Africa’s fintech sector is the “tip of the spear”, leading the African tech space out of its funding winter.
Disrupt Africa reported earlier this week Nigerian fintech startup LemFi had raised a US$53 million Series B round of funding, a major development that followed significant raises for the likes of Moniepoint and Yellow Card late last year.
Against the backdrop of the global capital shortage, which has resulted in a VC funding winter in Africa as elsewhere in the world, these are very positive developments. So is fintech leading Africa into a more liquid era? Disrupt Podcast, for its “The month in fintech” series, chatted to stakeholders to find out.
Africa has been affected by the global funding shortage, and the fintech sector has not escaped its impact. But Amee Parbhoo, managing partner of fintech-focused seed-stage impact investment initiative Accion Venture Lab, says there are certainly signs of recovery.
“Fintech funding has weathered the storm over the last few years, and it remains the leading sector for VC funding in Africa… We’re seeing early signs that it is picking back up. I’m careful not to say “bouncing back” because I don’t think a return to 2021 or 2022 is a realistic expectation. But we do believe that fintech will continue to lead the way. Fintech is a resilient sector because the need is undeniable,” she said.
Ameya Upadhyay is a venture partner at early-stage global VC firm Flourish Ventures, which also has a focus on African fintech. He agrees on the sector’s resilience.
“Fintech has been the largest investment segment on the continent, so it will continue to attract capital even in downturns,” he said.
Gillian Darko, chief of staff and director of strategy at Yellow Card, says even though there has been a decline in funding, the core attractiveness of fintech as an investment destination remains.
“I definitely would agree with you that there has been a bit of a dip with the founding ransom. So when you do your research, you can see that from what was crypto winter to where we are now, it has been difficult. But what I will say is what still remains true is basically a value proposition,” she said.
“We are still seeing a number of fintech companies in Africa expanding fast; they are still getting work; they’re still getting the funding that is needed… And it all comes down to what it is that they’re bringing to the market, what it is that makes them shine, and what is the problem that they’re wishing to solve.”
More success stories will help in driving further investment, she said.
“Every news article on a successful funding round leads to excitement. It demonstrates that we are doing something right, not just us, but our industry peers as well. And when it comes to financial technology in Africa, it gives companies and individuals an opportunity to leapfrog into the next existence,” Darko said.
So what areas of fintech is funding going to? Parbhoo says there are four main segments.
“One remains payments – there is a huge need in payments, and the payments landscape looks very different across geographies,” she said.
Two is embedded finance.
“Everyone is thinking about how you better conceptualise financial services, whether that is payments or credit,” Parbhoo said.
“The third area would be around digitising commerce, thinking about financial solutions in that transaction flow… And lastly I would say climate and fintech, and the intersection of both.”
Does fintech’s recovery in the last few weeks bode well for the African tech space in general?
“It is very reasonable to assume that we would first see signs of recovery in fintech. It is the most mature sector for investment, and being the most mature also means it has the least risk for investors because they can see how the sector has performed, and that there are a few mature companies in the sector,” Upadhyay said.
“It follows that we would see signs of recovery in the most mature segment before it percolates to other segments. So I think fintech will be at the tip of the spear, leading the recovery.”
