There is a lot of opportunity for financial technology firms in Africa to grow, but the path to sustainable profit remains elusive.

A McKinsey report published on the 6th of August, says African fintechs can grow their revenue eightfold if they penetrate the financial services sector in 11 key markets as deeply as fintech has penetrated Kenya. While this prospect is exciting, McKinsey analysts warn that a path to sustainable profits is still “unresolved”.

For a nascent sector, African fintechs which operate in tough and deeply fragmented markets across the continent have had outsize and far-reaching impact. A lot of that success is driven by the fact that fintechs routinely rely on significantly lower pricing or outright free services to acquire customers. McKinsey analysts note that many fintechs in Africa “are struggling to monetise their customer base as, having used low pricing or free services to attract customers, they are discovering that their revenue repeatability is limited”.

Not only is the path to repeat revenue difficult, African fintechs “may find that they can’t adapt fast enough in some markets to keep up with regulation, which, along with the degree of enforcement, can sometimes change quickly”. In addition to this, many fintechs operate in economies with weak and volatile currencies. Combined with strict foreign exchange control, it is significantly harder to maintain consistency according to McKinsey analysts.

Despite these challenges, African fintechs have recorded significant success. Revenue from financial services in Africa is expected to  grow by almost 10% every year to reach $230 billion by 2025. South Africa, the continent’s most mature financial market, will make up the bulk of this growth according to McKinsey analysts.

By embedding themselves into this sector and carving out a share of this expanding market, McKinsey analysts say African fintechs can grow their revenue by 800%.

But Africa is not homogenous, and the opportunity McKinsey analysts so eloquently describe is not equally distributed. The report identified Nigeria, Egypt, South Africa, Morocco, Ghana, Kenya, Tanzania, Uganda, Côte d’Ivoire, Cameroon and Senegal as key to driving growth in Africa’s fintech.

The report suggests that the weaker operating environments where many fintechs ply their trade is a key part of the strain fintechs face. It implies that in a better environment, fintechs will be able to corner more share of Africa’s $150 billion financial services market. As a result of these difficulties, revenue from fintechs in Africa, for example, averages between 2% and 3% of the financial services sector compared to the 5% global average and even higher share in more developed markets.

This sounds intuitive. However when you exclude South Africa, fintech’s share of revenue from financial services is on par or exceeds the global average. This poses an interesting question. It is either South Africa is not doing enough on the fintech front, or the less mature financial service sector of other African countries is precisely why fintech is growing there.

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