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Why Investors Should Heed The African Tech Startups Devouring Consumer Finance

From Cairo to Lagos,  financial exclusion persists as a socio-economic hardship and a symptom of structural inefficiencies in African economies. Now more than ever, it also reflects opportunities for technology and telecommunications firms to catalyze innovations that expand market access to previously unserviceable customer segments while generating attractive returns for investors. 

Recent American and Chinese venture capital transactions in payment solutions exemplify the magnitude of this dual socio-financial opportunity in both developed and emerging economies. In African countries like Egypt and Nigeria – two of the continent’s largest and most mature economies where financial exclusion rates remain orders of magnitude greater than in the US – hundreds of funded startups have already begun unlocking the long-term value in almost every sector, especially financial services. 

By 2025, Google and the IFC project that Africa’s internet economy will add USD180 billion to - and account for 5.2% of - the continent’s annual GDP; by 2050, those figures will increase to USD712 billion and 8.5%, respectively. The Google/IFC report also noted a 2019 peak of ~USD2 billion in VC funding in Africa. However, “tech founders here still lack sufficient access to capital, even in financial technology” (FinTech), says Dr. Ayman Ismail, a Cairo-based angel investor and university professor. 


In African countries like Egypt and Nigeria – where financial exclusion rates remain orders of magnitude greater than in the US – hundreds of funded startups have already begun unlocking the long-term value in almost every sector, especially financial services.


Why Investors Should Pay More Attention 

Recent anecdotal commentary by prominent VCs suggests valuations in the region are likely underpriced. Foreign capital allocators would be wise to examine the inherent opportunity landscape reflected in the digital transformations underway in African economies, starting with Egypt and Nigeria, two of Africa’s emerging technology hubs

Even markets as geographically and culturally disparate as those of North and sub-Saharan Africa exhibit important converging success factors, including:

  1. Local ecosystems boosted by a) long-term improvements in telecommunications infrastructure, and b) an expanded pool of professional computer engineering talent.
  2. massive consumer base highly penetrated by mobile phones and largely excluded from formal markets.
  3. Maturing local regulatory frameworks coinciding with intra-continental harmonization expanding regional markets for scaling digital product offerings.
  4. Diversification of local entry vehicles and exit ramps including local and international IPOs as well as corporate buyouts.

Beyond the medium-term improvements in exit prospects, longer-term liquidity for today’s early-stage technology assets could also improve thanks to recent shifts towards Environmental, Social and Governance (“ESG”) principles. Indeed, around USD 40.5 trillion in assets under managementnow get screened against ESG criteria.

Monetizing the Digitization of Egypt’s Informal Economy

In the span of just a decade, Egypt’s startup eco-system has evolved from a handful of incubators and pre-seed startups to encompass an expanding universe of government- and corporate-sponsored institutions, independent accelerators, a regulatory sandbox, and local venture capitalists and angel syndicates, all supporting the growth of hundreds of new technology companies each year. 

FinTech, particularly payment solutions, has helped by laying down crucial digital infrastructure over which further technological solutions can be extended. Here, the Egyptian government has provided direct support, determined to unlock growth hindered by an inefficient cash-based informal economy amounting to roughly a third of GDP, while two thirds of the population still remains “unbankable”. 

Fawry, a FinTech firm founded in 2008, now operates a nationwide B2B and B2C digital payments platform processing millions in daily transactional throughput while serving 29 million merchants and digital wallet holders. The firm went public in 2019 and currently has a market capitalization exceeding USD2 billion, with two state-owned banks among its largest shareholders. This makes Fawry the fourth largest publicly traded security in Egypt and more valuable than all but two of the country’s 13 listed banks. The Egyptian central bank will have assisted by subsidizing the deployment of 300k point of sale machines across the country. 

Egyptian technology companies have “clear competitive advantages enabling them to offer liquidity solutions to a growing population of consumers with various working capital challenges,” points out Mazen Nadim, co-founder of Foundation Ventures (“FV”). Capiter, an FV portfolio company, is building out a receivables finance platform to serve thousands of small businesses in Cairo. Like Ismail, Nadim perceives opportunities for technology firms to reduce inefficiencies in almost every sector. 

In financial services, this encompasses payment solutionsneo-banking products, as well as nano-lending and wealth management services, to name but a few verticals with recent seed- and venture-round transactions. Furthermore, Egyptian FinTech startups not only reduce financial exclusion, but also create opportunities for local financial institutions to pursue strategic partnerships that improve user experience and lower customer acquisition costs. 

Thndr, Egypt’s youngest licensed securities brokerage, offers a potential example. 

