How Profitable is Fintech Business in Africa, really?
This is one question you’ve probably been asking yourself in recent times. And it is perfectly understandable. After all, the fintech ecosystem is arguably the hottest in Africa right now. It has the highest number of players who all seem to be doing so well. Fintech is also attracting the most funding from both local and international venture capitalists. Our guess is that it must be nice being a ‘fintech bro or sis” in terms of salaries and other compensations. And these all bring us back to the question –is fintech in Africa really as profitable as it seems?
The Answer is Yes
First of all, the very reason everyone is rushing into fintech is simply because it is a profitable venture. After all, nobody goes into an unprofitable business. The success of those who caught the fintech buzz early has informed the decision of others to follow the trend. It’s best to say, so far so good.
But more than that, the African fintech ecosystem is a pretty large playing field. According to The World Bank, about 66% of the population in Sub Saharan Africa are unbanked. Apparently, this is a major problem. But it is also an amazing opportunity, one that has enabled the likes of Renmoney, Chipper Cash, Kuda Bank and others to thrive.
Now, just to bring everything into perspective, let’s refer to a recent report by multinational professional services firm, Ernst & Young. The report showed that 75% of Nigerian fintech startups earn an average of $5 million annually. The report also explained that even though the startup ecosystem in Africa’s largest economy is quite nascent compared to what obtains elsewhere in the world, it is maturing at an exponentially high pace and this is reflected in its profitability and other metrics.
Fintech Entrepreneurs Have Testified to Said Profitability
The Co-founder and CEO of Lagos-based Sycamore.NG, Babatunde Akin-Moses, told this author that fintech business is quite profitable. Speaking specifically with respect to lending where his company specialises in, the CEO explained that the high interest rate obtainable in Nigeria is one factor that makes the business very profitable. However, even though the opportunities are there, Akin-Moses warned that it is important for prospective fintech (lending) entrepreneurs to properly understand the dynamics of the business before going into it.
“I will be honest with you, it is a good business, as long as you understand the dynamics. Bearing in mind that the interests rates in Nigeria are quite high, it makes it an interesting business. But it all depends on whether the borrowers refund the money because that is often the challenge a lot of lenders face. You see that the interest rates are high and you jump into the business. But if you fail to get your collection right, it will cripple you. Here’s an example of what I mean: if you give out a loan that has an interest rate of 10%, your profit is only on paper until you are actually able to get the money back along with the interest. That notwithstanding, I will say that compared to other parts of the world, it is actually quite profitable,” Babatunde Akin-Moses told Business Elites Africa.
READ THIS: Kuda Bank’s $55 Million Series B Round is quite an ‘August Surprise’!
If you Have a good Fintech Product, your Profitability is Guaranteed
The Co-founder and Chief Financial Officer of tech-enabled credit company CredPal, Olorunfemi Jegede, also admitted to Business Elites Africa that fintech is very profitability. However, one thing that will guarantee this profitability is the innovation and efficiency of your fintech product. See his explanation below.
“I would say it is actually very profitable, especially if you have an amazing fintech product. But it gets really profitable at scale. And the reason is that a lot of times, in order to be very competitive in technology business, margins are very tight. So, basically, you are playing the numbers game to really, really make the business profitable. And that’s even why you are leveraging technology in the first place because technology allows you to serve really huge markets. I mean, you can literally build in Yaba Lagos and you are serving the whole of Nigeria and Africa. There are currently a number of Nigerian fintech companies that are serving businesses across the world. And when you get to play at that level, trust me, that’s when it becomes really profitable. The profitability really is in the brilliance of your technology.”
EDITOR’S NOTE: Both Babatunde Akin-Moses and Olurunfemi Jegede were featured in our 40 under 40 Entrepreneurs magazine edition which is coming out this week. Stay tuned for that.
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