big business, and only expected to grow in the future, according to KPMG.
With the ability to automate services like payments, personal finance and lending, which means companies can offer exceptional services at low cost, working with the right fintech is becoming a no brainer for many companies. Platforms like Matchi – that matches businesses with start-ups – mean you don't necessarily need to have an in-house accelerator programme in place to get started.
Fintechs make great business sense, because they provide ring-fenced capability to plug into certain markets or address the gaps in existing services. The most important question to ask before investing in or considering partnering with any fintech is what capabilities you're lacking in your own organisation, and how a provider might be able to fill those.
For example, are there any services you currently provide as part of the holistic client value proposition that are not necessarily great?
Once you've identified the areas that could benefit from outside capabilities, move onto the more detailed stuff. Are you doing research and learning about what's out there? Do you have the enterprise architecture in place to be able to leverage a third party service? Do you have someone in your team driving innovation and identifying opportunities where you could plug in an existing financial service? Do you have an incubator or are you aligned to one that can feed you ideas (as opposed to trying to do this by yourself)?
If not, you'd best get on board. Because fintechs are here to stay, and the only way to ensure they're not threats, is to turn them into opportunities. So what are you doing to extend your digital ecosystem and your very relevance?
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