Scaling African fintech for future, lasting success

A new report from the Wheeler Institute for Business Development (Wheeler Institute) aims to deepen the understanding and definition of growth scale relating to the spreading community of African fintech firms.

The report, the first of a series of such investigations into the application of digital technology in emerging economies, is the first output from a new initiative, DigitalxScale, a collaboration between London Business School’s Wheeler Institute, and the Foreign, Commonwealth & Development Office (FCDO).

The report, Africa Fintech: Scale Prevalence (Wheeler Institute for Business and Development, July 2021), acknowledges that there is very little research investigating the definition of scale and prevalence, especially in the context of digital technologies in Africa. The research uses an innovative methodology to develop insights into the prevalence of scale, drawing on the largest database of firms so far, specifically the 720+ firms operating in the fintech sector in Africa.

With more than half of the adults living in continental Africa not using banking services, fintech companies fill gaps in traditional financial services by innovating and introducing digital systems and infrastructure. Such companies are important because they stimulate opportunities for wealth creation in African countries. The continent saw fintech funding, including mergers and acquisitions, grow to $1.35 billion last year from $1 billion in 2019, according to a report by BFA Global’s Catalyst Fund and Briter Bridges.

Achieving scale is important for these African fintechs because of the magnitude of the problems arising from long-standing issues, such as rural poverty, and environmental and healthcare challenges.

It is vitally important to understand how fintechs can scale across Africa, and to measure the challenges which may impede further growth.

“This is an exciting step toward unlocking the door to much wider success in business development, economic growth and poverty alleviation in Africa,” said Rajesh Chandy, Professor of Marketing at London Business School, and Tony and Maureen Wheeler Chair in Entrepreneurship; Academic Director at the Wheeler Institute.

In the foreword to the report, FCDO Head of Technology and Innovation Scaling and Partnerships, Magdalena Banasiak, said: “With so many fintech companies operating in Africa, it is clear that this is a fast-growing and exciting space. Indeed, digital applications in emerging economies hold much promise with hundreds of millions of mobile savvy customers, and many thousands of small informal businesses increasingly seeking alternatives to old-world banking models.”

Ms Banasiak acknowledged the importance of taking a more data-centric look at the challenges of scale, and most crucially of all, seeking evidence of consistency in the factors that link to scale.

“At FCDO, we constantly seek to understand the drivers of success so that we can align our work and investment to achieve maximum impact. The research behind this report was conceived as we asked ourselves the question, ‘why some digital initiatives scale but many do not?’” said Ms Banasiak.

In addition to the FCDO, the wider partners and collaborators in the preparation of this report included UKAid, GSMA and BriterBridges. Eight LBS MBAs under the guidance of professor Chandy and Dr Nick Hughes OBE, Executive Fellow of the Wheeler Institute, undertook the research.

Funding for the report and future research comes from both the FCDO and the Wheeler Institute. The other partner organsiations in DigitalxScale will provide ongoing research support. It is envisaged that future research from the Wheeler Institute for Business and Development will inform UK Government policy with regard to its future funding models for African nations, eventually offering a nimbler, more targeted method of providing aid.

Professor Chandy said that the benefits of ongoing research offered a win-win for African nations and for the FCDO.

“Our research offers a means for the FCDO to turbo-charge support, providing targeted support where and when it is needed.”