Africa is the second largest continent in the world (after Asia) and accounts for 20% of the world's population. Therefore, although most African regions are not economically developed, they have always been the target market of major FinTech companies. With the development of the Crypto industry, many projects have set their sights on Africa, where the financial infrastructure is not well developed, since 2021. Compared with Southeast Asia, which has become popular due to GameFi, Africa seems to be still exploring its decentralized financial path. This article will introduce the development history of the African Web2 financial market and sort out the current Web3 projects and development status that have settled in Africa.
Africa has always been a hotbed for the development of FinTech companies due to its immature financial infrastructure. Instead of leaving most people unbanked, SMS finance companies invented a way to send and receive money by using ordinary PHS and receiving pin code verification. For local people, this is a simple and affordable version of Alipay. One of the best is the M-Pesa platform launched in 2007, a financial technology company jointly owned by Vodafone and Kenyan communications company Safaricom. M-Pesa, which operates in African countries such as Kenya, South Africa and even India, had 7 million users in Tanzania alone in 2016. However, traditional financial companies seem to have fallen into the "impossible triangle". The quick method is accompanied by relatively high handling fees, which has become a bottleneck for the development of the platform, causing dissatisfaction among low-income users in Africa, and also paved the way for the rise of cryptocurrencies later.
In the field of financial payment, faster, cheaper and higher throughput are the eternal pursuits of users and merchants. Today, although SMS finance is still the dominant force in the region, cryptocurrency has joined the battlefield after years of dormancy. With its cross-border settlement level and relatively low and stable handling fees, it has attracted more high-quality and more capable users at a faster rate, and has also spawned a number of excellent companies in Africa. Behind these companies, you can more or less see Chinese figures. Super companies and emerging startups are accelerating their pace in Africa, a continent that has not yet been saturated.
FinTech in Africa: China’s Web2 glory reappears
Chinese technology investors’ presence in Africa dates back at least 20 years, and many of Africa’s fintech unicorns valued at over $1 billion today also have Chinese super companies behind them. For example, Interswitch, a Nigerian fintech giant valued at $1 billion, provides payment cards and digital payment services. It handles most of Nigeria’s electronic banking, government and corporate transactions, with sales exceeding $1 billion in 2019. In 2020, Interswitch East Africa (Kenya) reached a cooperation with UnionPay International in 2020 and became UnionPay’s third-party payment service provider in East Africa.
For example, Flutterwave, a Nigerian fintech company founded in 2016, completed a $250 million Series D financing in 2022, with a post-investment valuation of $3 billion. Flutterwave handles a large number of cross-border payment orders in Africa and established a partnership with Alipay in 2019 to conduct digital payments between China and Africa. All Flutterwave users can choose Alipay payment on its platform, which gives Flutterwave a ticket to the $250 billion China-Africa trade market.
Another African fintech company, OPay, the largest C-end mobile payment service provider in Nigeria, is even more "authentic". This "African Alipay" OPay was incubated by Opera, a Norwegian browser company. Opera was acquired by China's Kunlun Wanwei Group in 2016 and went public in the United States in 2018. There are many Chinese people in OPay's core team. Its multiple rounds of investors all have Chinese backgrounds, including Meituan, Gaorong, Source Code, Redpoint, Sequoia China and Softbank, etc. OPay's latest financing is US$120 million, with a post-investment valuation of US$2 billion. CEO Zhou Yahui was once the CEO of Kunlun Wanwei and Opera. He is well-known in China's entrepreneurship and venture capital circles and is currently focusing on the African market full-time.
Another company developed by Transsion, PalmPay, has also participated in the payment battlefield competition in Africa. Transsion, which claims to be the "King of African Mobile Phones" with an annual revenue of 100 million, has been thriving in Africa, but Transsion is not satisfied with just making hardware. It has laid out a global ecosystem and has successively launched news aggregation platforms and browsers around it. Its product "African version of TikTok" Boomplay "occupies" a lot of spare time of African people. In 2019, Transsion incubated PalmPay, a Nigerian financial service platform, which can provide electronic payment, transfer and remittance services. In 2021, PalmPay raised $100 million in Series A financing, and investors include Genesis Partners Capital CCV, some global sovereign funds, Yunshi Capital, etc. PalmPay is one of the fastest growing mobile applications in Africa, and has been the number one download in the Google App Store in Africa for many years.
