In a recent study conducted by the global consulting firm Boston Consulting Group (BCG) & venture capital firm QED Investors, it has been revealed that Africa’s fintech market is on the cusp of remarkable revenue growth. The study projects that the sector is set to generate a substantial $65 billion by the year 2030.
The findings of the study highlight the immense potential and increasing prominence of financial technology across the African continent.
The region will become the fastest growing in the world, similar to Latin America, which is expected to grow 12.5 times. However, North America will only experience 4.4 times increase, even though the revenues in North America and the Asia Pacific region will still be much higher than in other parts of the world.
The research also predicted that African fintech revenue will grow at an average rate of 32% every year until 2030.
Aparna Pande, a consultant at BCG and co-author of the report, says that the projections in the report are based on two private data sources, as well as input from internal and external experts, the experience of VC partner QED in the industry, and interviews with top global fintech CEOs.
She explains that although projections are not completely certain, they are good indicators of the potential success of specific segments and regions.
BCG attributes Africa’s fintech sector growth to leapfrogging in technology and the emergence of new fintech champions.
The continent’s youthful population, increasingly digitally literate, combined with low credit card penetration, presents a tremendous opportunity for digital banking.
Pande, a prominent figure in the study said that in Nigeria, 73% of adults’ own mobile phones, while the penetration of credit cards is only 2%. This significant discrepancy provides a significant opportunity for fintech companies to overcome the limitations of traditional banking systems.
According to BCG, Payments and remittances are currently the most funded segments in African fintech and are expected to continue to be areas with the greatest immediate potential for innovation. However, banking services offer long-term opportunities for disruption.
However, there are significant challenges that must be tackled before 2030, as recognized in the study. In addition to the traditionally restrictive regulatory environment that has impeded African fintech growth, there are two key obstacles that need to be addressed: the limited availability of substantial funding and the growing brain drain phenomenon.
According to Pande, Africa faces challenges that go beyond regulatory hurdles. One major hindrance is the relatively low level of large-scale institutional funding, which has resulted in slower development of the fintech ecosystem in the region. Another concern is the departure of highly skilled professionals to other global regions, leading to a brain drain that deprives Africa of valuable talent.
Nonetheless, Pande remains optimistic, pointing out that the rising interest from institutional investors holds promise for the future.
It is anticipated that this increased interest will result in greater funding opportunities and pave the way for successful business exits. This, in turn, will encourage local talent to stay within the region and foster innovation in the African fintech landscape.
Over the last twenty years, the fintech sector has experienced significant transformation due to the emergence and widespread acceptance of innovative technologies and their associated applications.
This revolution has been driven by the fintech industry’s capacity to recognize and alleviate the challenges that customers frequently encounter when dealing with conventional financial institutions (FIs).
According to the study “A Period of Great Exuberance,” spanning from 2020 to 2022, the fintech industry experienced a remarkable surge, with peak valuations of fintech companies reaching 20 times their revenue multiples.
A crucial factor contributing to their success has been the ability of fintech companies to identify and address the pain points experienced by customers. By focusing on delivering exceptional digital experiences and prioritizing service quality, many fintechs have effectively catered to the needs of previously unbanked or underserved customer segments.
Moreover, they have revolutionized the industry by introducing more cost-effective operational methods through streamlined processes and an efficient infrastructure.
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