Retail asset management services might not seem like a material opportunity today considering the relatively smalland illiquid market for publicly traded equities in Egypt. However, the prospect of new primary offerings has already caught the attention of foreign asset managers, while the democratization of capital markets services today likely augurs the emergence of whole new customer segments over the next decade. “Egyptian regulators are also supportive of such initiatives which expand financial literacy and well-being,” says Amal Enan, Managing Director at Dubai-based Global Ventures (“GV”). 


Egyptian FinTech startups not only reduce financial exclusion, but also create opportunities for local financial institutions to pursue strategic partnerships that improve user experience and lower customer acquisition costs. 


In a world where technology allows any company to integrate financial services into its value proposition, Enan continues, “Egypt is set to close the financial inclusion gap as we see more software and IT companies blending financial solutions into sectors as disparate as healthcare and agriculture.”

A Nigerian E-Commerce Unicorn is Just the Beginning

In Nigeria, Egyptian technology firms can find more than a few formidable counterparts thanks to a similar convergence of local talent, government-sponsored initiatives, private infrastructure, venture capitalists and angel investors. Whereas Egypt’s first technology “unicorn” originated in payment solutions, Nigeria’s flagship startup emerged in e-commerce with Jumia, whose NYSE-traded ADRs are now valued at almost USD5 billion

Nigerian banks, through partnerships in the local "agency banking" network, a key pillar of the central bank's financial inclusion initiative, have arguably kept better pace with digital product offerings than their counterparts in other countries in the region.

Still, a familiar narrative pervades whereby a massive economically marginalized population with high mobile penetration rates creates opportunities for software and telecom companies to lead the digitization of crucial economic sectors like consumer finance, e-commerce and healthcare. Solutions often blend in financial services, as seen with Helium Health (GV portfolio company), a B2C and B2B healthcare technology firm which offers ancillary products like lending and claims processing.

In Africa, says Fernando Cabral, Chief Venture Growth at Djassi Africa, “mobile penetration has jumped from around 1% in 2000 to over half the population today, creating inherent competitive advantages for telecoms to distribute mass market financial services.” Safaricom, Kenya’s chief telecom operator, offers another salient example through its subsidiary M-Pesa which brought “mobile money” accounts to 96% of the population lifting millions out of poverty in the process.

Macro-economic realities coupled with the catalyzing effects of the global pandemic likely explain at least a portion of staggering financial ratios for Fawry (~250x P/E) and Jumia (~54x P/B), where investors clearly expect their respective serviceable markets to grow substantially. 

Beyond IPOs, global technology corporations considering geographic expansion into Africa offer another possible exit ramp for investors in Nigeria and other regional startups hubs. 


In Africa, says Fernando Cabral, Chief Venture Growth at Djassi Africa, “mobile penetration has jumped from around 1% in 2000 to over half the population today, creating inherent competitive advantages for telecoms to distribute mass market financial services.”


In Nigeria, Egypt’s Paymob now has a comparable exit multiple with Stripe’s USD200 million acquisition of Lagos-based Paystack last October. Both Paystack and Paymob provide merchants with API-enabled payment solutions, and Paymob already competes in markets outside Egypt, notably in Kenya, Pakistan and Palestine. Swvl, an Egyptian VC-backed logistics startup, is a major customer of Paymob and operates in many of the same foreign markets. When asked for his reaction to Stripe’s corporate buyout of Paystack, Ayman Ismail, Paymob’s Board Chairman, described it as a welcome signal.

Challenges, Diversified Entry Ways and Expanding Exit Ramps

Treating the ~USD3 trillion African economy as a monolith would of course ignore its economic and cultural diversity. Nor should “digitally native” entrepreneurs underestimate technical and regulatory challenges in achieving scale, points out Pam Attebery, HSBC’s Head of Innovation in MENA. These challenges include residual gaps in local and regionaltelecommunications infrastructure.   

However, with the African Continental Free Trade Area in effect as of January, African tech startups can expect to compete for a share of larger regional markets. With that, it doesn’t take much imagination to see burgeoning startup ecosystems in Egypt, Nigeria or any of the other nine African countries with large pools of professional developer talent, creating a steady pipeline of liquidity events through IPOs and accretive regional corporate buyouts over the next decade.


With the African Continental Free Trade Area in effect as of January, African tech startups can expect to compete for a share of larger regional markets.


At the same time, financial innovation on the ground may also diversify opportunities for individual and institutional investors to allocate capital locally through, for example, the democratization of angel finance and emergence of venture debt funds

It no longer seems to be a question of whether capital allocators should examine Africa’s technological opportunity landscape, but how they should approach this historic opportunity.