Financial technology companies in Africa are the centrepiece of the continent’s startup ecosystem. They continually receive the largest chunk of the funding inflow and have churned out more than half of the continent’s unicorns. Building on the precedents of banks, these relatively new players are filling the gaps which banks have failed to do, with solutions that target all Africans, however under-resourced they may be.
For most of these startups, the mission is clear: they must bank Africa’s 57% unbanked population. But is this thinking small? Should more African startups look toward exporting their solutions beyond the continent’s shores? That, after all, is a signal of the maturing of a consistently funded industry. And in building for the globe, the quality of solutions are expected to rise for the average African.
At the last GITEX GLOBAL, an annual tech event that pools technology innovators from around the world to network, learn, and discuss the next best thing in global tech, the quality of solutions exhibited by African startups reflected the infancy of our tech ecosystem. In the same house where engineered AI holograms proved that they could be very “human” and effective as customer care representatives, African startups exhibited lending and remittance flagship solutions to the world, causing TechCabal to ask an important question: when will Africa start building for the world?
Barely a month after GITEX, this conversation resurfaced in a panel session at Fidelity International Trade and Creative Connect (FITCC), London. Again, stakeholders in the African tech ecosystem gathered to discuss the opportunities in the African fintech space, spotlighting the possibilities of fintech startups to expand their solutions to markets beyond Africa.
The five-man panel comprised of Edidiong Uwemakpan, group head, marketing and communications, Moniepoint (formerly TeamApt); Adedoyin Odunfa, MD/CEO Digital Jewels Africa, a company that handles compliance and risk management for tech companies, with roots in 15 African countries; Ben Champion, CEO of Nanumo, a B2B startup that helps fintechs to automate manual processes and receive money; Sukhi Srivastan, head of sales and business development, AZA Finance; and Ovie Isiekpe, VP of Growth, VertoFX.
“Expanding into other markets brings wider footprint and increased volume of transactions for African startups,” Srivastan said, while maintaining that expansion should be a secondary consideration for startups—the only caveat being startups that are building cross-border infrastructure or products with an international theme. According to her, the quality of solutions in the African market are far more important than the number of people they get to, and founders need to ask themselves if their solutions require expansion or fresh replication in other markets.
Pertinent to this conversation is the question of where in the world Africa will be building fintech solutions for. Will a Lagos-based startup export its remittance solution to the United States, and compete against Google Pay, Apple Pay, Stripe, and Paypal? Or will a digital lender in Nairobi enter the race to “introduce digital services” to SMEs in Europe? These are unlikely, and may even sound sarcastic, considering Africa’s rear position in global technology and digital advancement.
The reality is: for Africa to build for the world, it must first build for itself and tackle domestic problems with world-class solutions. Our logistics system operates far below efficiency, intra-continent supply chains are fragmented, and except for the few fintechs connecting Africa through payments, cross-border payments in Africa is onerous, expensive, and complex.
In fact, when buying, say, cedis with naira, what happens at the backend is that the naira is exchanged for dollars, which is then used to buy cedis, resulting in the exit of funds from Africa, an inflation of the actual dollar value, and increased costs being passed across the entire system—definitely not the kind of solutions we should export to the world.
“African fintech startups should consider scaling solutions only after they have worked locally,” was how Champion put it. The CEO of the Lagos- and London-based Nanumo believes that solving domestic pain points is the origin story of successful global fintechs, and Africa must follow suit if its local startups are looking to etch their names on the global fintech wall of success.
Africa is one big disconnected family
Globally, nuances in different markets spell out the opportunity for success or failure for startups. Product owners agree that cultural subtleties and regulatory patterns are crucial to the wide-scale uptake of products, especially in new markets. Granted, these differences can affect operations from country to country, but in Africa, issues with interoperability take a centre stage, to the detriment of key sectors in the continent’s economy.
For example, intra-African trade and logistics are generally expensive and difficult to track, sometimes costing twice as much as international standards. Travelling to other African countries can be extremely demanding too, with most countries—especially the richer ones— demanding their difficult-to-get visas from nationals of other countries on the continent.
Africa’s richest man, Aliko Dangote, has said that he needs about 38 visas to move around Africa, the same continent most Europeans freely waltz into. This disconnect hits home when Africans try to pay for services or transfer money within the continent. The isolation of African banks and financial institutions makes cross-border payments difficult, to say the least.
Thankfully, the continent is finally pushing high-level solutions to build Africa’s interconnectedness: The African Continental Free Trade Area (AfCFTA) as a policy-driven initiative to optimise and incentivise cross-border trade and logistics, and the Pan African Payment and Settlement System (PAPSS) to ensure efficient and almost-instant payments between African financial institutions. PAPSS is a dream come true for fintechs in Africa, as they can now leverage the system of connected African central banks to drive quick and easy payments within the continent.
The challenges of global expansion
News of African startups expanding and performing well in global markets is always a delight to the African community back home. It spotlights the quality of solutions and founders active in the African tech ecosystem. Whether it is Paga expanding to Mexico, SWVL expanding to Asia, or Moove expanding to the UK, the encomiums eventually trickle down to the African tech ecosystem. However, as glamorous as this may be, global expansion does come with significant challenges.
“It is a challenge to effectively run a global back and front office,” Srivastan contributed to the panel. “There’s the licensing and the accounts aspect which can sometimes be arduous to navigate, followed by the need for efficient machine-like operations.” For the Aza Finance executive, this might be hard to comprehend until a startup toes the global expansion route.
Moniepoint’s Uwemakpan made it clear that she’s excited about the prospect of African fintechs expanding into Europe. According to her, the policies in Europe are stable and favourable for fintech companies. “Also, there’s a pool of experienced and fairly priced technology engineering talents over there, and I love that the most,” she said.
She’s right, after all. As true as it is that great talents can help push a company forward, unfavourable regulations can move a company backward much faster. The regulatory climates in a market of choice can ultimately make or mar a startup. For example, ride-hailing startups raised millions in VC funding and expanded into the Nigerian market only to be shut down completely in 2020 by a rather unexpected policy. This enunciates how crucial regulatory climates are for startups as they seek to expand into global markets. Also, acquisitions can be a direct means to navigate regulations in frontier markets.
In all, global expansion is not a new concept for African startups. There are evident success stories, and there will be many more as the ecosystem matures. But we must not forget that expansion is always a nice-to-have. The core focus of startups, African or not, fintech or not, is to leverage innovation to solve hard problems quickly. As more African startups achieve product differentiation, partner at scale, and do excellent work, they will eventually get ripe for expansion, all the while making the lives of their users better.
Ecclesiastically speaking, African founders ought to seek first the solutions to problems, then many other things—including expansions and mega valuations—shall be added unto them.