What is FinTech?
Financial technology, also commonly known as FinTech, refers to technologies used to automatise the processing, management and delivery of financial services. From mobile banking to cryptocurrency, the entire landscape of the finance industry is rapidly developing around the globe and Africa is no exception.
According to the IMF Sub-Saharan Africa, for example, is the only region in the world where nearly 10 percent of GDP relates to transactions occurring via mobile money. An increasing number of African people now rely heavily on mobile payments not just to send and receive money but also to access credit. Take digital lenders like Tala and Branch for example, both of whom have been disrupting the lending market in Kenya. In some African countries digital banking now surpasses the use of traditional banks.
The rapid growth in African FinTech investment has so far been led by established Chinese and American private equity firms and financial services companies such as Stripe, Alibaba and Sequoia Capital China. Not wishing to be left behind however, European investors are also moving to explore the opportunities that African FinTech presents.
In Uganda, Allianz SE, the European multinational financial services company headquartered in Germany, through its digital investment unit Allianz X, recently invested in SafeBoda a ride-hailing platform that also offers various on demand consumer and payment services. In its announcement following the 2019 investment Allianz stated that it intends to leverage Safeboda’s “regional presence and capabilities, working with SafeBoda to transform transportation, logistics, and payment sectors in Africa”.
In Nigeria, home to a population of 200 million people with more than 40% of its population unbanked, global payments technology company Visa acquired a stake in leading Nigerian digital payment company Interswitch, following which Interswitch was valued at USD 1 billion. The Nigerian economy remains largely cash-based but has seen significant transformation over the past decade as a result of companies like Interswitch who have digitalised basic financial services. According to McKinsey, FinTech investments in Nigeria alone grew by 197% between 2017 and 2020 with foreign direct investments accounting for the majority of these. In recent years the Central Bank of Nigeria has introduced policies to curb the use of cash in order to, amongst other things, reduce the cost of banking services (including the cost of credit) and drive financial inclusion by providing more efficient transaction options and greater geographical reach, further underpinning the growth potential for FinTech.
In Kenya, M-Pesa, the gold standard of FinTech in Africa, launched by Vodafone and Safaricom, is a mobile payment service that offers users a convenient and cheaper way to deposit money into an account stored on their mobile phone and to send money using pin secured text messages. M-Pesa currently enjoys a market share of around 75% of the mobile money market in Kenya and has successfully expanded it services to 10 other countries. The success of Fintech products like M-Pesa has led to Kenya having one of the highest mobile money penetration rates in the world.
The aforementioned examples are just a few in a pool of over 400 FinTech companies already active across the continent and the investments made to date, we believe, demonstrate the huge potential for further growth of FinTech in Africa.
For investors looking to get involved in the African FinTech space, Jersey’s tax neutrality and cooperative relationship with the UK and a number of countries on the African continent make it a very suitable jurisdiction to use as a conduit for investment in Africa, through the use of Jersey company or fund structures. Not only is Jersey an internationally renowned financial centre, with a dynamic FinTech industry of its own, but it is also a second home to number of African companies, including a number of Johannesburg Stock Exchange listed entities and African banks, which often have a particular lending appetite for Africa related propositions.
If you wish to know more about how our structures could assist you in your African transaction or investment, feel free to contact Mark Brady. We continue to observe the very positive development of FinTech across Africa as it continues to present fantastic opportunities for investment across the region and we look forward to hearing from you.