Image: Shutterstock As a listed Pan-African equities portfolio manager, I am fascinated by the enormous amount of private capital that African financial inclusion (fintech) companies have attracted over the last five years. Venture investors have, mostly, paid no heed to the most common risks cited by South African institutional investors such as currency stability and/or availability.
Fintech companies in Nigeria, Kenya and Egypt alone, for instance, have raised a cumulative $1.2 billion in the last five years – almost 1.5 times what listed equity funds have invested in those same markets over that period, suggesting greater optimism about the subsector than broader markets.
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The performance of the very few listed payments companies on the continent has also mirrored this cheery consensus about the economic potential of electronic payments. Fawry, a leading digital transformation and e-Payment platform in Egypt, has outperformed the MSCI Africa benchmark by a factor of five times since it listed in 2019. Hightech Payments Systems in Morocco has outperformed the same benchmark by an extraordinary 13 times in the last five years.
It is well-known how mobile network providers such as MTN and Vodacom are participating in this R350 billion African fintech value pool. MTN’s leadership, for example, sized it in their Capital Markets Day in June this year. Perhaps it is less appreciated how banks in Africa can benefit from the trend. For instance, commercial banks in Kenya that partnered early with Safaricom as it digitised physical cash using its M-Pesa mobile money platform, increased deposit market share dramatically as M-Pesa became ubiquitous, leapfrogging the legacy model of distribution through brick and mortar bank branches.
Another strategy that banks can employ involves spinning off payments infrastructure (and the value of payment flows they enable) embedded within banks themselves. For instance, what Emerati bank, Emerates NBD, did with its merchant acquiring and issuer processing payments solution which later became Network International Holdings Plc listed in London. Or what the Royal Bank of Scotland did with its UK and international merchant acquiring division, which became Worldpay.
Guaranty Trust Bank of Nigeria, the first-in-class commercial bank in that country, recently restructured to become a holding company with a ring-fenced payments business as part of its new stable of subsidiaries. Also in Nigeria, Access Bank is in the process of […]