The past decade has seen rapid growth in the fintech ecosystem in Africa. In 2019, more than 700 fintech companies were operating in the region, and over $1 billion in venture capital funding had been invested in the start-up ecosystem. Many larger players, especially the mobile network operators, have invested significant capital in growing their digital financial services businesses. The region is also seeing the emergence of so-called digital challenger banks (such as Tyme Bank). 

Key factors that make this sector a sweet spot for fintech companies include a huge mobile customer base and a large number of small informal businesses increasingly transitioning to digital ecosystems to meet customer demands for financial services. Digital solutions, supported by improved GSM and Wi-Fi network coverage, and more affordable smartphones are enabling the stakeholders to leapfrog traditional infrastructure to lighter-touch, lower-cost, and more efficient regimes. These market forces clearly point toward the rapid growth of the sector.

One might therefore assume there would be many fintech companies operating at scale.

The journey to these sunlit digital uplands is not straightforward. The practicalities of implementation are complex. Fragmentation pervades Africa’s many different legislative jurisdictions and cultures. The only consistency is difference: Africa is not one playing field. 

There may seem to be large addressable markets, but there are also relatively low and highly skewed disposable incomes. Scaling a business that serves lower-income tiers is notoriously hard. At the other end of the spectrum, it is hard to discern where multiple companies with similar offerings are chasing relatively small customer segments which have high disposable incomes.

There is much academic and empirical evidence on innovation, product take-off, and technology diffusion, but very little on where the context is set by (a) digital initiatives and (b) emerging economies. This absence of knowledge, especially with respect to data-based insights, led to this project being scoped with our co-sponsors, UK Foreign Commonwealth & Development Office (FCDO).

There is little debate that digital financial services have high potential to reach millions of people currently excluded from, or almost invisible to service providers. In this context, 'reaching scale' is often used as the go-to goal by investors, policymakers and service providers.  But what does scale mean in a fintech context? How many fintech companies have scaled in Africa? What can investors, business leaders, and policymakers do to increase the likelihood of scale? These are the hard, but important questions that need to be answered. As the first in a series of insight papers on the topic, the research team will tackle these issues by defining scale and examining how many firms have scaled in Africa.

In order to approach the challenging task of defining and measuring scale with the requisite robustness, the research study used a multi-step, mixed-methods approach combining a quantitatively based scale index with expert interviews.

The first phase of our research focuses on quantifying the prevalence of scale.

Companies that exceeded the scale threshold based on our methodology received one 'scale point'. A company needs a minimum of two scale points to be considered a scaled fintech. Employee data is the most complete with 607 out of 716 companies with available data.

Out of the 716 fintech companies that operate in Africa, only 37, or 5%, have reached scaled based on our definition. More than half of the scaled companies come from the African tech powers Nigeria, South Africa, and Kenya.

Top 8 African countries by number of fintech companies¹

Scaled companies across the top 8 countries

Scale prevalence across the top 3 African countries (Nigeria, South Africa, and Kenya) is consistent between 5-6%. Some countries with fewer fintechs have a higher prevalence of scale. 

Scale prevalence across the top 15 African countries

Turning to our breakdown by sub-segment, we can see higher scale prevalence in Infrastructure and Payments, at 10% and 8% respectively. 

Scale prevalence across 4 sub-segments

The last five years have seen a boom in the growth of the number of companies, with more than 50% of operating companies being younger than 5 years old. However, the majority of scaled companies are much older, with 32 out of 37 scaled companies being more than 5 years old. 

Distribution of fintech companies by age¹

Scale prevalence across age groups

1 Graph shows a total of 706 companies. 10 companies have unverified founding year information.

Our analysis shows the heterogeneity of the fintech industry across countries in Africa. In order to identify key characteristics and market trends, we took simple proxies for three important market variables – fintech ecosystem activity, digital financial inclusion, and size of economy. 

51% of all of Africa’s fintechs, and 54% (20 out of 37) of Africa’s scaled fintechs are headquartered in just three countries; Nigeria, South Africa, and Kenya. 

