AFRICA: Investor Interest Surges Amid South Africa’s Fintech Expansion

South Africa’s fintech sector is experiencing rapid growth and attracting significant investment, establishing the country as a leader in African financial innovation, according to Antonia Bothner, Capital Markets Lead at Endeavor SA, an entrepreneurship network. Bothner points out that the market is shifting away from cash, with a vast majority of transactions across Africa still being cash-based, which creates substantial opportunities for fintech solutions.

Despite global challenges, venture capital investment in South Africa has remained relatively stable. Payment solutions lead fintech innovation and attract a considerable amount of venture capital across Africa.

Africa’s young, tech-savvy population provides a fertile ground for tech development. South Africa stands out with its blend of first and third-world characteristics, developed tech ecosystem, and strong business-to-business (B2B) network. Its relatively low costs and large market present ample opportunities for innovation.

Despite a global decline in VC investment in 2023, South Africa experienced significant fundraises, demonstrating investor confidence. Notable funds include the SME Fund’s Venture Capital Fund of Funds, Partech Africa II, Norrsken22, Convergence Capital, Al Mada, Knife Capital, Sanari Capital, Quona, and Havaic.

Recent investments in companies like Stitch and Peach Payments underscore the growing interest from investors. South Africa’s stability, in contrast to currency fluctuations in other African countries such as Nigeria and Egypt, makes it an appealing destination for investors seeking a balanced risk and return.

“There is increased inbound interest from investors, many of whom felt under-allocated in South Africa,” says Bothner. “It’s a market with lower volatility, strong asset management, and promising investment opportunities in profitable companies with strong management and affordable talent.”

Quona Capital, a global fintech investor, has made an investment in the local payments company Yoco. Partner Johan Bosini states: “The fintech ecosystem has seen a significant influx of foreign capital, which has created both early and late investment opportunities and demonstrated exits, thereby providing reassurance for investors.”

Bosini further explains that fintech has transitioned from offering simple products to developing financial infrastructure, lending services, banking-as-a-service, and banking orchestration. The trend of embedded finance persists, with companies beginning by addressing larger issues rather than concentrating exclusively on financial services.

Allan Gray, an investment firm associated with the entrepreneurial sector, channels investments into fintech through 3CapitalVentures, supporting companies such as Peach Payments and Onafriq. Sizwe Nxumalo, the Managing Partner at 3 Capital Ventures, asserts: “South Africa’s mature and sophisticated market fosters a unique ecosystem where fintechs like Weaver, TymeBank, Yoco, and Retail Capital can thrive and scale.”

Bothner highlights significant opportunities for investing in later stages: “At this phase, companies are less impacted by market cycles and maintain their growth trajectory. Once they achieve market fit, they can expand through disruption or by creating new industries.”