New start-ups in Nigeria and other African countries have increased by threefold between 2020 and 2021 to hit 5,200 companies according to a new report by McKinsey.
According to Statista, there were 3,300 start-ups in Nigeria in 2020, the highest in Africa. The report revealed that just under half of these startups are fintechs. It added that the fintechs had an estimated revenue of between $4bn and $6bn in 2020.
The firm disclosed this in its ‘Fintech in Africa: The end of the beginning’ report. It said, “Africa’s financial technology industry is coming of age.
“In the face of political and economic challenges and a global pandemic, fintech on the continent is booming. Between 2020 and 2021, the number of tech start-ups in Africa tripled to around 5,200 companies. Just under half of these are fintechs, which are making it their business to disrupt and augment traditional financial services.
“McKinsey analysis shows that African fintechs have already made significant inroads into the market, with estimated revenues of around $4bn to $6bn in 2020 and average penetration levels of between three and five per cent (excluding South Africa). These figures are in line with global market leaders.”
The report revealed that cash is still king in Africa with about 90 per cent of transactions still cash-based, leaving fintech revenue with huge potential to grow. It estimated that fintech revenues could reach eight times their current value in 2025 if they reach similar levels of penetration that was being recorded in Kenya.
“Africa’s financial services market could grow at about 10 per cent per annum, reaching about $230bn in revenues by 2025,” it stated.
Fintechs are the fastest growing start-up industry in Nigeria and Africa due to increasing smartphone ownership, declining Internet costs, and expanded network coverage, as well as a young, fast-growing, and rapidly urbanising population.
It added, “The COVID-19 pandemic has accelerated existing trends toward digitalisation and created a fertile environment for new technology players, even as it caused significant hardship and disrupted lives and livelihoods across the continent.
“Our analysis shows that fintech players are delivering significant value to their customers. Their transactional solutions can be up to 80 per cent cheaper and interest on savings up to three times higher than those provided by traditional players, while the cost of remittances may be up to six times cheaper.”
The report explained that growth opportunity in fintech will likely be concentrated in Nigeria, Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco, Senegal, South Africa, Tanzania, and Uganda, which collectively accounts for 70 per cent of Africa’s GDP and half of its population.
It adedd that Nigeria and South Africa were likely to record more innovation in advanced financial services because of their more mature financial systems and digital infrastructures.
It stated that with digital becoming the new normal, the stage was set for the next phase of fintech growth especially since the continent has only produced a handful of unicorns.
While Nigeria has the largest number of startups in Africa, they suffer from chronic poor infrastructure and education, and recurring political instability and security issues according to a report by fDi intelligence.
The startup space in Nigeria and other African nations has been witnessing a boom and drawing the attention of investors. So far, they have raised a combined $3.1bn in the first six months of 2022, according to data from the ‘Africa: The big deal.’