Of course, Chinese capital is not only investing in Africa, but also in pre-investment, mid-investment and post-investment. American and Chinese giants have also run smoothly in Africa. In October 2020, Stripe, a payment giant headquartered in the United States and Ireland, acquired Nigerian payment company Paystack for $200 million in cash and stock.
The reason why tech finance companies are flocking to Africa is also obvious. Africa's basic finance is backward and uneven, and most commercial trade still uses cash. Compared with Asia's 19.2% cash usage rate for PoS transactions and Europe's 27.4%, Nigeria's cash usage rate is 69%, and not long ago it was 91%. The large amount of cash circulating in Africa requires large bank branches to spend a lot of money to store it.
In addition, the popularity of China's relatively cheap smartphones and ordinary mobile phones in Africa has also provided fundamental convenience for the technology and financial ecosystem. It is relatively easy for smart manufacturers (Transsion, Huawei, ZTE, Xiaomi, etc.) who have made a lot of money to promote finance in their own ecosystems and put financial business into their own pockets. Not to mention that large companies and individuals who went to Africa for infrastructure and trade decades ago have made the China-Africa trade market a value-added market that is in great need of faster payment methods. Whether it is local settlement in Africa or cross-border China-Africa settlement, the current market can be said to be a blue ocean.
If retail e-commerce companies have found the growth blowout in China 10 or 20 years ago in Southeast Asia, then technology finance has or is replicating this growth in Africa.
Cryptocurrency in Africa: A warring continent ruled by “warlords”
Africa seems to be a natural breeding ground for cryptocurrencies. Due to the backwardness of financial infrastructure, Africa has fewer obstacles in accepting new things. In the past 10 years, African people's habits in product use have been constantly broken and replaced... They are also looking for a financial product/payment method that is suitable for long-term use, cheap, convenient and safe. Cryptocurrency is emerging.
According to statistics, the cost of sending money from abroad to Africa using cryptocurrency is 1%-3% of the remittance fee, while the World Bank estimates that the cost of sending $200 using traditional remittance agencies is 9% or more. If the low remittance cost attracts ordinary families with a rigid need to transfer money, then the market gap and huge opportunities in the Web3 field are more attractive to the highly educated and elite groups in Africa. Web3 does have great potential for prosperity in Africa, and more and more young, educated and smartphone-savvy Africans are rapidly accepting cryptocurrency. The crypto market in Africa grew by 1,200% during 2021-2022. Axie Infinity, which was popular in 2021, also saw considerable user growth in Africa. Its players in Ghana can earn $140-420 per month through this Play to Earn app, which is several times higher than the country's minimum income.
Thanks to Africa's love for GameFi, a Play to Earn gaming platform Jambo has come into people's attention. The platform was founded in 2021 by James Zhang, 26, and his 30-year-old sister Alice from the Democratic Republic of the Congo. Jambo means "hello" in Swahili. Jambo received a $30 million Series A financing led by Paradigm in 2022, which was also Paradigm's first investment in the African Web3 market. Casey Caruso, investment partner at Paradigm, commented: "We see huge Web3 potential in Africa, and it is clear that James and Alice are in a unique position to establish a lasting entrance to the African continent." The siblings hope to introduce the blockchain-based version of the Internet, Web3, to Africa and build Jambo into a Web3 world "Africa's super application, just like WeChat has done in China over the past decade."
In addition to companies that want to create an African version of Web3 WeChat, Vibra, founded by Chinese Vincent Li, has become an emerging crypto trading platform in Africa. Vibra completed a $6 million financing in the Pre-A round in 2021. The investment lineup includes well-known companies in the industry such as Dragonfly Capital, Fenbushi, Hash Global, etc., as well as local VCs in Africa. Vibra was incubated and launched by African Blockchain Lab, which was founded by Everest Ventures Group (EVC). EVC is a division of Hong Kong private equity and venture capital Huiyou Capital that focuses on crypto investment and development. Its shareholders currently include the world's top 500 asset management companies, wealthy people, etc. EVC's investment list includes Sandbox, Dapper Labs and other well-known projects.
Although startups with top Chinese Web3 funding and resources are developing rapidly in Africa, the power of local governments in Africa should not be underestimated. Various services and products launched by the government are gradually competing for the development space of foreign companies' Web3.
