The fintech landscape in Africa is experiencing a surge in growth opportunities, with South Africa emerging as a key player in this dynamic sector.
Despite global challenges, venture capital investment in South Africa remained resilient, marking a 6% increase to reach a notable $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 to Antonia Bothner, Endeavor SA’s capital markets lead, the market’s transition from cash presents vast 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 in, with its first and third-world attributes. It has a developed tech ecosystem, established B2B network, and relatively low costs, yet with a mass market, meaning many opportunities for innovation.
In many cases, these solutions are transportable, such as TymeBank expanding to the Philippines and Vietnam, and Entersekt taking locally-developed transaction authentication solutions to the developed markets, as an example.
“The development of fintech solutions tends to revolve around payments which is often the first building block of any tech ecosystem, because it is such a ubiquitous problem to solve,” explains Bothner.
“This creates a burgeoning 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 bucked the trend and several notable regional fundraises continue to underscore the 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 Havaic.
Recent investments in payment companies like Stitch and Peach Payments, also highlight the increasing investor interest in fintech ventures.
Furthermore, South Africa’s stability amidst currency fluctuations in other African countries, notably Nigeria and Egypt, positions it as an attractive destination for investors seeking a balance in both risk and return.
“There is increased inbound interest and recognition by investors, many of whom felt they were under-allocated in South Africa,” says Bothner.
“It represents a market with comparatively lower volatility, bolstered by a robust asset management sector, a keen understanding of value, and enticing investment opportunities in profitable companies run by strong management and affordable talent.”
These entrepreneurs are attracting investments from companies like Quona Capital, a global fintech investor whose investments include local payments company Yoco.
Quona Capital Partner, Johan Bosini says: “There has been a huge influx of foreign capital into the fintech ecosystem, which has built up over several years to create early and late investment opportunities, and evidence of exits, which provides a level of comfort for investors.”
Bosini says fintech has evolved from pure play products into financial infrastructure, lending, banking as a service, and banking orchestration. There is also a continuation of embedded finance, where companies are not necessarily starting with a financial service but solving a bigger problem.
Sizwe Nxumalo, Managing Partner at 3 Capital Ventures, says: “South Africa is fertile ground for financial innovation, boasting a legacy as the world’s most inventive insurance market with pioneers like Discovery and OUTsurance, alongside ground-breaking banks such as FNB and Capitec.
Its market maturity and sophistication create a unique ecosystem where fintechs like Weaver, TYME Bank, Yoco and Retail Capital can not only thrive, but also achieve meaningful scale focusing primarily on this market.”
Opportunities for Later Stage Investing
There are also significant opportunities for later-stage investing. Bothner continues, “at this point in their lifecycle, these companies are relatively agnostic of market cycles and plough ahead on their own trajectory. Once companies find a market fit, they can grow via disruption and/or creating new industries.”
“We look for endurance, tenacity and perseverance,” says Bothner. “Being a successful entrepreneur is an art rather than a science and there is a broad spectrum of entrepreneurs with many factors contributing to their success – it is about company leadership, a shared vision, alignment of incentives and a shared focus on what they are building. Strategy and execution is key, yet with an awareness and agility to move and change tack when needed.”
Endeavor expects this evolution to provide a ripe investment market going forward and one that will benefit the country and its people. Entrepreneurs have been focusing on strategy and growth in the absence of a strong investment market in 2023, underpinning investment potential which is backed by a resilient tech sector and positive longer-term funding trend in Africa.
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