Fintechs operating in Africa will know that there are no quick wins on the continent. In overcoming the common obstacles in their path, our analysis shows that the most successful African tech start-ups share six common characteristics with features that mirror those of successful global companies, and have also adapted their business models to the unique economic realities and customer needs of Africa.
First, given the variability between African markets, it is important that fintechs match their value proposition to the market they are entering. Globally, we have seen fintechs evolving to achieve scale through three major routes. Some start out as a distributor of unique nonfinancial consumer products and evolve into a fintech, while others start with a specific financial business-to-consumer (B2C) or B2B product and evolve into a digital bank. A third option is to start with a payment infrastructure solution and evolve into a national digital platform. In Africa, infrastructure constraints have meant that the continent’s oldest fintechs—for example, Fawry in Egypt, M-Pesa in Kenya, and Interswitch in Nigeria—entered markets by building infrastructure specific to a single country and, as a result, are now the market leaders.
Second, to achieve sustainable growth, companies that have a long history of operating on the continent have built their success on rapid customer acquisition. Africa’s fast-growing population of more than 1.3 billion people offers a large potential market for fintechs, but actually acquiring customers can be challenging because of factors such as infrastructure constraints and low customer purchasing power. Leading players have had to take steps to overcome such constraints by, for example, leveraging preexisting physical networks or by employing aggressive pricing strategies to offer cheaper fees and charges than competitors.
Third, once having acquired customers, leading fintechs have found a sustainable way to translate this into clear monetization strategies. Such strategies have one of two things in common: they either have a repeatable and healthy revenue source coming from core activities, such as card switching for Interswitch or serving merchants with point-of-sale for Yoco, or they have multiple monetization strategies, such as having a B2C arm for a B2B company or vice versa. For example, M-Pesa and MTN both have a strong lending component in addition to their wallets, while Paga has leveraged its strong position in wallets to expand into merchant acquiring.
Fourth, a key marker of success in Africa has been the ability to adapt to the reality of low average revenue per user (ARPU), both in the consumer and micro-, small and medium-sized enterprises (MSMEs) sectors. GDP per capita in Africa is the lowest of any continent, and fintechs have adjusted to this by, for example, using scale to reduce the cost of serving customers, as M-Pesa has done, or changing the business model to pay-as-you-go for businesses that can’t afford advance payments, as Yoco has done.
Fifth, another African reality is that, with 90 percent of all transactions on the continent still cash based, successful fintechs have had to find ways to reach clients offline. Key strategies here have included building agent networks or using preexisting infrastructure such as physical shops for delivery of financial services. For example, South Africa’s first digital bank, TymeBank, overcame infrastructure challenges through a strategic alliance with major retailers. This has enabled the bank to place account-opening kiosks in retail stores across the country, bypassing the need for a physical branch network.
Finally, with regulators increasingly active in Africa, fintechs are required to pay attention to, and comply with, regulation. Many successful fintechs including OPay, M-Pesa, and Fawry have, after reaching significant scale, chosen to proactively engage with regulatory stakeholders so that they are able to move forward together.