First revealed 15 September, 2024

What’s the way forward for Kenyan fintechs?

M-Pesa, Kenya’s dominant cell fee platform owned by Safaricom, processed a staggering 20 billion transactions in 2023, accounting for about 60% of the nation’s GDP.

Whereas M-Pesa has revolutionised digital banking and fee companies, its dominance out there has decreased the urge for food for fintech startups. In comparison with its friends, Kenyan fintechs haven’t set new digital fee requirements, as in Nigeria, Egypt, and South Africa. Some may argue that the nation’s regulatory surroundings has slowed improvements within the monetary companies sector, but it surely’s too laborious to disregard M-Pesa’s successful streak.

What’s the way forward for fintech startups in Kenya? A report by Stears, a Nigerian market intelligence agency confirmed that Kenyan fintechs secured 8% of the overall investments within the sector between 2019 and 2023, trailing Nigeria (39%), South Africa (20%) and Egypt (16%).

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As VCs shift focus to local weather tech, which attracted 45% of complete offers in H1 2024, constructing the following large digital financial institution to unseat conventional service suppliers may not sound like a superb pitch.

M-Pesa has helped unbanked entry to monetary companies, whereas conventional banks have raised their recreation by introducing digital banking platforms– the 2 developments have solved the accessibility and comfort questions.

Founders should current a compelling enterprise mannequin, with proof they are often worthwhile and purchase prospects to obtain buyers’ backing. Smartphone-friendly expertise alone shouldn’t be sufficient to unseat Kenyan conventional banks and telcos, which have confirmed they’ll introduce among the options that neobanks use to seize the market. Conventional monetary establishments have additionally proved they’ll pour hundreds of thousands and poach employees from fintechs’ ranks, shifting with their concepts.

Fintech offers in Kenya

The expansion of digital funds in Kenya

Regardless of this onslaught from M-Pesa and conventional banks, all shouldn’t be misplaced for Kenyan fintechs. Whereas telcos and banks have constructed digital monetary companies platforms, VC analysts consider there’s a transparent alternative to construct with an actual digital-first strategy. For example, most Kenyan banks require prospects to go to bodily branches to open accounts and resolve disputed transactions. It’s the identical case with opening M-Pesa accounts and addressing fraud-related points. However, fintechs can construct options designed from the bottom as much as be digital, providing a extra user-friendly and handy expertise.

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Cellular cash and digital banking in Kenya haven’t introduced down the banking charges as specialists thought. In 2020, Kenyan regulators pushed for full interoperability with the hope that it could encourage competitors within the ecosystem and doubtlessly decrease prices. Whereas M-Pesa’s opponents, Airtel Cash and Telkom Money, supply decrease charges, it nonetheless controls practically 97% of the cell funds market. Floating fintechs as a possible reply may seem like a longshot, however there’s ample proof that they decrease prices. Neobanks’ reliance on expertise and decreased bodily infrastructure means they’ll simply minimize working prices, which they’ll move to prospects with decrease charges.

Kenyan fintechs can even concentrate on particular market segments that conventional monetary establishments could not prioritise. Most fintech options in Kenya have been round funds: P2P, P2B, B2B and cross-border or remittances. But, many alternatives in different monetary companies subsector are underserved. At 3%, Kenya has one of many lowest insurance coverage penetration charges in Sub-Saharan Africa. Founders can discover merchandise that serve this market, which banks like Fairness Group and KCB Group have now proven curiosity in. Entry to inexpensive credit score is one other space that’s usually ignored. In 2020, a number of micro-credit apps emerged, however most have been accused of saddling prospects with money owed.

Kenyan fintech will want greater than apps designed for cell interfaces to draw and retain prospects within the face of M-Pesa and conventional banks’ competitors. In Nigeria, Egypt and South Africa, neobanks are difficult legacy establishments with cell fee options, lending and PoS companies. Kenyan gamers have been unable to copy that stage of success. Regardless of the hurdles, founders ought to seize the alternatives in different subsectors of monetary companies like insurance coverage.

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Adonijah Ndege

Senior Reporter, TechCabal

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