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The potential of fintech to uplift end customers, enable financial inclusion, and drive innovation within the African tech ecosystem is undoubted. Still, founders need to come to the party to form the right relationships at a government level to drive system-wide change.
This view emerged during a lively discussion on the first edition of the African Pre-seed Podcast Live on 2 November in Lusaka, Zambia, with the episode’s theme being: Is fintech the one true vertical in the African tech ecosystem? The live episode featured Hope Ditlhakanyane (Investment Principal, Founders Factory Africa) as host and Miranda Perumal (Founder, scale), Michael Kimani (Co-founder and Head of Growth, Africa, at Fonbnk) and Efayomi Carr (Principal, Flourish Ventures and Co-founder, Madica) as panellists.
African Pre-seed Live was held as part of the African Fintech Summit program, with the conversation hosted in front of a live audience.
Hope Ditlhakanyane listens as Michael Kimani answers a question at the first edition of African Pre-seed Podcast Live at the Africa Fintech Summit in Lusaka, Zambia, on 2 November 2023. Image credit: African Pre-seed Podcast
Ditlhakanyane kicked off the panel by asking Kimani what he thought was the driving force behind the large amount of capital fintech attracts from investors annually. Kimani’s response centred on the behaviour of the continent’s customers, which, one way or another, was driven by millions upon millions of transactions daily.
“It’s because a lot of things we do on this continent are about commerce. Maybe it starts with a bit of discovery, then moves into conversations, then you get into some type of value exchange,” he told the panel and assembled audience. “For example, there are a lot of industries and verticals in the African tech ecosystem that would not just be possible if you do not have a way to settle a transaction. Something like e-commerce, I think in a lot of our countries, at least from Kenya and East Africa, it’s pretty obvious that a lot of people are in the business of trade. They’re always trying to arbitrage some type of goods or some service to earn.”
As a result, a lot of the fintech solutions that are in the market have been designed to enable people to scale their businesses, with the exchange of money central to that story. After Kimani had finished, Ditlhakanyane wondered out loud whether fintech was just an enabler, with Africa’s core industries facilitated by fintech solutions, such as logistics, payments, and verticals focused on different forms of infrastructure.
Perumal, answering the same question, leaned in on the panel’s theme, strongly agreeing that it is the fulcrum of the entire ecosystem. “Is there a day where you do not trade something with someone? Let me ask another question. If you left your house this morning or left your hotel room, and you left your wallet, would you go back and fetch it? If you left your phone, would you go back to fetch it?” she asked the audience.
Following a murmur of agreement, Perumal said that the reason was because consumers wanted to stay connected, with that connection convenient, a “must have”, and if you have your phone, you don’t need a wallet. You can pay for something that encapsulates what fintech stands for.
“What fintech does is it innovates — we hope — around customers’ needs, solving problems in ways that are easy, accessible, and convenient. My answer is yes. It’s the one true vertical of Africa’s tech ecosystem, and everything’s going to touch it in a couple of years,” Perumal said.
(From left) Michael Kimani, Miranda Permumal, and Efayomi Carr listen attentively during first edition of the African Pre-seed Podcast Live held at the Africa Fintech Summit in Lusaka, Zambia, on 2 November 2023. Image credit: African Pre-seed Podcast
Given the focus on value, it was fitting that the conversation moved towards valuations and traction within the ecosystem. Ditlhakanyane asked Carr if the valuations that some fintech startups were raising were justified and whether any progress had been made in terms of financial inclusion. Carr was thoughtful in his response. “I would think of that from two lenses. One is, ‘Are investors making money?’ Are people making a lot of money from the investments they make in the fintech sector? I think the second is on the ground. Are we seeing impacts that have been developed? Are our day-to-day lives affected by the progress that’s been made?” he said.
“I would say the first one as an investor; it’s not a great story, folks. Let’s be honest. We haven’t seen a lot of attractive exits in the fintech space, but also in the tech space more broadly. There’s been a handful of IPOs. There’s been a very small number of large-scale acquisitions. From a funding perspective, you would say the African investment story in tech, and in fintech in particular, is not a particularly rosy story.”
Yet, on the ground, the story was very different. Carr believed that in the last 5 years, so much development has fundamentally changed how Africans interact, transact, and get money. The way money is sent across borders, how people pay for consumer goods, and how customers can access credit have all progressed significantly in the last half-decade. “In many ways, it’s a tale of two cities, right? There’s been a lot of money poured into the ecosystem, and we’ve reaped the benefits as far as the products that we can access. But, from an investment perspective, we haven’t seen great returns,” Carr concluded.
Attendees, including panellists and audience members, at first edition of African Pre-seed Seed Live on 2 November at Africa Fintech Summit in Lusaka, Zambia. Image credit: African Pre-seed Podcast
The panel then covered topics ranging from Web3, blockchain and extraction and enablement to virtual economies and shifting market dynamics. In the coming years, it was remarked that there would be a shift from B2C fintech products to those catered to B2B. This shift would be driven by the ability of merchants and enterprises to pay for fintech services, their willingness to do so in search of cost savings, and the scale at which they can leverage fintech services, which represented a significant market opportunity.
With the live conversation approaching the 40-minute mark, it was the audience’s turn to ask questions, with one audience member asking the panel their thoughts on regulation. In particular, the challenges created by regulators and government officials one to three generations removed from the founders and actors driving innovation within the fintech space and their fundamental lack of understanding of how fintech created value in their economies. Kimani went to the plate first, noting that as the founder and chairman of the Blockchain Association of Kenya, he had dealt with a class of government decision-makers who were far removed from the new technologies, with their lack of understanding matched by the bullishness of young founders who believed in the same technologies.
The Association has been trying to bridge the gap between parliamentarians, policymakers, regulators and the early startup community, recently making a presentation to Kenya’s Finance and National Planning Committee following the imposition of an onerous digital tax.
“They were quite open. We were quite impressed. We made a presentation showing them the opportunity to turn this digital asset industry into an opportunity for Kenya to attract investments and more startups. And they literally gave us a mandate to set up a virtual assets bill and come back them in one to two months,” Kimani said.
“For me, the startup ecosystem and the people who are really champions of new technologies need to take ownership.”
Perumal highlighted that it was vital to be persistent and break perceptions, with women especially facing an uphill struggle as they navigate environments traditionally dominated by men.
“It’s about face-to-face and building relationships at the right levels inside a central bank and a regulator so they know who you are, they understand what you’re trying to achieve, and when you’re submitting your application, you’ve done the hard work of going and drawing those flowcharts on a whiteboard,” Perumal said. “You’ve done the education that is required to get approval on your license, and you have ticked all the boxes in terms of making sure that your customers and merchants are safe. But, we are facing a reality that these guys don’t understand the innovation and the value that comes out of what this type of tech is trying to bring.”
Carr returned to the theme of value, honing on the incentive that typically inspires government action. “I think it’s about taking ownership, how you engage with them, and the third thing I would just say is make money. Make them money. The regulator and our governments are poor. If we can make them money, if there’s a revenue line that they can add to their balance sheet, they will do what they can to take some of it,” he said to nods from the audience.
“If you have a business that makes them money, they will make policy that accommodates it.”
You can listen to the full panel here.
Fintech podcast here.
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