Chijioke Dozie of Carbon: Exploring Africa’s fintech success story
Chijioke Dozie is the CEO and co-founder, Carbon. Here, Dozie takes a look into the dynamic African fintech landscape, as well as the opportunities and challenges that abound.
Exploring Africa’s fintech success story
For those that are not too familiar with financial systems in Africa, if I told you that one of Africa’s biggest problems is money, you may think I was talking about poverty. Although that would not necessarily be incorrect, I am actually talking about the challenge of effective and efficient access to money and the wide range of issues that beset financial services across the continent.
For starters, it costs money to use money. Across the continent, using an ATM, whether to withdraw cash or check your bank balance, costs money. You are also charged for bank-to-bank transfers and remittances. People are effectively taxed for accessing and using their own money.
There is also the issue of access to credit. For a variety of reasons, many African countries do not have the infrastructure that allows financial systems in develoAped markets to ascertain credit-worthiness. As a result, there is very limited access to loans and those that do get access are charged exorbitant interest rates.
African fintech is booming
It is in the context of these and other challenges that African innovators and entrepreneurs are developing fintech solutions. From payment solutions that don’t charge users for using their money to platforms that facilitate easy-to-access short-term loans, the African fintech scene is booming with a wide range of solutions. All hoping to address at least one of the challenges that face the continent’s financial service sector.
Even established global brands are getting in on the action. Mastercard recently announced that it has teamed up with telecoms provider Vodacom to launch VodaPay Masterpass, a digital payment platform that enables consumers to load any bank card into a secure digital wallet downloaded as an app on their smartphone. This allows them to pay for their needs and wants to match that same “always on” mindset using their smartphones.
Using a combination of technology, an understanding of unique needs and a knowledge of longstanding financial traditions, new platforms that are made by Africans for Africans are springing up all over the continent. For example, there is a Nigeria-based startup using machine learning to calculate the credit-worthiness of consumers who don’t have a credit history, opening the door to marginalised groups in the financial community. In many cases, female entrepreneurs are most affected by lack of access to financial services. Many of these women have been consistently overlooked but now have access to advisory services, loans and other financial services to help them scale their businesses.
Startups are receiving more funding
If the stats on startup funding in Africa is anything to go by, it looks like the boom is set to continue for a while. Of all the African startups that received funding in 2018, almost a third (32.6 percent) were fintech businesses - a greater percentage than any other sector. In Nigeria, African’s biggest economy, the dominance of fintech funding is even more pronounced. Over 80 percent of total funding raised by startups in Q1 of 2019 was raised by fintech. A financial service provider also got the highest amount of funding.
According to the Finnovating for Africa 2019: Reimagining the African financial services landscape report, Africa’s fintech companies have grown from 301 in 2017 to 491 (at the last count). African fintech ecosystem has grown by 60 percent in the last 24 months and fintech companies have raised more than $320 million in funding since 2015. In 2018 alone, $132.8 million was raised, making it the best year the sector has ever had.
There is growth across the continent
From Nigeria to Kenya and from Morocco to South Africa, fintech solutions are springing up, providing unique solutions to many longstanding issues as well as introducing new and innovative ways to address previously unidentified challenges. The rapid adoption of mobile phones has also created a golden opportunity to deliver a range of tailored solutions that will connect the hitherto unbanked with the benefits of the mainstream financial system.
When you consider that these solutions are being built and honed in some of the most hostile business markets in the world, and seeing incredible traction, you have to ask how soon we should expect to see these solutions in markets outside Africa.
The African fintech story is indeed one of the biggest success stories coming out of the continent. As the story develops, it will be very interesting to see what other successes lie ahead of this vibrant and innovative scene that some of us have the huge pleasure of being a part of.
Stripe backs Step - the digital bank for teens
The Series C round raised US$100m in capital from a number of backers, including Coatue, TikTok star Charli D’Amelio, actor Jared Leto, and Will Smith’s Dreamers VC, for the enterprise.
Step provides a free FDIC-insured bank account and Visa card to teenagers. The accounts are backed by Evolve Bank and there is no subscription charge for its usage. Users don’t pay for their accounts and there are also no overdraft fees.
The mobile banking app enables parents to set controls and limits on spending and encourage responsible finances. According to data released by the company, 88% of the platform’s users say this is their first bank account.
To date, Step has seen great success in the marketplace. The company has raised more than $175m from investors and now has 1.5m users.
Stripe, which was founded by Irish brothers Patrick and John Collison, previously led Step’s $22.5m Series A round in 2019.
Step's Series B funding round also brought in $50m, and has a distinctly celeb-tinged reputation with investors including Justin Timberlake and the pop duo The Chainsmokers.
Users get access to a free, FDIC-backed bank account, a spending card and P2P payments platform to send and receive money instantly.
CJ MacDonald, chief executive of Step, said the company is aiming to improve the financial futures of the next generation. “Step is the only banking platform that enables teens to start building a positive credit history before they turn 18 and does not charge fees of any kind.
He has previously spoken about the importance of financial literacy for young people. “Money is just one of those things where I think the more educated and equipped you are early, the better decisions you can make down the road,” he told . “And you can also prevent yourself from making costly mistakes. I mean, the average American doesn't have $400 in emergency savings and pays $350 a year in banking fees. If we can help this next generation just ultimately be smarter and more educated as it pertains to money, I think we'll all be better off.”
Kyle Doherty, managing director at General Catalyst and Step board member, explained, “Gen Z is flocking to modern financial solutions that can be easily embedded within their digital lives and Step has a unique model for how to do this right.”
The news follows on from Stripe’s recent announcement that it plans to acquire TaxJar. The fintech, which builds software for online businesses that automates the reporting and filing of sales taxes, will most likely be integrated with Stripe’s billing services.
Currently, No terms have been disclosed but the Boston start-up had raised more than $60m from investors including Insight Partners.
Stripe chief financial officer Dhivya Suryadevara said of the move, “With TaxJar, we will help millions of internet businesses running on Stripe with their sales tax and make it easier for them to sell internationally.”