McKinsey: African fintech report predicts surging growth

A report from McKinsey predicts eightfold increase in revenues in 2025 as Internet access increases.

According to a report by McKinsey and Company, one of the world’s leading business analysis and consultancy firms, Africa’s fintech industry could see revenues soar to USD 30.3 billion by 2025.

The rise of the Internet

According to the report, titled ‘Fintech in Africa: The end of the beginning’, the rapid growth in young, unbanked people gaining access to the Internet will be a key driver for the growth of the African fintech industry. The falling prices of Internet connections and the increasing penetration of smart phones, along with the general increase in urbanization and the fact that Africa’s population is comparatively young will all lead to an increase in the use of digital financial services.

McKinsey predicts rising income for financial services

Financial services income is expected to grow by USD 230 billion over the same period. The report claims that approximately two-thirds of Africa’s 1.3 billion residents do not hold bank accounts or enjoy access to comprehensive financial services and that 90% of transactions across Africa are cash-based.

“African fintech is emerging as a hotbed for investment, with average deal sizes growing and the proportion of fintech funding in Africa increasing over the past year, bringing jobs and growth to African economies, and the story is only just beginning,” according to the report.

The report claims that financial service revenues in Ghana and francophone West Africa will see the highest rates of growth, with Nigeria and Egypt also benefiting from the rise of fintech.

Key opportunities

The report highlighted a series of opportunities available to the fintech industry in Africa. Firstly, as Africa becomes increasingly online, there is an opportunity to move away from cash transactions and to provide convenience to users. Secondly, fintech transaction costs can be as much as 80% lower than traditional solutions in Africa. Thirdly, interest on savings offered by fintech solutions can be up to three times higher than those offered by traditional banks.

Key challenges

McKinsey highlights the fact that there have been very few African fintech unicorns – or startups valued at USD 1 billion – which suggests that there are major hurdles to overcome. The report highlights the difficulties faced in achieving scalability in Africa, the problems caused by an uncertain regulatory environment, funding and talent shortages and the need to establish good corporate governance.

Fintech has dominated the African startup environment in recent years, and took the lion’s share of investment in the first half of 2022.

The full report can be downloaded here.