Why African fintech is different to developed markets

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The African fintech space is different to more developed markets in that startups in the sector are building a whole new infrastructure as opposed to tweaking an existing system.

That’s according to Carl Wazen, co-founder of South African payments startup Yoco, which recently announced it now has 10,000 SMEs across the country using its point of sale (PoS) platform to accept card payments.

“Much of fintech in developed markets is about providing services to banks, or delivering something that already exists with a better customer experience, whereas in Africa it’s almost exclusively about delivering access to financial services directly to the end user for the first time,” he told Disrupt Africa.

“Traditional structures have left the African population severely untapped when it comes to financial services.”

This is a view shared by Gerhard Oosthuizen, chief information officer (CIO) of another South African fintech company Entersekt. The company recently secured a multi-million dollar funding round, and Oosthuizen said the fact it was developed in South Africa had helped it when it came to innovation.

“In South Africa, we have an advanced financial backbone, with a large number of unbanked customers, and also smaller merchants. As such, there are a lot of innovative services coming out with financial services offerings,” he said.

“In the rest of Africa, the type of innovation that is happening is around banking or servicing the underbanked. Enabling people to become part of an active ecosystem using mobile phones comes naturally to us.”

There are challenges, however. Oosthuizen said access to resources to scale is a problem, as is the fact that there is not enough technical and development capacity for the amount of innovation and ideas around.

Funding for high-risk initiatives is another challenge.

“In many other regions, there is a mature venture capital culture in which investors are willing to take significant risks and accept a low probability of success,” he said.

“In our market, the funders want a mature company with paying customers and a solid business plan – basically a high guarantee of success. Many large companies today grew by creating markets and offerings and taking risks, before they were profitable. This hampers speed and limits the chances of a break-out success. International VCs are also far away, and unwilling to invest in Africa without first seeing success in their local market.”

“Very few startups have made real money so far. It’s a long term game and the ecosystem is still very young,” said Wazen.

Oosthuizen said there was a need for a better support network for African fintech startups, though there are a number of incubators and partners around.

“Perhaps the best approach is to engage with other young enterprises that have walked this path, since they can give guidance, and can help a startup build their business cases,” he said.

Support is increasingly being offered by traditional banks, more and more of which are open to working with and collaborating to fintech startups.

“They realise that fintechs can bring tremendous potential and opportunity. These banks often host initiatives like hackathons and sponsorships, or even getting a proof-of-concept implementation going,” Oosthuizen said.

The final contracting stage, however, is still where the difficulties arise, with these commitments daunting to negotiate if you are the small party.

“This is where we need to create a network of support between startups and other fintechs, leveraging partnerships and already-negotiated agreements and relationships,” Oosthuizen said.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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