Understanding South African Fintech Ecosystem

by | Mar 23, 2023 | Analysis, Fintech

The Critical factors that have positioned this country as a major fintech zone in Africa.

The first question to ask is if it is worthwhile understanding South Africa. We answer by asking why not? Let’s take a look at some facts about SA.

  • They are the only African country that is a member part of the BRICS. The BRICS (Brazil, Russia, India, and China & South Africa )are 5 large, fast-growing economies that would collectively dominate the global economy by 2050.
  • They are also part of the SADC. The Southern African Development Community was formed in 1980 with 15 members including Angola, Botswana, and Namibia. It has a SADC RTGS which allows banks within to settle payments between one another in real-time.
  • Africa’s leading banks and financial institutions such as Standard Bank Group, FirstRand, Absa Group, and Nedbank Group are all in South Africa.
  • SA has a population of about 58.8 million people of diverse origins, cultures, languages, and religions.
  • It has the highest number of internet penetration and smartphones on the continent.

With these few points of ours, we hope we have caught your attention but the gist is just starting. Get into a comfortable position and let’s explore together.

Next up, we explore the Fintech Ecosystem in SA, the picture below is a cross-section of some Startups in SA.

https://adorsys.com/blog

Zooming in on the Fintech Startups. Here are some interesting facts that you need in your strategy folder if you are working in the Fintech ecosystem in Africa.

  • Fintech is the major driver of Startup activity in South Africa, accounting for 30%.
  • It is one of the 3 countries in Africa to move to the Payment protocol ISO 20022.
  • South Africa was one of the 1st countries to adopt real-time payments in 2006.
  • According to McKinsey, SA accounts for over 80% of insurance premiums in Africa.
  • It also has the largest percentage of banked citizens in the 4 major African fintech zones.

These definitely look like the dream of any Startup founder, investor, or scale-up looking to expand. But how has Fintech really fared over the years? Let’s explore the specifics 👇.

We’ll be doing our analysis using a dataset containing 147 Fintechs in South Africa from 2002 when the 1st Fintech showed up, to 2021. It is not an exhaustive list, so if your favs are not in there.. we apologize in advance😔.

South Africa is listed as one of the 4 major fintech zones. Others are Nigeria, Kenya, and Egypt. The largest Fintech categories are Payments and Lending having 39 and 25 companies respectively. This is consistent with other markets like Nigeria and Egypt. South Africa also has some game-changers like InsurTech and Blockchain.

An interesting fact about South Africa is the solid business metrics they have, owing to the number of exits/acquisitions they have had since 2015. Indeed, they account for the largest amount of acquisitions on the continent, with Fintechs having about 50% of these exits. It takes a village to build this kind of investor confidence. Participants in this ecosystem include Banks, Stock exchanges & brokers, Insurers, Lenders and Credit bureaus, Payment system operators, Central securities, Asset managers, Debt collectors, Money remitters, Investment schemes, and Fund managers.

Let’s look at more facts: The Payments and Insurance subsectors also have the largest fintech in terms of the number of staff with Yoco and Yoyo(WiGroup) leading the pack.

So what specific services do these Payment Startups offer, and where are the opportunities? From our analysis, the opportunities are focused on POS, Remittance, Recurring payments and Payment solutions focused on B2B verticals.

Next, we look at the Regulators, a few of the regulations, and the supporting bodies. South Africa is said to be a Fintech-friendly nation because of the efforts the regulators have put into setting up structures and programs to engage with the ecosystem.

There are 6 main regulators focused on banking, payments, credit, insurance, and investment or crowd-funding.

Also related to the Regulators are the regulations. SA does not have a specific Fintech Regulation but they have Acts, policies, and requirements for the various participants to adhere to, based on their activities. Take a look below:

Fintech Related Regulations

There are a number of supporting bodies that help with the monitoring, execution, and regulation of innovation in the Financial space in South Africa. They are:

  1. The payments Association of South Africa (PASA)is the governing body for payment systems. It was established in 1996 and is responsible for organizing, managing, and regulating its members’ participation in the payment system.
  2. Fintech Unit was established within the SARB in 2017, to explore the implications of fintech innovation for the SARB and financial services in South Africa in a structured, organised and proactive manner.
  3. The Intergovernmental Fintech Working Group (IFWG) was established in 2016 to create a forum for regulators to gain deeper insights into fintech innovation.
  4. The Payments Council was established in April 2019 and replaces the National Payment System Strategy Body. It acts as an advisory body to the SARB.

So what is new in this Fintech giant, and what news should be expected in 2023? We’ll explore 2 of them.

  1. New Payment Rails — RPP: South Africa has been testing its Rapid Payments Platform in collaboration with BankservAfrica. Rapid Payments enables the nationwide use of digital payments for high-volume, retail payments that are currently paid in cash. It will be launched in 2023 commercially under the name PayShap — South Africans will be able to transfer money instantly from their phones, email, and Whatsapp.
  2. Block Chain & Crypto: In Oct 2022, a declaration by the FSCA mentioned that crypto assets are financial products but not legal tender. Subsequently, Cryptocurrency financial companies in South Africa will need to apply for a license between June 1 and Nov. 20, 2023, in order to operate legally.

We hope this has given you a lot of insight into the South African Fintech market. What was your biggest takeaway?

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