Africa is experiencing a surge in financial technology (fintech) innovation, and two countries stand out as leaders: Kenya and South Africa. Both boast vibrant ecosystems, but their approaches and strengths differ significantly.

Market Size and Penetration:

Kenya has a larger unbanked population, though steadily decreasing, and boasts the world’s mobile money capital; M-Pesa is a prime example. This high mobile phone penetration fuels financial inclusion through mobile money adoption.

Kenya is positioned to be a global leader in financial technology (fintech) with an expected penetration rate of 13% by 2025. This translates to a massive revenue opportunity exceeding $30 billion.

In Kenya, the percentage of people with bank accounts is expected to keep rising steadily between 2024 and 2029. By 2029, an estimated 99.9% of the population will have a bank account, reflecting a significant increase from 96.43% today. This impressive growth builds on a trend of continuous expansion in recent years.

Top 5 Ventures Supporting Kenyan Fintech

Additionally, the digital assets segment within Kenya’s fintech market is expected to experience steady growth, reaching a market size of over $3.6 billion by 2028.

South Africa, on the other hand, has a smaller unbanked population and a more established financial system. Fintech innovation here focuses on niche areas like wealthtech and insurtech, catering to a more developed financial services market. According to Statista.com, South Africa accounts for 40% of all fintech revenue in Africa.

The percentage of people with bank accounts is expected to keep climbing steadily between 2024 and 2029. Forecasts predict an overall increase of 8.7 percentage points by 2029.

This means after 15 straight years of growth, bank account penetration is expected to reach a new high of 96.62% by 2029. It’s worth noting that this growth isn’t new – the number of people with bank accounts has been steadily rising for years, and currently sits at 87.89%.

Startup Landscape:

Kenya’s fintech scene is known for its mobile-first approach. With a high volume of early-stage startups, the focus is on tackling financial inclusion through mobile money and micro-lending solutions including Tala, M-Pesa, Branch, Zenka, KCB M-Pesa, Okash, Timiza, Fuliza, and Mshwari.

South Africa, in contrast, is home to more established fintech companies. These companies, including TymeBank, a digital banking startup part of the Tyme Group of companies headquartered in Singapore target broader financial services and prioritise integration with traditional banking systems, fostering a more comprehensive financial landscape.

Regulatory Environment:

Kenya enjoys a more agile and progressive regulatory environment. This allows for faster innovation and testing of new ideas, fostering a dynamic and rapidly evolving fintech space.

In Kenya, existing financial regulations govern Fintech activities. Mobile money, a widely used service, falls under a separate law, the Kenya Information and Communications Act (KICA) of 1998, which oversees mobile network operators.

Money remittance, the transfer of money without creating accounts, is regulated by specific Money Remittance Regulations established in 2013.

South Africa has a more established and cautious regulatory framework. The main regulatory compliance issues that FinTech companies face in South Africa are consumer protection, data privacy, cybersecurity, and anti-money laundering.

While this may lead to a slightly slower pace of innovation, it also brings stability and reduces risk for investors.

Funding Landscape:

Kenya attracts significant venture capital funding, with a high concentration of investments in early-stage startups. This fuels the high number of young, innovative companies tackling financial inclusion challenges.

In the first half of 2024, Kenya led the way in startup funding on the continent by raising $244 million, marking the third consecutive semester in which it took the lead.

This amount represented approximately 32% of all funding raised by startups in Africa. Kenya saw a 5% increase in its share of total funding compared to 2023.

Additionally, 86% of all the funding raised in Eastern Africa went to Kenya, although this was slightly lower than the 89% share it recorded in 2023. Eastern Africa also ranked first in attracting funding on the continent, securing 37.5% ($285 million) of the total funding.

Only one other country in the region, Uganda, claimed more than $10 million in funding in the first half of 2024 ($19 million), while Tanzania narrowly missed the mark with $9 million. Other markets in the region that did attract funding, such as Sudan, Ethiopia, and Rwanda, raised less than $5 million each.

Despite securing a significant $880 million in investments by 2023, Kenya’s fintech sector has captured a relatively small share (only 8%) of Africa’s total fintech investments over the past five years.

Top 10 fintech Products in kenya

This could be due to Kenya’s booming green-tech industry, which has attracted a much larger portion (45%) of Africa’s clean-technology investments since 2019.

In other words, Kenya’s strong economic drive is evident, but investors might be currently more interested in the country’s green-tech potential compared to fintech.

South Africa receives a larger share of the total fintech funding in Africa. However, their investment distribution is more balanced, supporting both early-stage and later-stage companies.

In the first half of 2024, South Africa’s ranking dropped to fourth place with a total funding of less than $100 million ($85 million), representing 11% of the continent’s total start-up funding, a decrease from 21% in 2023.

Despite this decline, South Africa continued to secure almost all the funding invested in the region, accounting for 98% in the first half of 2024, up from 96% in 2023. Overall, the region claimed 11.5% of all the funding.

Beyond the Numbers:

Talent Pool: Both countries have a growing pool of skilled tech talent. South Africa might have a slight edge in terms of experienced financial professionals.
Infrastructure: South Africa boasts a more developed financial infrastructure. However, Kenya is rapidly expanding its digital infrastructure, making it an attractive market for future growth.
Regional Reach: Kenya’s mobile-first approach positions it well to target other East African countries with similar mobile penetration rates.

Kenya and South Africa offer contrasting approaches to fintech. Kenya excels in mobile-driven financial inclusion, while South Africa focuses on broader financial services and integration with traditional systems. Both countries are crucial drivers of African fintech, and exciting developments are expected in the years to come.