Technopreneurs will always find innovative ways of solving problems, but Africa’s Fintechs have to deal with, amongst other  things, a more difficult investment environment, issues with basic infrastructure, government regulation/taxes, and dominant African multi-nationals.

We recently had cause to meet a Cape Town-based investor who had put together a rather interesting white paper for their new fund which looked at the USD-based returns required in Africa, and the concomitant pricing penalty and additional growth expectations on startups on the continent. Based on our experience advising mostly Fintechs on capital raises in both Europe and Africa, we see that the bar is higher for African startups, while achieving lower valuations, than their developed market counterparts.

I thoroughly enjoyed listening to the sessions and meeting some great people at the  AFSIC conference earlier this month. There was one session though that stood out more than others for me. Fintech Innovation facilitated by Ben Marrel (founder of Breega, that recently launched its first African fund). The panel was strong with some differing opinions on some points. But perhaps the most interesting point was that around the concept or description of Financial Inclusion. Benjamin Fernandez (CEO Nala) was blunt in his assessment.

Financial inclusion is something that is the result of many other factors working, such as connectivity. To try and solve Financial Inclusion without addressing the enabling environment is missing the point. As Oluwaseun Solanke (CEO VeryPay) pointed out – an ordinary guy needs to have financial services which aren’t an hour away. Benjamin confirmed, too, that in his experience living in Africa, there is always a bank or telco service down, which then impacts the companies trying to address Financial Inclusion.

An interesting point raised by one of the panelists was that most of the 720 odd digital wallets offered across Africa aren’t active. But importantly, the adoption of mobile money and therefore Financial Inclusion could be accelerated if governments actively freed up rather than attempted to control in the form of regulation and taxes. Mobile money is after all the “currency” that enables the ordinary guy to access financial services if they do not have a bank account – almost the definition of Inclusion.

A theme that I had not considered before, is that of the SaaS business model in Africa, which relies on scalability (implying geographically across the continent) and specifically the ability for customers to pay locally in a seamless manner.

Some Telco’s are trying to be everything to everyone right through the value chain, attempting to dominate the mobile money ecosystem exclusively. If that Telco then relies only on its own Fintech subsidiary to solve the Financial Inclusion challenge , it is likely to shut out other Fintechs who may be better managed or equipped, from the very services needed to deliver.

Of course, arguably the most famous Fintech in Africa, M-Pesa, was made successful due to its parent, Safaricom, owning more than 70% of the market for mobile phone services in Kenya. M-Pesa has not shown the same performance outside of Kenya – is this because it has a large captive subscriber base?

It helps if a Fintech has a large, established multi-national corporate that has been operating across Africa for decades, such as satellite TV operator Multichoice, as a customer.  All of their payments are being migrated to Moment, a joint venture with payments platform, Rapyd, and investor, General Catalyst, which accepts over 200 local payment methods, including cash, mobile money, cards, bank transfers and wallets, in over 40 African countries.

Not so easy for an independent Fintech to match this leverage. Netflix has last year launched in South Africa, but in order to become competitive across the rest of the continent, it needs to be easy  for people in-country to pay in hard currency. Perhaps Moment can lend them a hand?

One African startup that we met recently has found a way of completely side-stepping the African financial infrastructure – for people in developed markets, such as the US and Europe, purchasing products and services (such as holidays and safaris) in Africa by payment card. They have lower interchange fees, close to zero forex fees and higher completion rates by using offshore payment gateways, with transactions denominated in the currency of the purchaser, while using their own infrastructure to convert the currency and bring it into the country to pay their merchants. All-in-all, a great arbitrage.

Our recent encounters have highlighted some of the challenges that Africa’s Fintech face, but also the positive contribution that these technopreneurs make, in spite of this.