The fintech landscape in Africa is experiencing an explosion of growth opportunities, with South Africa emerging as a key player in this dynamic sector.
Despite global challenges, venture capital investment in South Africa has remained resilient, recording a an increase of 6%. to reach a a remarkable $620 million in 2023.
Fintech solutions, particularly those addressing payment challenges, continue to dominate innovation and attract significant venture capital interest across the African continent.
According Antonia Bothner, of Endeavor SA’s With capital markets leading the way, the market transition away from cash presents huge untapped potential, both in South Africa and across the African continent, where up to 75% of transactions are still cash.
South Africa is a very viable market
South Africa is a particularly attractive market to start with, with first and third world characteristics. Has a developed technological ecosystem, established B2B network, and relatively low costbut with a mass market, which means many opportunities for innovation.
In many cases these solutions are portable, such as e.g TymeBank expands to the Philippines and Vietnam, and Entersekt downloading locally developed transaction authentication solutions; in developed markets, for example.
“The development of fintech solutions tends to revolve around payments which is often the first building block of any technology ecosystem because it is such a ubiquitous problem that needs to be solvedBothner explains.
“This creates a growing pipeline of opportunities for fintech companies, particularly in payments, remittances and B2B solutions.”
Venture Capital Investment in Fintech
Despite a global decline in VC investment in 2023, South Africa has bucked the trend and several notable regional fundraises continue to underline confidence in its potential.
These include the SME Fund’s Venture Capital Fund of Funds, Partech Africa II, Norrsken22, Convergence Capital, Al Mada, Knife Capital, Sanari Capital, Quona, and Havik.
Recent investments in payment companies such as Stitch and Peach Paymentsthey also highlight the growing interest of investors in fintech businesses.
In addition, South Africa’s stability amid exchange rate fluctuations in other African countries, particularly Nigeria and Egyptpositions it as an attractive destination for investors seeking a balance of both risk and return.
“There is increased inbound interest and recognition from investors, many of whom felt they had been under-allocated to South Africasays Bothner.
“It represents a market with comparatively lower volatility, bolstered by a strong asset management sector, strong understanding of value and attractive investment opportunities in profitable companies led by strong management and accessible talent.”
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These entrepreneurs are attracting investment from companies such as Quona Capital, a global fintech investor whose investments include a local payments company Yoco.
Partner Quona CapitalJohan Bosini says:There has been a huge inflow of foreign capital into the fintech ecosystem, which has accumulated over several years to create early and late investment opportunities, and exits, which provide a level of comfort to investors..”
Bosini says fintech has evolved from pure play products to financial infrastructure, lending, banking as a service and bank orchestration. There is also a continuation of embedded finance, where companies don’t necessarily start with a financial service, but solve a bigger problem.
Sizwe NxumaloManaging Partner at 3 Capital Ventures, says:South Africa is fertile ground for financial innovation, with a legacy as the world’s most inventive insurance market with pioneers such as Discovery and OUTsurance, alongside pioneering banks such as FNB and Capitec.
Its maturity and sophistication in the market creates a unique ecosystem where fintechs like Weaver, TYME Bank, Yoco and Retail Capital can not only thrive, but achieve meaningful scale by focusing primarily on this market.”
Later Stage Investment Opportunities
There are also significant opportunities for later-stage investments. Bothner continues, “At this point in their life cycle, these companies are relatively agnostic to market cycles and go their own way. Once companies find the right market, they can grow through disruption and/or the creation of new industries.”
“We are looking for stamina, persistence and perseverance” says Bothner. “Being a successful entrepreneur is an art rather than a science, and there is a wide range of entrepreneurs with many factors that contribute to their success – it’s about company leadership, a shared vision, alignment of motivation and a shared focus on what they’re building. Strategy and execution are key, but with the awareness and flexibility to move and switch talent when needed.”
Endeavor expects this development to provide a mature investment market in the future and one that will benefit the country and its people. Entrepreneurs have focused on strategy and growth in the absence of a strong investment market in 2023, which supports the investment potential supported by a resilient technology sector and the positive long-term financing trend in Africa.
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