In Fintech for Emerging Markets

Irrational Innovations weighs up Africa’s leading FinTech landscape and its potential to create huge impact across Sub-Saharan Africa

South African FinTech hops on the global technological bandwagon to innovate life-changing technologies, revitalize its frail local economy and turn the heads of international investors. The big opportunities are still waiting, however. Right on its doorstep lies Sub-Saharan Africa whose vast population is ripe and ready for financial inclusion. This creates massive untapped potential for South Africa’s burgeoning FinTech sector and a future worth investing in.

1. South African FinTech has Sub-Saharan Africa knocking at its door.

Irrational Innovations considers Sub-Saharan Africa’s unbanked population to be one of the greatest opportunities in FinTech history. The African Development Bank estimates that 55% of the region’s economic activity is informal – with a majority of people lacking access to bank branches, infrastructure or electricity. But, most of them have cell-phones, so the opportunities for new solutions are limitless. Sub-Saharan Africa is the world’s fastest-growing mobile region and it is expected that there will be half a billion smartphones by 2020 (1). Whilst the instinct of South African FinTech startups has been to pursue western markets, we investors strongly encourage all savvy opportunists to seize the huge new window of opportunity waiting right at their doorstep. Both geographical proximity and market insight into Sub-Saharan Africa present a unique advantage over competitors in the west.

2. 89% of all adults in South Africa have some type of financial account, either formal or informal. (2)

South Africa has a highly developed financial services sector compared to the rest of Africa. Although it is experiencing a high unemployment rate of 26.6% (3), the rise of FinTech startups is contributing to the economic and social development of the country through job creation and a revolutionised working culture for employees of traditional backgrounds. (4)

3. Traditional industries that once stimulated the South African economy are in decline, but the FinTech sector is growing. (5)

This is true, according to third-quarter numbers released by Stats SA and the growth of FinTech is not only revitalizing South Africa’s pedestrian economy, but also making inroads into the unemployment rates. Irrational Innovations found that there are currently over 120 FinTech startups attempting to provide financial services to South Africans. Supporting this movement are 54 active tech hubs (6) that operate as breeding grounds for the industry. There are also initiatives like Alphacode, a club dedicated to African FinTech entrepreneurs that disrupts the financial services industry by “helping innovative startups achieve their goals”.

4. In the past two years, South Africa secured the most funding for FinTech startups out of all the countries in Africa.

2016 was a successful year for African FinTech. According to Disrupt Africa, the continent saw an 16.8 percent increase in funding over the previous year. As with Nigeria and Kenya, payments/remittances and lending/financing startups dominate the landscape. Whilst the demand for such services is fierce, Irrational Innovations is particularly interested in two underrepresented sectors that present outstanding new opportunities for startups:

Savings: Irrational Innovations found just two South African startups that focus on helping individuals save in a country where savings have stagnated year after year. In 2016, 33% of adults were saving, with 15% saving through banks, 14% saving at other formal (non-bank) institutions, 8% with informal institutions, and 11% at home.

Insurance: Irrational Innovations found that only 7% of FinTech startups are focused on insurance, whilst only 22% of adults had insurance cover in 2016 (excluding funeral related insurance). (7)

5. The weak Rand can favor FinTech companies.

A recent article in Quartz Magazine mentions that investors focused on South Africa believe “the weak rand is a real opportunity to build at low local costs”. Startups can then benefit from better margins as they address the new mass markets of Sub-Saharan Africa.

6. South African Banks capture cross-border growth.

Worldwide management consulting firm, McKinsey & Company, attributes South Africa’s path to growth – within the banking sector – to M&A deals with other countries; “Banks in South Africa are especially active in gaining footholds outside their home market.” It lights the way for FinTech.


It will be interesting to see how the South African FinTech sector develops further: will its startups wake up to their unique advantage in the region? According to Disrupt Africa (8), the drivers for increased interest in Africa are clear, “traditional banking has failed on the continent, with 330 million adults, around 80 per cent of the continent’s population, lacking access to formal financial services. That’s a huge gap that FinTech startups can fill with innovative solutions.”

The ecosystem is accelerating, market demand is huge, investor interest is growing, and Sub-Saharan Africa is benefiting. But best of all, FinTech may just be the silver lining of South Africa’s deteriorating economy.


by Yardenne Assa-Maor