The fintech landscape in Africa is experiencing a surge in growth opportunities – with South Africa emerging as a key player in this dynamic sector. Despite global challenges, venture capital investment in South Africa remained resilient, marking a 6% increase to reach a notable $620-million in 2023.

Fintech solutions, particularly those addressing payment challenges, continue to dominate innovation and attract significant venture capital interest across the African continent.

And, according to Antonia Bothner, Endeavor SA’s capital markets lead, the market’s transition from cash presents vast untapped potential – both in South Africa and across the African continent – where up to 75% of transactions are still cash.

Africa provides fertile ground for tech development, offering investors a leapfrogging effect through its young and populous markets with high levels of tech adoption. South Africa is a particularly attractive market to start in with its first- and third-world attributes. It has a developed tech ecosystem, established B2B network, relatively low costs, yet with a mass market, meaning many opportunities for innovation.

In many cases, these solutions are transportable – such as TymeBank expanding to the Philippines and Vietnam, and Entersekt taking locally-developed transaction authentication solutions to developed markets.

“The development of fintech solutions tends to revolve around payments which is often the first building block of any tech ecosystem because it is such an ubiquitous problem to solve,” explains Bothner. “This creates a burgeoning pipeline of opportunities for fintech companies – particularly in payments, remittances, and B2B solutions.”

Despite a global decline in VC investment in 2023, South Africa bucked the trend and several notable regional fundraises continue to underscore the confidence in its potential. These include the SME Fund’s Venture Capital Fund of Funds, Partech Africa II, Norrsken22, Convergence Capital, Al Mada, Knife Capital, Sanari Capital, Quona and Havaic.

Recent investments in payment companies like Stitch and Peach Payments also highlight the increasing investor interest in fintech ventures. Furthermore, South Africa’s stability amid currency fluctuations in other African countries – notably Nigeria and Egypt – positions it as an attractive destination for investors seeking a balance in both risk and return.

“There is increased inbound interest and recognition by investors, many of whom felt they were under-allocated in South Africa,” says Bothner. “It represents a market with comparatively lower volatility bolstered by a robust asset management sector, a keen understanding of value, and enticing investment opportunities in profitable companies run by strong management and affordable talent.”

These entrepreneurs are attracting investments from companies like Quona Capital, a global fintech investor whose investments include local payments company Yoco.

Quona Capital partner, Johan Bosini says: “There has been a huge influx of foreign capital into the fintech ecosystem which has built up over several years to create early and late investment opportunities, and evidence of exits, which provides a level of comfort for investors.”

Bosini says fintech has evolved from pure play products into financial infrastructure, lending, banking as a service, and banking orchestration. There is also a continuation of embedded finance where companies are not necessarily starting with a financial service, but solving a bigger problem.

Allan Gray, with its strong connection to the entrepreneurial sector, is also an investor in the fintech space. It backed companies like Peach Payments and Onafriq through its venture capital arm which is now known as 3 Capital Ventures.

Sizwe Nxumalo, managing partner at 3 Capital Ventures, says: “South Africa is fertile ground for financial innovation boasting a legacy as the world’s most inventive insurance market with pioneers like Discovery and OUTsurance, alongside ground-breaking banks such as FNB and Capitec.

“Its market maturity and sophistication create a unique ecosystem where fintechs like Weaver, TYME Bank, Yoco and Retail Capital can not only thrive, but also achieve meaningful scale focusing primarily on this market,” Nxumalo adds.

There are also significant opportunities for later stage investing.

“At this point in their lifecycle, these companies are relatively agnostic of market cycles and plough ahead on their own trajectory,” says Bothner. “Once companies find a market fit, they can grow via disruption and/or creating new industries.”