{"id":15232,"date":"2021-01-14T08:09:04","date_gmt":"2021-01-14T08:09:04","guid":{"rendered":"https:\/\/codeandpepper.com\/?p=15232"},"modified":"2023-12-21T09:58:11","modified_gmt":"2023-12-21T09:58:11","slug":"rise-of-african-neobanks","status":"publish","type":"post","link":"https:\/\/codeandpepper.com\/rise-of-african-neobanks\/","title":{"rendered":"The Rise of African Neobanks"},"content":{"rendered":"\n

Can you make money by serving people of humble means? Can you sustain a business addressed to people outside of the global financial system? Limited market opportunities and few coins in the pocket don\u2019t have to be a dead end. As Bill Gates once said: there\u2019s a difference between banks and banking. If you need proof that FinTech companies can provide quality services to customers despite their financial status, look at <\/b>neobanks in Africa<\/strong>.<\/p>\n\n\n\n\n\n\n\n

\"Rise<\/figure><\/div>\n\n\n\n

Challenger banks were first called “digital banks”. Then, a new term\u2014neobanks\u2014was coined to make things even clearer. From then on, many neobanks have successfully captured the minds of investors and clients alike<\/strong>. Innovative FinTech businesses, based on offering digital-first or mobile-only financial services<\/strong>, now benefit millions of users. Services like managing accounts, processing payments and transfers, or even providing loans, are made possible thanks to end-to-end software development<\/a> and fuelled by cutting-edge technology.<\/p>\n\n\n\n

The rise of African neobanks<\/strong> is a particularly curious case<\/b>. It points to the business models fit for the future. It also provokes the question of how to further improve what already works today. That\u2019s where challenger banks come in, creating 4 major FinTech hubs in Africa<\/b>: in Johannesburg, Lagos, Cape Town, and Nairobi.<\/p>\n\n\n\n

Background for neobanking in Africa<\/h2>\n\n\n\n

A staggering 57% of the entire African population<\/a> don\u2019t have any kind of traditional bank account. And that\u2019s 95 million people, according to the World Bank<\/a>. Why such high numbers of the unbanked? A lot points to the backlash of Africa’s colonial past. Results: limited economic options, insufficient banking infrastructure, and public infrastructure in poor condition. What does it mean in practice?<\/p>\n\n\n\n

Let\u2019s say somebody living in a rural area has enough money to store in a bank and manage the account. It still doesn\u2019t matter. They can\u2019t afford to waste a day to reach the bank. All because the quality of public transportation leaves much to be desired. This applies to other means of transport as well. Driving on bumpy roads is risky and equals money on repairs\u2014the money<\/em> people are counting on to have in a bank. Problems upon problems.<\/p>\n\n\n\n

Fortunately, where there are few roads\u2014there are many smartphones<\/b> and it makes a world of difference. According to the FDI Intelligence<\/a>, sub-Saharan Africa alone had 456 million unique phone users in 2018. It is estimated, that an additional 167 million will join by the end of 2025. And that\u2019s only one region of the continent. In 2019 alone, smartphone sales in Africa reached 6.6% of the global market<\/b>. The continent is the fastest growing place for smartphone users in the entire world. What’s the trick?<\/p>\n\n\n\n

How African neobanks solve problems?<\/h2>\n\n\n\n

People in this part of the world want the same things people want everywhere else: to stay connected with each other and prosper. The number of small businesses reached over 5.9 million<\/a> in 2018. And that\u2019s only for South Africa. Being able to manage a (mostly) local business and reach out to clients and suppliers is critical. Challenger and neobanks in Africa<\/strong><\/b> provide multiple services that big banks won\u2019t or can’t afford to provide due to legacy systems and high customer acquisition costs.<\/b><\/p>\n\n\n\n

Ingredients for success<\/h3>\n\n\n\n

Africa is a mobile-first continent<\/strong>, therefore every disruptive business has a human-centric mindset<\/b> in place. It’s just easier to do business when everyone has a smartphone. Plus, according to 2019’s GSMA study<\/a>, 3G coverage in sub-Saharan Africa reached 62%, with more than 120 4G networks already up and running. <\/p>\n\n\n\n

Neobanking in Africa<\/strong> is popular because FinTech apps offer features which were once out-or-reach<\/b>. Paying for food at the local store, sending money to family, paying bills and taxes. That\u2019s basics. Apart from that, there are other services, like loans. In fact, digital lending is very popular among the unbanked<\/b>. It\u2019s also a way to reach them, making them comfortable with digital services and building an appetite for more.<\/p>\n\n\n\n

By eliminating the middleman, neobanks in Africa<\/strong> embrace P2P lending to natural persons and businesses<\/b>. A perfect example is the Kenya-based Kopo Kopo<\/a>. It has a cash advance system that helps finance business-critical tools, like computers or phones. This way, local salesmen can afford to stay in business or open a new one. High-street banks simply can\u2019t compete with this level of efficiency. What’s more, they often fail to recognize the need, not to mention address it.<\/p>\n\n\n\n

Beyond fixing problems: expanding the market share<\/h3>\n\n\n\n

Covering basic needs alone would revolutionize African habits and empower the masses. Companies could call it a day. But challengers don\u2019t want to stop there. African neobanks<\/strong> take elite financial services and make them mainstream<\/b>. They enable especially younger consumers to fight for their future. Stock market investing is a good example. Tech-savvy young Africans are not only saving and managing their money but also put their capital to work and generate profit.<\/p>\n\n\n\n

Top African neobanks<\/h2>\n\n\n\n

According to EY, the number of FinTech companies in Africa grew between 2009 and 2019 at an annual rate of 24%<\/b>. The growth is fueled mostly by Nigeria, Kenya, and South Africa. As presented by Frost & Sullivan<\/a>, FinTech revenues are forecast to grow from $153 m in 2017 to $543 m by 2022. All thanks to expanding payment services, the eCommerce market, and an even more dynamic smartphone market penetration. No wonder new African FinTechs and neobanks<\/strong> pop up almost overnight<\/b>.<\/p>\n\n\n\n

Here are some of the most interesting players on the African neobanking market<\/strong>:<\/b><\/p>\n\n\n\n

Fundal<\/a>l<\/a> is a Nigerian FinTech offering loans for individuals and businesses<\/b>.
Most interesting features:<\/p>\n\n\n\n