Fintech, or financial technology, has been rapidly gaining popularity in Africa in recent years. This is evidenced by the significant amount of funding that fintech companies have been able to raise, far surpassing that of other sectors on the continent. But before we dive into the funding raised by fintechs, we need to understand what we mean by fintechs.

Fintech refers to the use of technology to improve or automate financial services. This includes a wide range of services such as payments, banking, lending, insurance, and wealth management. Fintech companies use technology to provide these services in a more efficient and accessible way, often at a lower cost than traditional financial institutions.

According to a McKinsey report, fintech can be broadly categorized into three main categories: payments, wealth tech, and regtech.

Payments fintechs refers to companies that provide digital payment solutions such as mobile money transfer services and digital wallets. These companies aim to improve the speed and convenience of digital payments, making them more accessible to a wider population. Examples of payment fintechs in Africa include Nigerian fintech Flutterwave, cross-border payments startup Chipper Cash and Paystack, which was acquired by Stripe in a $200m deal in 2020.

Wealthtech fintechs refers to companies that provide wealth management services such as robo-advisory and online investment platforms. These companies use technology to provide these services in a more efficient and cost-effective way. The most well-known wealthtechs in Africa are the Nigerian pair, Piggyvest and Rise.

Regtech fintechs refers to companies that use technology to help financial institutions comply with regulations. These companies provide solutions such as automated compliance and risk management systems.

Fintechs have raised the most funding in Africa, sometimes, raising more funding than all the other sectors put together. To provide context on this, we will look at data from Africa: The Big Deal. Africa: The Big Deal is a publication that tracks funding raised by African startups since 2019.  It's important to consider that funding data can vary depending on the source and the time of the research. We will use The Big Deal Data because it is widely quoted across Africa.

Per data from Africa The Big Deal, fintech companies in Africa have been raising significant amounts of funding over other sectors. Fintech companies in Africa raised a total of $1.2 billion in funding in 2019, which accounted for 34% of all funding raised by African start-ups that year. This is a significant increase from the $316 million raised in 2018

In 2021, fintech companies raised a total of $2.3 billion in funding, which accounted for 41% of all funding raised by African start-ups that year. In comparison, other sectors such as e-commerce and healthcare raised $1.4 billion and $835 million respectively in 2021. While these sectors also raised significant amounts of funding, it is clear that fintech companies have been able to raise more funding than other sectors in Africa.

In 2022, fintech companies in Africa raised $3.2 billion in funding, which accounted for 45% of all funding raised by African start-ups that year. This indicates a steady increase in the funding raised by fintech companies in Africa over other sectors. Fintechs have raised most of the standout funding deals raised by African startups.

The single biggest funding round raised by an African startup was a fintech. In 2021, Nigerian fintech, OPay, raised a whopping $400m in its Series C. Other big funding rounds raised by fintechs include Flutterwave’s $250m Series D, Chipper Cash’s $150m Series C and Wave Mobile Money’s $200m Series A in 2021. Of Africa’s 7 unicorns, five are fintechs. So why is the appetite for fintechs strong in Africa from an investor perspective?

There are several reasons why fintech companies are able to raise more funding in Africa than other sectors. First, building fintechs is building the frontier technology of the African startup ecosystem. If people are unable to move money online, then it is going to be difficult for startups in sectors like e-commerce and travel tech to make sense. If people can not pay for it, then it isn't feasible. A perfect example here is Jumia. Jumia launched in 2012 following the Amazon model executed successfully in the West. But Jumia had to build its own online payments systems because banking penetration rates in Africa are low compared to the West. So for other sectors to thrive, fintechs must thrive first.

Another reason is the large unbanked population in Africa. According to the World Bank, only 67% of adults in Sub-Saharan Africa have access to formal financial services, compared to 76% globally. This means that there is a large unbanked population in Africa that is in need of financial services. Fintech companies are able to provide these services to a wider population, which has led to an increase in investment in the sector.

Another reason for the increase in funding for fintech companies in Africa is the growing use of mobile technology in the continent. Mobile penetration in Africa has been growing fast and is expected to reach 50% in 2025 from 32% in 2012. This has led to the development of mobile-based financial services, such as mobile banking and mobile money transfer services, which have become popular in Africa. Fintech companies that provide these services have been able to raise more funding as they are able to reach a larger population.

Additionally, fintech companies in Africa are able to raise more funding due to the increasing use of technology in the financial sector. Technology, such as blockchain and artificial intelligence, has been used to improve financial services in Africa, making them more efficient and accessible to a wider population. Fintech companies that provide these services have been able to raise more funding as they are able to provide innovative solutions to the financial sector.

In conclusion, fintech companies in Africa have been able to raise more funding than other sectors due to the high demand for financial services in the continent, the growing use of mobile technology, the increasing use of digital payments, and the use of technology in the financial sector. Additionally, the rise of fintech in Africa has led to an increase in venture capital funding in the continent. As the demand for financial services in Africa continues to grow, it is expected that fintech companies will continue to raise more funding in the future. This is a big deal as it's a sign of the growing interest in fintech in Africa and highlights the potential for the sector to drive economic growth in the continent.