By Dominique Collett
FINTECH has gone mainstream and is no longer a niche sector. There are now more than 26 000 fintech companies globally that employ half a billion people.
The pandemic has changed consumer behaviour substantially, with 30 percent of banking consumers now using app banking, and 64 percent using one or more fintech platforms.
The future of fintech looks promising considering the maturity and funding of the sector.
It is quite extraordinary how quickly consumers have adopted fintech; 96 percent of global consumers are aware of at least one fintech service or company, taking it from a niche sector to becoming mainstream.
Highest funding on record
Over the past year, the second and third quarters have become the best funding quarters on record with $31 billion (R475.67bn) fintech unicorns created, getting us to 206 globally.
At the end of 2020 there were 104, which means we have more than doubled the number of fintech unicorns globally. Mega-rounds saw Revolut raising $800 million and Chime $760m.
Mergers and acquisitions are still the primary way to exit fintech investments rather than initial public offerings or special purpose acquisition companies (SPAC).
Fintech in Africa
African fintech was one of the big stories of 2021, with the amount of funding for African fintech increasing to $2bn compared to half a billion in 2020.
There have now also been megarounds locally with Entersekt, Jumo, Yoco and Ozow raising significant funding from offshore investors.
On the continent, Flutterwave and MFS Africa raised hundreds of millions of dollars from big US investors.
South Africa is important and its fintech sector is hot because these companies are all based here, especially if they have meaningful operations and potential outside of South Africa. A SPAC, Newcourt Acquisition, was listed on the Nasdaq by South African executives Michael Jordaan and Marc Balkin. It was massively oversubscribed and closed at $250m.
The SPAC concentrates on emerging market fintech, with a big focus on Africa.
Africa is popular and trendy now. It seems that venture capital firms have cottoned on to the unbanked population in Africa.
A lot of money was raised with emerging market mandates and these funds have to be deployed soon.
We are seeing extraordinary evaluations for fintech businesses and I suspect a lot of it is fuelled by the skyhigh valuations for fintech globally.
Money needs to be deployed in Africa and the market is not that mature.
Covid has also accelerated the adoption of digital financial processes. We will likely have another year of really aggressive venture capital funding and fintech growth.
The theme post-Covid following the COP Summit is “building back better” with an increased focus on environmental, social and governance practices. This plays directly into fintech and opens up a lot of opportunities, such as parametric insurance.
Parametric insurance, often based on smart contracts, pays out automatically when the insured event happens, reducing the lead time of the claims process.
For example, if there was a flood and your flood sensors picked it up, your parametric insurance policy would pay out instantly.
Wellness is another big theme as Covid has shone a spotlight on physical wellness and the management of chronic diseases, as well as mental wellness.
Vitality has always been the leader in this space encouraging people to change their behaviour and now there are many startups from insurance and banking, such as Paceline in the US, Sweatcoin in Europe and Betterfly in Latin America.
Rise of mobile network operators
Mobile network operators (MNOs) will also be trending in 2022 alongside Vodacom and MTN.
This year, Vodacom aggressively promoted Vodapay, while MTN and Vodacom plan to list their fintech units separately.
I think 2022 could be the year when MNOs go mainstream from a mobile money point of view. There will always be a challenge here in SA because we have such a competitive banking sector.
However, the fact that MTN in Nigeria obtained a mobile money licence is going to be a game-changer, giving MNOs the opportunity to dominate the payment space across Africa.
Buy now, pay later
Buy Now, Pay Later (BNPL) will also be a big theme in 2022 because it is a great value proposition for customers: they do not have to enter credit card details online if they are worried about fraud and this payment solution charges no interest.
It is also great for merchants because it will enable them to increase their e-commerce presence, especially in a post-Covid world.
It will be interesting to see how aggressively businesses will focus on getting into that space.
I am not sure if the Payflexes and the Klarnas are going to maintain their stronghold in their core markets. I think they may be taken over by businesses like Flutterwave in the rest of Africa.
Niche challenger banks
Niche challenger banks will also attract greater interest in 2022. A few years ago, it was all about the challenger banks, such as Monzo and Revolut, which offered a better user experience.
The Internet of Things
The Internet of Things (IoT) will also become mainstream in 2022. We might be reaching a bit of a tipping point around telematics.
Locally every insurance company offers a telematics programme and customers are more willing to engage with it.
Every year I predict that it’s going to be the year for crypto even though prices have recently taken a tumble. Luno’s logo now dominates the Cape Town skyline along with the logos of the other big four banks.
AlphaCode was an early investor in Luno and it was our first exit when Luno sold to DCG. The platform has flourished with more than 9million customers in 40 countries.
Dominique Collett is a senior investment executive at Rand Merchant Investments and the head of AlphaCode.
*The views expressed here are not necessarily those of IOL or of title sites.
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