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What European finance disruptors can learn from the African market
As a market that has historically been overlooked by global VC funding, there are a lot of lessons Africa could teach European companies as they adjust to a lack of cash, writes TeamApt's CEO Tosin Eniolorunda.
It is no surprise that investors the world over are flocking to Africa to invest in some of the globe’s best and brightest fintech firms. As many fintechs continue to find themselves faced with a storm they must weather, there is a lot that they can learn from the thriving and innovative fintech landscape in Africa.
While the African fintech space has seen a reduction in VC funding in line with global trends, the potential for growth remains abundant, and this only bodes well for players in the market. In Africa, the phrase “cash is king” still reigns supreme. Cash is used in about 90 per cent of transactions on the continent, alluding to a very large margin for evolution and digitisation.
This room for a shift to a more digitised African economy continues to impact the continent in many ways, one of these being the efficiency and productivity of small businesses which have always been the lifeblood of the economy. The reliance on digitised mobile payments has enabled swifter transactions between small businesses and their customers, creating a pro-digital business environment in local African settings.
But what can Europe learn from Africa’s fintech success, particularly in the wake of a difficult 12 months for the sector here?
Adopt a relentlessly problem-solving mindset
The fact that Africa’s startups and scale-ups have until very recently gone largely underappreciated on the global VC market means – in the absence of funding – they have had to go to market with offerings that truly speak to consumer needs in order to become profitable.
Having a proper understanding of the African market and creating solutions that speak specifically to it has been absolutely necessary for success. Models that work elsewhere do not often apply to the letter. On a continent where nearly two-thirds (65 per cent) of the adult population are unbanked or underbanked, fintech startups have enabled Africa to digitise rapidly, in turn promoting financial inclusion to bring millions of un- and under-banked individuals into the financial mainstream.
For example, the high level of cash use in Africa has driven a strong reliance on cash-in and cash-out merchants as a means of enabling digitisation. This realisation drove the early stages of companies like M-Pesa and TeamApt in the first phase of Africa's fintech journey.
Likewise, with mobile phone penetration being extremely high in Africa when compared with similar markets, digital solutions are the obvious conduit for growth. But where traditional service providers have failed to do so, tech-led banking businesses have spotted the market opportunity a young and increasingly mobile and online-friendly population, with access to ever-improving telco infrastructure and technology, brings.
And those are just two of the many ways in which African fintechs have had to create solutions that speak directly to consumer needs. As a result, Africa holds huge promise for companies, investors and entrepreneurs as it produces new tools to alleviate barriers and truly fulfil the needs of the consumers that have typically gone ignored by the existing financial ecosystem.
It is not uncommon to see startups in Europe building a product that struggles to add value to those beyond the early adopter customer segment. Adopting a strong focus on problem-solving ensures you keep the customer and their needs at the heart of everything you do. This mindset will allow European startups to thrive in the current VC slowdown.
Embedding progressive regulatory frameworks
Africa is home to some of the most proactive regulators, who continue to foster innovation to ensure not just financial but also digital inclusion. And unlike Europe and the US, Africa is not subject to pan-regional regulations.
Regulators across nations have adopted a collaborative approach that encourages the introduction of new solutions by fintech companies. In Nigeria, the Nigeria Inter-Bank Settlement System (NIBSS) represents this collaborative effort. The NIBSS is responsible for the infrastructure that enhances funds transfer between financial institutions in the country. This facilitates smoother and faster accessibility for digital payments and banking in the country.
The last couple of years has also seen a number of regulatory innovation initiatives and sandboxes emerge in Africa. It is this “test and learn” approach that the European ecosystem could learn from to accelerate the ability of regulators to better respond and drive forward financial innovation.
Unlikely partnerships hold the key to further innovation
Collaborating with incumbents rather than taking them head-on has been key in driving innovation in Africa and is a mindset that would give European startups a greater chance of scaling their organisations more effectively.
Strategic partnerships are also very important to the future of mobile money services on the continent. This is particularly true when it comes to disruptors collaborating with incumbents, who have more of a stronghold in Africa when compared with European counterparts. In the same way that regulators across various nations can collaborate, banks, fintechs and even telcos have been able to find effective ways to partner and develop innovative products for African users.
Businesses in Europe should therefore not be afraid to partner with others. Doing so allows them to play to their strengths and rely on others to bring theirs to the table in order to remain agile and hyper-sensitive to users’ needs.
The previous lack of limelight on Africa’s fintech space has led to the creation of startups and companies designed to survive in a funding-devoid and risky scene. This also makes it a prime location to look at when it comes to learning about how to survive a difficult macroeconomic environment.
Bootstrapping, disciplined growth and a focus on the fundamentals – all qualities entrenched in the African fintech space, will be key to preventing European startups from being exposed in the current climate and fundamentally make them more attractive to risk-averse VCs.
The views and opinions expressed are not necessarily those of AltFi.
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