We took a deep-dive look at these…

The goal of this research is to bring clarity to this exciting, fast-moving sector, and to understand what fintech and scale mean in an African context by investigating the data. A better understanding of this can help inform decisions at both a policy and practice level.

Our research shows that it is possible to use a robust, quantitative, large sample size when undertaking research to understand the complexity behind scale. It is important to acknowledge that defining and measuring scale is not a simple task – the research team had to navigate challenges to come up with a robust, defendable definition of what we mean by scale and, indeed, how we segment the fintech industry into sub-segments, to establish a better understanding of what drives scale.

From our research we can infer five high-level findings:

The objective of this first report is to show the number of fintech companies that have scaled in Africa.  This is important because understanding what constitutes scale is a prerequisite to unpacking what drives it. We have shown how it is possible to unpack fintech into sub-segments and apply a data-based approach to indexing company size.  This allows us to deal with the complexity that characterises the category of fintech. Already, as captured here, we can see new types of fintech providers such as M-KOPA and Tugende who are financing connected assets by exploiting two factors: connectivity and prevalence of digital payments. Looking forward, we are likely to see increasing numbers of specialist digital financial service providers embedding into supply chains for example, or being created to serve specific value-chains tied to operators in sectors well beyond the traditional Financial Institutions (for example in goods distribution or FMCG).

In subsequent research, we will examine the scaled companies in more depth to identify consistency in the factors that might influence scale. 

 Our methodology for this subsequent stage is to seek answers to some 50+ questions that relate to business models, channel/ product offerings, team composition and experience, investors, partnerships, and target customers. Below, we preview some of the themes around the questions that our team has researched to understand and test the factors behind scale in companies.  

The companies in the report are sourced from Briter Bridges Intelligence 

Platform, the GSMA’s Mobile Money State of the Industry Report, and expert recommendations across the Wheeler Institute for Business and Development’s network. The following are additional rules used to construct the database: 

• Exclude companies with global operations and with only a small proportion of total operations in Africa  (e.g., a core banking system software supplier with customers around the globe, some of which are in Africa);
• Exclude companies that do not rely on digital technology as a core part of their value proposition or operational model (e.g., a mainstream bank with a mobile app);
• Include companies that have fintech subsidiaries, for example, payments companies of telecom service providers (e.g., Orange Money and M-PESA Africa);
• Exclude online ‘marketplaces’; and
• Exclude purely donor-funded initiatives, thereby focusing on commercial, revenue-generating entities.

Fintech is a very broad church and there are multiple definitions in use today.  In the context of this report, a fintech company is defined as a business that provides technology for financial services or a financial services company that uses digital technology as its primary means of delivering its products and services. In order to be included, digital technology must be central to the company’s operations and value proposition; without it, the company would not be able to deliver the service or product.  According to the Briter Bridges platform, there are 89 sub-segments within fintech. Based on our knowledge and research, we grouped these into four categories: payments, lending, infrastructure, and services. 

Fintech is not one thing. While infrastructure and services are both bundled into fintech, the companies in these segments operate in significantly different ways. Here we describe four sub-categories that we believe are representative and allow us to undertake a more rigorous, judicious analysis. Even this simple sub-segmentation is not easy because some companies span multiple categories. Where this has occurred, the team has made an informed categorisation based on our knowledge of the respective company and sector. 

Infrastructure
Infrastructure companies provide platforms, systems, and/or technical framework solutions to build and run financial services. Companies in this category are often not end-consumer facing; solutions include payment gateways, banking infrastructure, lending infrastructure, and aggregation services (including API management).

Payments
Payments companies allow customers and merchants to send and receive digital payments for goods and services. Companies in this sector include mobile money/ e-wallets, merchant services, and remittance service providers.

Lending
Lending companies provide credit to customers (either consumers or businesses). Companies in this category include credit provision, micro-credit, working-capital loans, peer-to-peer lending facilitation, and most recently, the emergence of ‘buy-now-pay-later’ solutions.

Services
Services companies provide value-added services such as savings, insurance, financial management, vouchers, digital banking, or specialist services such as anti-fraud solutions.