While private equity deal activity has experienced a slump across Africa over the last 12 months, the fintech sector continues to buck the trend – offering double-digit growth – merging technology and finance to drive financial inclusion across sub-Saharan Africa.
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As traditional barriers buckle under the weight of technological advancement, fintech is building the new rails for financial transactions. Catalyst caught up with Tanya Alvis, VP of Commercial for East Africa at Onafriq, Africa’s largest digital payments gateway, to find out what’s driving this growth.
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Onafriq, formerly known as MFS Africa, underwent a rebranding in November last year, to better reflect its mission. The company’s vision of creating seamless financial routes across the continent is encapsulated in the phrases, "ona" (a Yoruba word for pathways) and "Afrique," the French term for Africa.
Over the past 14 years, Onafriq has expanded from facilitating remittances to encompassing merchant payments and prepaid cards. Their goal is to establish an omnichannel payment system, accommodating various payment methods from mobile money to traditional bank cards, tailored to regional preferences.
“Our mission is to make borders matter less,” says Alvis. “We want to facilitate ease of payments, in terms of being able to receive and make payments across the continent. Whether you’re in South Africa, where there’s a lot of card usage; in East Africa, where mobile money is king; or in West Africa, where banks and cards play a huge role, Onafriq supports a payment medium or rails that make sense for you and your business.”
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Despite these technological advancements, though, the fact remains that 75% of transactions in Africa remain cash-based. This statistic highlights both a challenge and an opportunity. The persistence of cash transactions stems from deep-rooted trust issues, cultural nuances, and infrastructural barriers. Yet, the increasing adoption of digital payment systems, driven by strong political will and consumer demand, signals a shift. Countries like Ethiopia exemplify this transition, where partnerships with major players like Telebirr and M-Pesa have introduced millions to the digital payments ecosystem.
Cash is still prevalent in many parts of the continent, but we are seeing a significant shift,” Alvis explains. “Over the past two years, we’ve onboarded major players in traditionally cash-based markets, like Ethiopia. For instance, Telebirr, the mobile money product from Ethio telecom, and M-Pesa, which has launched through us, together account for over 30 million mobile money wallets.”
One of the key strengths of Onafriq lies in its interoperability, allowing seamless transactions across different payment systems and regions. This capability is crucial in Africa, where payment preferences vary widely. By providing a unified platform, Onafriq enables businesses and consumers to transact effortlessly, fostering greater financial inclusion.
“We’re both an equaliser and an amplifier,” said Alvis. “Our hub enables integration with various financial systems across the continent, from mobile money wallets to traditional bank cards. This interoperability is key to ensuring that wherever you are, you can make and receive payments seamlessly.”
While the concept of financial inclusion is often bandied about in the same breath as fintech, it’s more than a buzzword; it’s a catalyst for social impact. By integrating with banks and local fintechs, Onafriq facilitates access to essential financial services. Innovations like open banking APIs enable seamless integration with traditional financial institutions, enhancing services such as microcredit and savings. This integration transforms remittances into tools for financial empowerment, allowing recipients to build credit scores and access loans for business ventures, thereby fostering economic growth at the grassroots level.
“Fintech drives real social impact,” Alvis emphasises. “By working with local fintechs and banks, we support remittance for purpose. For example, through our platform, people receiving remittances can build credit scores, access microcredit, and save more effectively. This is especially impactful for women, who, when financially empowered, contribute significantly to their households and communities.”
The fintech revolution in Africa has been significantly bolstered by venture capital (VC) and private equity investments. For instance, Onafriq has raised substantial funds to expand its operations and drive strategic partnerships. These investments are crucial for reducing the high costs associated with remittances, making financial services more accessible. As VC funds continue to flow into the fintech sector, the impact on financial inclusion and economic growth is profound. The support enables companies like Onafriq to connect millions of mobile money wallets, creating an expansive network that benefits the entire continent.
“The support from VCs has been instrumental,” said Alvis. “It has allowed us to drive strategic partnerships and reduce costs associated with remittances. Our footprint has grown significantly, connecting 500 million of the 800 million mobile money wallets in sub-Saharan Africa. This connectivity is crucial for scaling financial inclusion.”
Onafriq’s extensive network demonstrates the exponential impact of VC investments in enablers. This network includes 180 different mobile network operators (MNOs) and banks, facilitating a wide range of financial services.
“If VCs invest in enablers like us, the impact is amplified,” Alvis stated. “The connectivity we provide facilitates a wide range of financial services, accelerating financial inclusion and creating a robust ecosystem. It’s a domino effect that scales quickly with the right support.”
The future of fintech in Africa is bright, driven by a combination of technological innovation, strategic investments, and a commitment to financial inclusion. The continued support from VCs and the private equity industry will be pivotal in scaling these innovations and ensuring that financial services are accessible to all, and as more players enter the ecosystem and collaborations increase, the potential for transformative growth is immense.
Companies like Onafriq are at the forefront of this revolution, creating pathways for seamless transactions and empowering individuals through access to essential financial services. As the sector continues to evolve, the collaboration between fintechs, traditional financial institutions and regulators will be crucial to realise the full potential of financial inclusion in Africa.