FinTech in Africa spotlight: Nigeria and South Africa

Kuda Bank, Paystack, Paga, TymeBank, Discovery Bank, Bettr, Spot Money

Nigeria: Mobile-first and the untapped payments market

In the last few years, Nigeria turned into one of the African countries with the most prominent fintech space with innovative solutions that helped shape the financial ecosystem.

FinTechs in Nigeria want to grab a slice of its un-banked population  - believed to be around  60 million people  - more than a quarter of the country’s 200 inhabitants. In developing countries, people tend to have more phones than bank accounts, these fintech startups want to reach these demographics through solely mobile apps. 

There are already +250 FinTechs operators/companies, bringing the valuation of the industry to USD $153.1 million in 2017 and are projected to rise up to USD $543.3 million by 2022. According to the Central Bank of Nigeria, only in 2019, the fintech industry received over USD $ 400 million as investment. 

Kuda

Just last November, Kuda announced the USD $ 10 million funding round and became the most popular mobile-first challenger bank for consumers and (soon) small businesses. This was the biggest seed round ever to be raised in Africa.

The funding comes on the back of strong demand for its services and ambitions to become the go-to bank not just for those living on the continent, but for the African diaspora, according to CEO Babs Ogundeyi. 

Kuda already has 600,000 customers since its launch in September 2019. Some experts say Kuda is on its way to becoming a unicorn, first starting in its home country then expanding to other Africans living abroad. “We want to bank every African on the planet, wherever you are in the world,” said Ogundey in a recent interview.

Paystack

Paystack, a payments startup,  made headlines all over the world after US payments provider giant Stripe acquired it for USD 200 million last year, making it the largest exit-by-acquisition to-date for any Nigerian startup.

Why is Paystack so successful? Startups focused on payment solutions are the most hyped up and their services are adopted fast and widely. 

Indeed, Paystack is already dubbed the “Stripe of Africa”. Even though the Visa-Plaid acquisition didn’t go through, African investors are already seeking the next “Paystack” to invest.

Paga

Paga has become known as the PayPal or Square of emerging markets. In the beginning of 2020, Visa partnered with Paga, confirming a trend of American companies teaming up with promising African FinTechs

The mobile payment service doesn’t require a smartphone, just a mobile phone number. This comes in handy as most people still use feature phones (although this is also changing fast)

With 11,600 agents, Paga has the single largest and most active network of financial access points in Nigeria, this compares to the 5,358 branches of all banks in Nigeria combined.

South Africa: challengers and neobanks offer low fees and better customer experience.

The South African financial services sector is changing quickly in the face of increased technological adoption and consumer demand for better, more affordable products and services. Most of this disruption has been in the retail banking sector through challengers and neobanks.

Incumbent banks have been notorious for their high fees and poor customer service, leaving a huge window of opportunity for challengers and neobanks to take advantage of.

TymeBank

In 2020, TymeBank was rated as one of the top three digital banks in South Africa by SITEisfaction, which measures consumer satisfaction within digital services. Also, Forbes claimed TymeBank as the second best bank in the country due to its high levels of customer satisfaction and key qualities like trust, banking fees, digital services and financial advice. 

The success of Tymebank can be explained by its lower services fees. Traditionally there is a fee for withdrawals in any bank, but banks with native or own-brand ATMs (or retailer partnerships, as with TymeBank) reward customers for sticking to their systems with lower fees. 

That was definitely a clever move for Tyme Bank and it’s paying off. By December 2020, the bank is believed to have 2 million customers already.

Discovery Bank

Discovery Bank is “World’s first behavioral bank” as claimed on its website. From the beginning, Discovery Bank designed its services differently – they wanted to share their value with clients and create, through better financial management tools, reward its clients through unprecedented interest rates and rewards. 

For instance, Discovery created the Vitality Money program which measures how well its clients manage their finances.  They draw on behavioral economics to support, guide, and incentivize individuals to manage their money well by changing five key behaviors: spending less than they earn; saving regularly; having insurance against unexpected events; paying off property sooner, and investing for the long term.

The bank continues to attract new clients with its fully digital 24/7 onboarding process – with over 177,000 clients and 330,000 accounts.

Bettr

Newcomer Bettr is gearing up for its launch in Q1 2021 and is already attracting a lot of attention.

Aimed at Millennials and Gen Z, the challenger has already got +6,500 users via its WhatsApp-based sign up list.  targeting the young consumer aged between 16-35.

The two biggest challenges for young consumers are high banking fees and low or no credit history and Bettr promises to tackle exactly that. 

“Bank fees are a huge barrier [to financial products], especially for young people,” CEO Tobie van Zyl pointed out. 

In a recent interview, he also mentions the problems young people face with little or no credit history.

“These young people are being excluded from wealth-generating services, and it’s not fair.”

Bettr will use artificial intelligence (AI) and big data, which will help inform its creditworthiness tool and this feature will be available via a third-party API. 

The bank will offer not only accounts tailored for individuals, but also for small and medium enterprises as it is hoping to attract entrepreneurially-minded people and then grow with them as their needs adapt.

Spot Money

Another newcomer is Spot Money. Newly launched in South Africa, Spot Money offers a mobile open banking that integrates with various banks and payments services. 

Spot Money has been called “the super app” because it supports virtual cards while offering a marketplace for various financial services like insurance, loans and more.

Also, another feature that made Spot Money into almost an instant success is they don’t have any monthly fees or card fees. 

In a recent interview, CEO Andre Hugo explained how Spot Money works: 

“Once users sign up for an account, two accounts are automatically created – a primary account and a reward wallet,” … “Each time you pay at one of our reward partners, you automatically earn cash back into your reward wallet.”

These two countries have the perfect combination of a youthful population, an increasing smartphone penetration, and startups promoting financial inclusion, combined with cashless payments, all these factors make me believe that Nigeria and South Africa are going to be at the forefront of digital banking adoption sooner than we think.