January 26, 2022 All Things Fintech in Africa

The future of Fintech beyond COVID-19 in Africa

The future of Fintech beyond COVID-19 in Africa

The COVID-19 pandemic has disrupted the entire banking and Fintech space, creating a market with a growing demand for customized digital, financial solutions and the conversation around the future of fintech beyond COVID-19. As the pandemic continues to puncture competitive advantages that were before now considered valuable, it calls for pragmatic, proactive, and revolutionary leadership within the Fintech space in Africa.

So as expected, a lot of Fintech startups are already being stretched beyond capacity as lots of the venture capital firms are looking the way of more established Fintech giants with proven business models as investment destinations, leaving the young companies gasping for air. As a result, industry watchers have predicted that the pandemic will see to the death of some companies, while some will ride on the effect of the pandemic and scale significantly.

In this piece, we will be looking at how the Covid-19 crisis is impacting the Fintech industry, how the Fintech companies are responding, and what the future holds for the industry beyond Covid-19.

How Covid-19 has affected the Fintech space

There has been a significant drop in venture funding for the Fintech space in Africa since Covid-19, revenues have been threatened and we have not witnessed the launch of a new Fintech startup as previously projected. Compared to their traditional banking counterparts, most of the Fintech companies in Africa is less than ten years old, still trying to break even. All thanks to venture capital funding that has helped in keeping most of these companies afloat before the outbreak of Covid-19, which came with a significant drop in VC funding. In addition to these, some of these Fintech companies are not yet generating enough cash-flow or lines of credit that can keep the business alive. 

Aside from scalability, longevity, and cash-flow, the level of the impact of Covid-19 on a Fintech company largely depends on their line of product (niche).  When we look at the changing consumer behaviour as a result of the crisis, then the choice of product development or business model becomes imminent. 

According to a 2020 research, Fintech startups providing retail lending solutions, global payments facilitation, SME financing, and other high-risk ventures are more vulnerable to the negative impact of the Covid-19 pandemic. Fintech startups providing Business to Business financial solutions has been tipped to be less affected.  

For instance, some retail or consumer lending Fintech startups have been awakened to the fact that a lot of the data points that formed the basis of their underwriting decisions no longer hold water in the wake of the global pandemic and some of the companies have swiftly made moves to review and strengthen their underwriting parameters to avoid being hit adversely. Fintech companies providing micro, digital insurance solutions, known as Insuretech, are struggling to compete effectively due to a drop in user patronage in the wake of the pandemic and a drop in venture funding.

Beyond the financial drought and operational peculiarities, the culture of social distancing and the evolving market conditions in the wake of the pandemic has thrown up more challenges for the fintech industry which demands immediate response. 

How to Manage your Finances in a Crisis (COVID19)

How African Fintechs are responding to the COVID-19 challenge

Like we stated above, the changing consumer behaviour and market trends as a result of the pandemic have thrown up challenges that some Fintech organizations have stepped up to tackle. These challenges are somewhat looking like opportunities to innovate, remodel, and scaling for the Fintech companies. For instance, the culture of social distancing all over the world looks like it has come to stay and it has laid more credence to the emergence and growth of e-commerce and digital financial services.

Fintech companies in Africa have latched onto this opportunity to launch solutions that are facilitating logistics, commerce, payments, and cashless transactions generally.

The air of uncertainty that came with the Covid-19 pandemic remains the biggest nut to crack for most of these companies. However, some African Fintechs have risen to the occasion like their traditional banking counterparts, responding proactively to the new realities created by the pandemic. 

Some of the companies are downsizing or right-sizing to accommodate their new, stringent, cost-effective policy. The strategy now is to cut down costs as much as possible and increase revenue streams to stop the business from bleeding to death. Organizations that can do these successfully will leverage on the opportunities brought about by the pandemic to stay afloat and if possible, scale significantly.  

Future Fintech Opportunities

The African Fintech companies can find solace in the opportunities that have been thrown up by the current crisis, which if well harnessed, will mean more business during and beyond the Covid-19 pandemic. 

Business opportunities include but not limited to corporate partnerships with other service providers or logistics firms, providing services for the digital economy and digital solutions that can reach the under-banked, digital financial interventions for governments, religious bodies, and Aid organizations.

The few Fintech companies that are dynamic enough to leverage these opportunities will survive and thrive in the post-COVID-19 economic era. If anything, the post-COVID-19 era will be the beginning of the implementation of the Industry 4.0 agenda in Africa and the new digital economy where Fintech will be playing a significant role.

Like we witnessed in the traditional banking system, Fintech companies in Africa should start considering the possibilities of future mergers and acquisitions to help consolidate the industry in Africa and provide the companies with a robust, competitive business model. This move could also make the sector attractive again to venture capital. 

In a nutshell, it is all not bad news for the Fintech companies in Africa. As we have seen from emerging trends and new economic realities, there is a glimpse of hope for the industry if the Fintech startups and banking giants in Africa continue to show dynamic and innovative response to the new realities. Covid-19 has not come to kill the growth of the Fintech industry, rather, it is a wakeup call for African Fintechs to innovate, evolve, and pivot when necessary. The future is bright.

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