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The African fintech space is growing exponentially, home to over 300 startups and at the forefront of funding and acquisitions activity on the continent, according to Disrupt Africa’s Finnovating for Africa report.

However, the development of the fintech ecosystem is not uninhibited, with fintech startups in Africa facing a number of issues. Dominique Collett knows all about it, having been part of the founding team of TYME, acquired by the Commonwealth Bank of Australia in 2015.

Now, she heads up investments at RMI Holdings and runs the Alphacode fintech startup club, and she told Disrupt Africa there are a number of key challenges fintech startups in Africa must overcome if they are to fulfill their potential.

Small markets

We all know that “Africa is not a country”, and that is especially true when it comes to financial services markets across the continent.

“Africa is very fragmented, with many countries, many regulatory regimes. The market size is therefore very small. It is very difficult to build a Rwandan business that is applicable to Kenya, for example,” Collett said.

“The most famous example of this is M-Pesa in Kenya and South Africa. That is why we are not seeing a lot of money move into African fintech.”

Lack of funding

Though the Finnovating for Africa report finds a total of 57 African fintech startups raised over US$92 million in funding between the beginning of 2015 and end of May 2017, Collett said there was still a shortage of funding into the sector.

“In Silicon Valley, there is pass it forward, where startup founders become investors when they exit. That’s not happening in Africa. It’s at a very early nascent stage. Capital markets do not work. Fintech businesses in particular chew up a lot of capital. With a broken funding ecosystem they struggle to get out of the blocks,” she said.

“The money that does come in is often from social impact funds with lower hurdles, as opposed to purely VC-type deals where they are expecting major returns. There is also a major currency risk.”

Poor regulation

Disrupt Africa has reported in the past on the importance of effective regulation if the fintech space is to fulfil its potential in offering more Africans access to financial services.

Regulations have a huge role to play in ensuring the fintech industry becomes bigger and better, as well as ensuring fraud is kept to a minimum. Collett said while there had been some positive steps there was a need for regulators to do more to speed the development of the space.

“The regulators across Africa are not as proactive as they are in other places,” she said.

Shortage of talent

Collett also bemoaned the lack of talent available to African fintech startups, with most of the best people in the financial services industry employed by large institutions and unwilling to risk joining a startup.

“We don’t have the depth of talent pool. We don’t have as strong of a social security net, and people are reluctant to move out of corporates into startups. The great financial services talent in Africa is stood at top banks,” she said.

It’s early days

In spite of their being over 300 fintech startups in Africa, around 40 per cent of those are focused on payments and remittances. Collett said the ecosystem was still very young, and startups in more sophisticated spaces would take time to develop.

“We are not going to see any African P2P lending platforms anytime soon, or any great insurtech companies. For a long time the story of African fintech will be payments-focused. Getting the basics right is important, which is why payments are so vital,” she said.

“The people making money are payments and B2B solutions. The higher order stuff is going to come much later because we need to get these building blocks in place first.”

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