The Central Bank of Nigeria is the leading central bank in Africa and around the world to test or even fully implement CBDC. As early as 2021, Nigeria became the second country in the world to use CBDC, and e-Naira was launched nationwide. A total of 3.4 billion of the 10 billion e-Naira currently minted are in circulation on the market. Unfortunately, private FPS in Africa is too strong, and e-Naira has very few users, with a user utilization rate of only 0.5%. The advent of e-Naira has also not fundamentally solved Nigeria’s monetary policy problems or reduced the country’s annual inflation rate of about 20%. Still, CBDC use is growing rapidly in Nigeria, where 90% of business transactions are cash. Especially during the recent run on banks in Nigeria, the use of e-Naira has increased significantly.
In the competition with private crypto settlement, the attitude of the Nigerian central bank is not supportive, but even suppressive. Half of African countries have adopted a clear ban on cryptocurrencies.
In cross-border settlements, the People's Bank of China is also a fierce tiger in Africa. As a financial link to enhance global influence, China has been trying to increase the voice of the RMB, hoping to use the RMB as a savings currency. Although the road is long, China has never given up. In the Belt and Road Initiative and other large-scale cross-border trade, China encourages participants to use RMB as a settlement currency. Large Chinese companies in Africa, such as Huawei, have added Chinese CBDC wallets to their mobile phones (Mate40). Therefore, e-RMB will also be seen in cross-border settlements between China and Africa.
Currently, Africa has more than 200 mobile phone operators, 100 mobile wallets, and more than 52 distinct national currencies or other types of currencies. Cryptocurrency development in Africa is mainly concentrated in Nigeria, Egypt, and Kenya, and the cultures of these three countries are very different. Ghana and South Africa are also on the map. Nigeria is the source of major Internet stories, and it is also one of the most popular sources of team members for Y Combinator investment (ranked third), second only to the United States and India. If Web3 projects want to develop in Africa, they can give priority to setting up offices in the above countries. Despite the wide distribution, there is a unity here. In Africa, 50% of mobile phones and 70% of communication infrastructure are handled by Chinese companies, and China began to support capital and financial technology giants in Africa in mid-2000.
Therefore, in Africa, where "feudal states" rule, the power of Chinese cannot be underestimated. Judging from the overall market situation, there are no crypto giants in Africa yet. If you want to reach the top, it may be a blue ocean, and you may not even have experienced a fierce battle. In addition to extending financial payments, as African users are increasingly exposed to cryptocurrencies and GameFi, the income level of users who have access to financial facilities has also increased. Referring to the development momentum of GameFi in Southeast Asia last year, perhaps Africa will be the second fertile ground for GameFi.
From an investment perspective, according to the "2022 World Investment Report on Africa's Foreign Investment Analysis", foreign direct investment (FDI) into Africa has reached a record high of US$83 billion in 2022 from US$39 billion in 2020, accounting for 5.2% of global FDI. After the decline in foreign direct investment in 2020 caused by the COVID-19 pandemic, most African countries and regional economic organizations have seen a moderate increase in foreign investment. Large investments are mainly concentrated in international projects such as mining projects, real estate and new energy. Investment in the Web3 field is still in its infancy, and overseas funds are more inclined to African Web3 founders with overseas study backgrounds. Although Africa's Internet users are very young and growing rapidly, according to the investment information in the Web3 field disclosed in the past two years, VCs' investment in Africa accounts for less than 3% of the world. This may also be related to Africa's complex political and cultural environment, but risks often come with opportunities. At a time when the global investment market is becoming increasingly saturated, whoever has the courage to take the lead may have the opportunity to unify the African financial market.
Zheng He's seven voyages to the West once reached the east coast of Africa. In today's globalized world, Chinese people may consider escaping from the overcrowded East Asia and Southeast Asia and turning their attention to the "new" continent.
Reference：
[1]https://techcrunch.com/2019/07/29/flutterwave-and-alipay-partner-on-payments-between-africa-and-china/
[2]https://www.chinanews.com.cn/business/2021/01-15/9388393.shtml
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[6]https://www.bis.org/publ/bppdf/bispap128.pdf
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[9]https://www.bitpush.news/articles/2714960
