The Fintech Landscape of South Africa by Richie Santosdiaz for The Fintech Times
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The Fintech Landscape of South Africa

South Africa has a fintech sector that is playing a strong role not only for the country but the African continent as a whole. The country is historically a major trade and investment commercial hub for the African continent to do business globally. It is unique in that it has two global cities – Johannesburg and Cape Town.

The Fintech Times’s Fintech: Middle East & Africa 2021 Report highlighted the importance of South Africa in the wider Middle East & Africa (MEA) landscape. The country was ranked as an emerging fintech hub (tier-2) in the middle category. The only other African countries in the Tier-2 category were Nigeria, Kenya, Egypt, Mauritius, Ghana and Tunisia – with Rwanda, Morocco and Uganda as “countries to watch” ranking high in the tier-3 early stage fintech hub category. Why does South Africa have an emerging fintech hub?

First, South Africa – alongside Brazil, Russia, India, and China – are known as the BRICS. All five have large populations and emerging economies. Despite current economic challenges with some of them, the five nations do still represent large populations and emerging markets and opportunities.

Despite any recent challenges, South Africa has a relatively established ecosystem that not only includes its financial services industry but also a large market. For instance, the largest city in South Africa, Johannesburg, is home to some of Africa’s leading banks and financial institutions such as Standard Bank Group, FirstRand, Absa Group, Nedbank Group and Investec, making it a potential fintech magnet for Africa. In fact, in terms of the top ten largest banks in the African continent by asset, many on the list are in fact South African.

Banks across the continent have been partnering with fintechs. For instance, Nedbank has also recently partnered with fintech Xero, to give small businesses and their advisors financial data through a fully digital API-enabled bank feed. The new feed will be available to Nedbank small business clients with a Xero account, at no additional cost. Once live, small businesses will be able to connect the feed from their Xero account.

South Africa’s second largest city – known for its beautiful landscape and tourism – is also a big player in the tech industry. The majority of the industry, or some 47% of tech start-ups, is based in the Western Cape, where Cape Town is located, with Gauteng, where Johannesburg is, in second place at 44%. In addition, Cape Town accounts for 75% of the country’s venture capital deals. Of the more than 500 entrepreneurial companies in Cape Town’s tech sector, around 20 percent are in ecommerce and SaaS while 15 percent are in fintech. The city is also home to Africa’s oldest tech incubator, the Cape Innovation and Technology Initiative (CiTi), according to its website. Cape Town has ana international pool of talent, growing ecosystem of support, and a relatively low cost of living, helping promote not just fintech but tech in general.

South Africa compared to its fellow African nations actually has a pretty high banked population as well as one that is insured. For the former the majority of South Africans (at least 67 per cent) have a bank account. With regards to insurance, South Africa, according to a report from McKinsey, has over 80 per cent of premiums from the entire African continent.

This is where fintech comes in. It is highlighted that South Africa has the highest penetration of fintech in the African continent, where around 94 per cent of the population having regular access to the internet and a mobile phone penetration of over 100 for every 100 people.

There have been recent initiatives to help further foster the fintech ecosystem in the country. For example, the Fintech Times report highlighted that the South Africa Reserve Bank has overseen several initiatives that have included ProjectKhoka and the InterGovernmental Fintech Working Group. Johannesburg with respect to fintech, in particular, is fast becoming a magnet for banking for low-income customers, financial inclusion fintech and insurance. The city last year had more than 220 programmes offering support to startups. Amongst the estimated 450 startups in the city, around 30 percent of those are in the fintech space.

South Africa generally has fintech-friendly rules, where the South African Reserve Bank established the Financial Technology Programme, which aims to assess the emergence of fintech and take into consideration its regulatory implications. The Financial Intelligence Centre, Financial Sector Conduct Authority, National Treasury, South African Revenue Service and the South African Reserve Bank even have released a paper on crypto assets.

The country, despite its potential has its own challenges. First, as in much of the rest of the world, it has seen better days and COVID-19 didn’t help. In addition, much of the best and brightest across the African continent, including South Africa, often leave for greener pastures such as to America or Europe.

In addition, the country – amongst others that are learning to control, handle and co-exist with the rise of cryptocurrencies – has also tried to pass its own rules and legislation around that. A recent paper by the Intergovernmental Fintech Working Group called for the regulation of the nation’s current cryptocurrency system.

Despite those challenges, growing collaborations such as those mentioned earlier with banks and fintechs can also see benefits even with African nations working together. For instance, the Africa Continental Free Trade Agreement (AfCFTA) could see South Africa and its other neighbours potentially benefit from international trade and investment and wider economic development, especially in the digital space.

To note, the country has not only produced some of fintechs most innovative solutions for South Africa but that it has even been exported throughout Africa and beyond globally. Some examples of fintechs that were born in South Africa include Jumo, Yoco, Retail Capital, The Sun Exchange, Naked Insurance, Wealth Migrate, TymeBank – to name a few.

South Africa historically has played a strong role in the African continent and this, despite any current challenges, can hopefully continue to see the innovations and talent that the country has produced in the future – both fintech and with the wider economic development of the global economy.

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