With South Africa leading the continent in terms of fintech funding, a number of exciting innovations are on the horizon, writes Nevellan Moodley, Head of Financial Services Technology, BDO South Africa.
Across Africa, a vast amount of Fintech innovation is taking place. Within this evolving landscape, Southern Africa currently holds the reins as the technological hub on the continent with the greatest recorded amount of funding received in 2022 for its Mobile Network Operators (MNOs), Crypto and Emerging Technology.
South Africa, in particular, has emerged as the market leader in the region. Accounting for 40% of all fintech revenue in Africa, South Africa already boasts a mature fintech market with a strong focus on advancing the current landscape — from a plethora of new start-ups emerging, to the creation of jobs and tech that previously didn’t exist.
Below are a few of the trends driving this growth, as well as some predictions for what lies ahead.
The pandemic profoundly impacted consumer behaviour. One of the effects of this behavioural shift has been an increase in digitalisation and the use of Fintech platforms.
In response, global funding for Fintech has exponentially increased. This has translated to quadruple the amount of finance available to Fintech companies, that have more than doubled in number since 2020.
African Fintech funding has also increased dramatically, going from half a billion dollars in 2020 to two billion dollars in 2021. Stand out examples in South Africa include Entersekt and Yoco, with various others close behind as US investors raise hundreds of millions of dollars to contribute to the country’s growing tech scene.
African countries are home to some of the world’s most unbanked populations. In these nations, Fintech and digital banking are redefining what it means to bank the unbanked. Given this fact, there is a large potential market to tap into, with many African Fintechs and banks currently making a move into this space.
In South Africa, Fintechs are providing solutions that are creating seamless borderless transactions. In addition, many banks are partnering with new Fintechs to find ways to rethink how people send and receive money, and conduct other sorts of banking transactions.
Banking and Mobile Network Operators
Mobile Network Operators (MNOs) have identified the need for financial transactions and banking to move away from the traditional banking system and towards a more accessible method that can be performed via smart phones. This has led to major breakthroughs in the development of APIs, software and other technologies across the continent. In West Africa, for instance, MTN has gained a mobile money license which has put a lot of pressure on the banking industry to step up to provide services to their customers to not lose market share.
South Africa’s banking sphere is competitive, which means should MNOs be granted a mobile money license competition will become even tighter.
In the meantime, the Fintech company Payflex is making in-roads into the local market by allowing businesses to offer incremental payments to their customers. This allows consumers to make a purchase and make interest-free repayments over time.
Innovation for ESG
Environmental, Social and Governance has become a focused practice in the Fintech scene. Parametric insurance, commonly developed with smart contracts, has in turn become a key example of how innovation is able to rise to meet the needs of environmental aspects, such as climate change. These smart contracts will not only ensure accuracy and efficiency in a claims process, but also cut out lead times.
Discovery has become a key leader within South Africa’s sphere of wellness. Through their Vitality program, the company has coupled their product, whether it be as an insurer, medical aid or bank, with how one spends their money and how active one is in their life. For those who are active, healthy and spend wisely, the Discovery Vitality program rewards its users with miles to spend on their platform that can be used for a variety of products including a coffee, or voucher for groceries, tech or clothing.
Cryptocurrency and Emerging Technologies
The cryptocurrency scene has been incredibly turbulent in recent times. But with the rise of Fintechs and growth of companies like Luno, we will likely see a wider, more mainstream adoption of cryptocurrencies in the future.
This and other forms of digital adoption will be met by new and improved technologies and innovative solutions. This includes Internet of Things (IoT) technology, Artificial Intelligence, Big Data and various other types of emerging technology and trends — which are all likely to contribute to exciting changes in the Fintech sphere.
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