What to expect from fintech in South Africa in 2022, including good games from Vodacom and MTN

Fintech has gone mainstream and is no longer a niche industry. There are now more than 26,000 fintech companies worldwide employing half a billion people, says Dominique Collett, chief investment officer at Rand Merchant Investments and head of AlphaCode, who shares his forecast for 2022.

The pandemic has dramatically changed consumer behavior, with 30% of banking consumers now using banking apps and 64% of consumers using one or more fintech platforms.

The future of fintech looks bright given the maturity and funding of the sector.

It is quite extraordinary to see how quickly consumers have embraced fintech; 96% of global consumers are familiar with at least one fintech service or company, taking it from niche to mainstream.

Highest funding ever

Over the past year, the second and third quarters have become the best funding quarters on record with $31 billion in the third quarter alone. A few years ago, $31 billion was funded for a full year.

During the third quarter, another 43 fintech unicorns were created, which brings us to 206 worldwide. At the end of 2020, there were 104, which means we have more than doubled the number of fintech unicorns in the world. The mega-towers saw Revolut raise $800 million and Chime $760 million.

Mergers and acquisitions (M&A) are still the primary way out of fintech investments rather than initial public offerings (IPOs) or special purpose acquisition companies (SPACs). More than 95% of fintechs still exit through mergers and acquisitions and these are largely payment companies, such as PayU, Visa and Mastercard.

Fintech in Africa

African fintech was one of the big stories of 2021, with the amount of African fintech funding rising to $2 billion from half a billion in 2020.

There have now also been mega-towers locally with Entersekt, Jumo, Yoco and Ozow raising significant funds from offshore investors. On the continent, Flutterwave and MFS Africa have raised hundreds of millions of dollars from major US investors.

South Africa is big and its fintech sector is hot as these companies are all based here, especially if they have significant operations and potential outside of South Africa.

A SPAC, Newcourt Acquisition Corp, was listed on NASDAQ by South African executives Michael Jordaan and Marc Balkin. It was massively oversubscribed and closed at $250 million. SPAC focuses on emerging market fintech, with a particular focus on Africa.

Investment Race

Africa is popular and fashionable now. It seems that venture capitalists have taken hold of the unbanked population in Africa.

A lot of money has been raised with emerging market mandates and these funds are due to be deployed soon. We are seeing extraordinary valuations for fintech companies and I suspect they are largely fueled by the sky-high fintech valuations around the world.

The money needs to be deployed in Africa and the market is not that mature. In reality, there aren’t many assets, so it started a bidding war.

Environmental orientation

Covid has also accelerated the adoption of digital financial processes. We’re likely to have another year of really aggressive venture capital funding and fintech growth.

The post-Covid theme following the COP summit is “building back better” with an increased focus on environmental, social and governance (ESG) practices. This plays directly into fintech and opens up many opportunities, such as parametric insurance.

Parametric insurance, often based on smart contracts, automatically pays out when the insured event occurs, reducing claims processing time. For example, if there was a flood and your flood sensors picked it up, your parametric insurance policy would be reimbursed instantly.

The massive impact of climate change is paving the way for exciting startups to innovate.

The well-being

Wellbeing is another big theme, as Covid has brought physical wellbeing and chronic disease management into the spotlight, as well as mental wellbeing. Vitality has always been the leader in this space encouraging people to change their behavior and now there are many insurance and banking startups, such as Paceline in the US, Sweatcoin in Europe and Betterfly in Latin America.

Rise of mobile network operators

Mobile Network Operators (MNOs) will also be trending in 2022 alongside Vodacom and MTN. Vodacom has promoted Vodapay aggressively, while MTN and Vodacom plan to list their fintech units separately.

I think 2022 could be the year MNOs go mainstream from a mobile money perspective. There will always be a challenge here in South Africa because we have such a competitive banking sector. However, the fact that MTN in Nigeria has obtained a mobile money license will be a game changer, giving MNOs the opportunity to dominate the payment space across Africa.

Buy now, pay later

Buy Now, Pay Later (BNPL) will also be a big theme in 2022 as it’s a great value proposition for customers: they don’t have to enter their credit card details online if they fear fraud. and this payment solution does not charge any interest. It’s also great for merchants as it will allow them to grow their e-commerce presence, especially in a post-Covid world.

It will be interesting to see how much companies focus on entering this space. I don’t know if Payflexes and Klarnas will maintain their hold on their core markets. I think they could be picked up by companies like Flutterwave in the rest of Africa.

Niche challenger banks

Niche challenger banks will also see more interest in 2022. A few years ago, it was challenger banks, like Monzo and Revolut, that offered a better user experience. Many banks have now caught up in terms of user experience and are now focusing on niche banks, such as Daylight in the US and Pride in Brazil which focus on the LGBTQI community and Monese in the UK which focuses on migrant communities.

In Africa, some players such as Kuda focus on the unbanked. I think we are going to go from launching a digital bank to finding a niche clientele to develop.

The Internet of Things

The Internet of Things (IoT) will also become mainstream in 2022. We could reach a tipping point around telematics. Locally, each insurance company offers a telematics program and customers are more willing to engage with it.

People are becoming more comfortable with the idea of ​​using devices that collect data and automatically send messages to their financial service providers. When it becomes widespread, it will give rise to all kinds of new businesses.

Cryptocurrency

Every year I predict this will be the year of crypto, even though prices have recently fallen. Luno’s logo now dominates the Cape Town skyline along with the logos of the other four major banks. AlphaCode was an early investor in Luno and it was our first exit when Luno sold to DCG. The platform has flourished with over 9 million customers in 40 countries.

  • By Dominique Collett, Senior Investment Executive at Rand Merchant Investments and Head of AlphaCode

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