The Africa Payments Innovation Jury released its inaugural report this week, revealing that businesses trying to reach the currently under-banked population are driving payments innovation across the continent. However, to be successful these businesses need to overcome access to funding and regulatory challenges. The Global Payments Innovation Jury is the most global body to look into payments innovation. This year, for the first time, a dedicated Africa Payments Innovation Jury, consisting of 25 industry leaders from 14 markets, was formed to contribute to a research report into African payments and fintech innovation trends.
A global snapshot
The 2017 Global Jury rated Asia as the home to most payments innovation over the next two years, a position that it has held since the inaugural 2008 Jury. Europe was ranked second, followed by Africa, North America and Latin America.
When it came to deciding where to build a new payments business 81% of the Africa Jury voted for the continent as the ideal location.
“The Africa Jury demonstrated the clear view that, despite the challenges associated in creating and running a payments business on the continent, the potential for growth is high and is likely to only increase. Indeed, to be rated ahead of North America is a striking result given the African fintech and payments landscape,” said John Chaplin, Chairman of the Africa Payments Innovation Jury.
The preference for B2C
The Africa Jury showed a preference for investment in consumer focused businesses, with 58% choosing B2C businesses over B2B. This is in marked contrast to the global position where there is a 55% rating in favour of B2B, which in regions such as Europe rises to 75%.
“Despite the cost and difficulty involved in building large customer bases, the Africa Jury prefers B2C largely because of the growth potential from bringing the currently underbanked population into the electronic payment world,” said John Chaplin. “B2B will become more important over time but many African businesses are still in the informal sector which limits their potential for now.”
VC funding shortage
The Africa Jury reported a significantly lower level of funding availability than the Global Jury reported for the rest of the world.
The Africa Jury felt that initial investment in a business can sometimes be obtained from angel investors, but this source of capital is less developed than in most other regions. The
relative scarcity of funding continues for Series A rounds when the lack of a well-structured and funded venture capital sector in many markets presents a major challenge for entrepreneurs.
However, for companies that can establish sustained growth and profitability there is considerable competition between private equity firms to provide investment.
“The lack of early stage funding can choke off many potentially promising business ventures. In order for a vibrant payments and fintech industry to develop in Africa, investors must consider the potential returns of early stage businesses that solve real problems”, said John Chaplin.
Role of regulation
A sizeable majority (57%) of the Africa Jury felt that regulatory action is detrimental to payments innovation. This is substantially more pessimistic than the Global Jury which had a 39% negative score. However, 35% of the Africa Jury conceded that regulators were assisting innovation.
”There is an opportunity for payments regulators in Africa to up their game especially in relation to innovators and investors, and in licensing non-bank payments companies. This could really help to deliver the policy objectives of the regulators,” said John Chaplin.