ANTONIA BOTHNER: Sky’s the limit for SA fintech players

As the world economy navigates turbulent headwinds, exciting opportunities are opening up for financial technology innovators i n Africa. SA is leading this charge, with fintech flourishing amid a surge of investor confidence in the region’s vast, untapped potential.

While global venture capital funding contracted in 2023, SA defied the trend with a remarkable 6% rise to $620m. This resilience solidifies the country’s status as an emerging fintech powerhouse and launch pad for pioneering solutions aimed at disrupting entrenched payment challenges plaguing Africa.

The development of fintech innovation in Africa tends to coalesce around payments, often the foundational building block underpinning any robust tech ecosystem. This creates a burgeoning pipeline of opportunities for fintech upstarts, particularly those tackling digital payments, remittances and business-to-business (B2B) solutions.

With up to 75% of transactions across Africa still conducted in cash, the market’s inevitable transition to digital payments presents immense growth prospects. The critical need for ease of payment has underpinned a diverse array of visionary fintech ventures that are creating innovative offerings tailored for local contexts, which are also transportable across borders.

SA’s unique combination of First World infrastructure, its culture of innovation and thirst for finding workable solutions to real, on-the-ground challenges positions it as an ideal test bed for fintech disruption. Its mature tech ecosystem, established B2B networks, relatively low costs and substantial consumer market has catalysed a thriving fintech stronghold.

Local pioneers such as TymeBank, which has expanded to Southeast Asia, and Entersekt, which has exported its locally developed authentication solutions to global markets, exemplify this successful formula.

Recent funding rounds for payment innovators such as Stitch and Peach Payments highlight escalating investor interest in the sector. Crucially, SA’s relative stability amid currency volatility in Nigeria and Egypt amplifies its appeal as a lower-risk, higher-return destination for venture capitalists.

There is growing inbound interest from investors who previously felt underallocated in SA. The country represents a market with comparatively low volatility, bolstered by its sophisticated asset management capabilities, keen understanding of value creation and compelling opportunities in profitable, well-managed companies able to access affordable talent.

This recipe has attracted an influx of capital from leading global fintech investors. As Johan Bosini of Quona Capital said:  “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 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. 

Allan Gray, with its strong connection to the entrepreneurial sector, is also an investor in fintech. It backed companies such as Peach Payments and Onafriq through its venture capital arm,  now known as 3 Capital Ventures. Sizwe Nxumalo, managing partner of 3 Capital, said: “SA 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 cannot only thrive and but also achieve meaningful scale focusing primarily on this market.”

This momentum shows no signs of waning as fintech matures from discrete products into integrated financial infrastructure — from banking-as-a-service platforms and embedded finance solutions to next-generation lending models. What this demonstrates is that there are also significant opportunities for later-stage fintechs to achieve product-market fit and for disrupting incumbents.

Once they find an anchor in the market, these companies are relatively agnostic to cyclical forces and laser-focused on executing their vision. They can scale exponentially by disrupting legacy players or creating entirely new markets.

As venture funds flow across our borders the country can serve as a launch pad for scaling fintech solutions throughout the vast and untapped African market. In doing so, it can spark a virtuous cycle of innovation, job creation and poverty alleviation, catalysed by universal digital financial inclusion.

• Bothner is capital markets lead at Endeavor SA.