South Africa FinTech Market Map 2021

Published 1 May 2021
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Market Map: 140 South Africa FinTech in 2021

News broke this week that AZA Finance (formerly known as BitPesa), a provider of treasury and FX services, acquired South Africa based cross-border payments provider Exchange4Free. Exchange4Free is the largest South African non-bank currency broker, and the acquisition enables AZA Finance to increase transaction volume to $2.5 billion in 2021 and extends the company’s reach to 115 countries spanning Africa, Europe, the Middle East, Asia-Pacific and North America. The move makes AZA Finance the largest fintech provider of treasury and FX services to frontier markets.

In a company press release regarding the acquisition, AZA Finance cites changing customer dynamics in response to the coronavirus (COVID-19) pandemic as being a driver towards increased volumes of business transactions moving online and away from physical bank branch infrastructure. Technology companies in Africa (where SMEs have faced expensive and time-consuming banking processes) are leading the challenge against established dollar-based systems through the use of APIs and other network technologies.

We took a closer look to understand how VC investment has responded to this change across the Southern Africa region.

Southern African VC investment continues to grow

Figure 1: Total investment into Southern African technology companies since 2015

Despite the challenges faced throughout 2020 due to COVID-19, Southern African technology companies raised $397.5 million USD across 112 deals. This was a substantial increase on the total raised in 2018 ($328.6 million USD across 71 deals) and 2019 ($114.1 million USD across 89 deals).

Figure 2: Quarterly investment into technology companies across Southern African since 2018

Q1 2021 saw investment into Southern African technology companies reach $145.7 million USD across 25 deals. 2 funding rounds accounted for $124 million USD in investment over the quarter. South Africa’s TymeBank, a digital only banking solution, raised $109 million USD Venture Round in February, and Adumo, a South Africa based payments company raised a $15 million USD round led by the International Finance Corporation’s (IFC) Financial Institutions Growth Fund.

South Africa FinTech on the up

South Africa has a dynamic and growing financial services technology sector. The recent acquisition of Exchange4Free, and the acquisition of South African cryptocurrency exchange Luno by US-based Digital Currency Group, give an indication of the global importance of the sector.

In fact, VC investment into companies across the Southern Africa financial technology sector has continued to increase year on year, from $108 million across 20 deals in 2018 to $199 million USD across 23 deals in 2020 (figure 2). However, much of the regional investment is focussed on companies headquartered in South Africa; as of April 2021, disclosed investment into South Africa financial services companies has totalled $138.2 milllion USD out of the $145 million USD total.

Figure 3: Total investment into Southern African FinTech companies since 2015

In 2020, 20% of total deals were secured by FinTech companies across the Southern Africa region, in the first quarter of 2021 this has increased to 29%, with transport and logistics, education and healthcare technology companies securing 10% of all deals each over the first quarter of 2021.

Figure 4: Proportion of funding rounds closed by Southern African technology companies in 2020 and 2021 (year to date, as of April 2021)

Southern Africa FinTech sees a decrease in Early Stage Investment

While the total number of Southern Africa FinTech deals has increased (along with the total amount invested), we have also seen a change in the size of ticket favoured by investors. The proportion of funding rounds totalling $500k USD or less decreased from 31% in 2016 to 9% in 2019. While this jumped to 32% in 2020 (perhaps as a response to impact of the COVID-19 pandemic), the proportion of rounds totalling $500k to $5 million USD has increased from 20% of deals in 2017 to 56% of deals in 2021. However, it should also be said that this analysis is based on disclosed investment only, so therefore this trend is relatively subjective.

Figure 5: Proportion of funding rounds closed by Southern African FinTech companies by disclosed ticket size since 2015 (2021 year to date, as of April 2021)

Southern Africa FinTech continues to impress

The increase in funding and deals, as well as high profile mergers and acquisitions reflect a vibrant and growing FinTech space in South Africa. Economic challenges experienced in the region, such as domestic fiat currency risk, increasing unemployment resulting from COVID-19 restrictions, and the relative inaccessibility of financial services are fuelling innovation, particularly around cryptocurrency and digital first banking.

That said, companies based South Africa dominates the region both in terms of deal size and the number of VC deals. Could the recent success of the likes of TymeBank, Luno, Exchange4Free and many other FinTech services, be good news for the region generally?