The Fintech World Series: South Africa

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Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
We’ve finally reached yet another new continent, and in Africa, the mobile payments space is an extremely hot topic. Given a largely underbanked, or unbanked, population, fintech disruptors are springing up all over the place to cater for it. South Africa in particular is connecting many of sub-Saharan Africa’s most successful fintechs to the rest of the globe, in turn making it an up-and-coming hub.


“Bier, braai en rugby is die Suid-Afrikaanse manier. Ons is werklik ‘n reënboognasie met vriendelike en mense van die aarde. En ons het diere.”*
– Paulo, Data Solutions Manager at Kurtosys

We are lucky at Kurtosys to call South Africa one of our homes. A beautifully natural country, the above quote emphasises much of what the Cape brings to the rest of the world. Braai, not only just a standard ‘barbeque’, is a way of life, and South Africa is the planet’s largest exporter of meat, as well as producing the most amount of beer by volume in the world via the SABMiller brewery, and is home to Route 62, the longest wine route globally. Nothing like a drink to wash down some BBQ, huh? Elsewhere, the plains of the country are home to, indeed, animals, especially significant being the largest mammal – the elephant – and the tallest – the giraffe. Cheetahs, wildebeest, ostriches, the whole lot can be found in this expansive habitat, which also contains the highest bungee jump in the world (710 feet) and has three capitals: Pretoria, Bloemfontein, and Cape Town. The latter is home to both the zany rap-rave (?) art project/musical group and ‘Zef’ culture educators Die Antwoord, and one of our Kurtosys offices. Amongst these clearly varied features that make up South Africa, fintech is also spreading from Cape Town to Johannesburg, as we shall duly see.

Cities in Focus

South Africa has been a quick adopter of fintech in recent years, with more to come in the years ahead according to Statista. This year, the transaction value in the fintech market is US$11,365 million, with an expected annual growth rate of 17.5%, which will amount to around US$21,668 million in 2021. That’s almost double – and here’s why SA’s fintech adoption is poised to multiply in the next few years.
There are many figures dictating South Africa’s effect on technological developments within Africa as a whole. It has been ranked the best African country for business in 2016 by EY in their Africa Attractiveness Index, as well as having the largest telecommunications market in Africa. This mobile communications market is also the fourth fast growing in the world; South Africa is home to 50 million subscribers. The World Economic Forum also ranked it 25th as the country with the best capacity for innovation in their Global Competitiveness Index and the 47th ‘most competitive’. Amongst African countries, even with Nigeria and Kenya being popular places for innovations in the fintech sphere, South Africa still remains the top African destination for foreign direct investment. In 2015, the FDI grew by 8.3%.
In Deloitte’s annual review of global fintech hubs, this year Johannesburg was recognised as South Africa’s connection with the rest of the planet’s fintech ecosystem, with its innovations aimed at low-income consumers who are by-and-large underbanked or even completely unbanked. Johannesburg ranked 54th on Deloitte’s Global Innovation Index and is viewed at the 59th largest global financial centre. However, the report stresses how the rich fintech community housed in Johannesburg also stretches to the country’s legislative capital: Cape Town, which is also the fastest growing economy in the Rainbow Nation and contains 60% of the tech startups that South Africa has birthed. A fairly long-form infographic produced by Fin24 outlines Cape Town’s role as SA’s main fintech hub, but here are the main fintech draws to the South Western city from a blue crane’s eye view (which happens to be the national bird):
In regards to education and technology …

  • Cape Town has a 60% internet penetration. This is possibly due to the fact that it has one of Africa’s largest open access fibre optic networks, with 780km of fibre optic cables.
  • It also offers over 275 public, free WiFi hotspots. More than 300 extra hotspots are planned to spring up in the next 2 years.
  • 500+ coders are trained per year from Cape Town’s universities.
  • Four world class universities are located within a 50km radius. These are the University of Cape Town, the University of Stellenbosch, the University of the Western Cape and the Cape Peninsula University of Technology.
  • UCT has actually launched the continent’s first fintech degree, a ‘Master of Data Science’ degree to be offered in January 2018. It looks to develop skills in machine learning and blockchain for graduates to further research and work in financial services’ most prevalent and exciting technologies.
  • Cape Town also houses two globally recognised business schools.

In investment matters…

  • In US dollars, there are greater than 49,000 millionaires in Cape Town.
  • The number of South African venture capitalists between 2013 and 2015 has risen by 41%, and 58% of these are headquartered in Cape Town.
  • 75% of South Africa venture capital transactions occur in the city.
  • There are over 1,200 early-stage investors in the country’s startups.
  • The average return on investment (ROI) is 20% per annum.

The World Economic Forum dictates these positive ranks for Cape Town in terms of professional services and financial markets, out of 138 cities:

Its focus on startup culture and entrepreneurship is also paramount:

  • Cape Town is home to Africa’s oldest incubator, which has spawned over 750 businesses and supported over 2,000 entrepreneurs.
  • Besides this, there are 20 acceleration programmes and 25 co-working spaces, the most in Africa situated in one centre.
  • On average, one accelerator will support 10 to 15 startups per year.

On top of all these facts, Cape Town provides an entry point (alongside Johannesburg) to the rest of the expansive and constantly tech-developing continent, as well as being a top destination for funding, talent and has an innovative culture. Capetonians are particularly in praise of experiencing an enjoyable lifestyle here, community spirit and commendable tax incentives. This infectious drive for innovation present in Cape Town will surely be followed not just by the country’s similarly forward-thinking cities, but also the whole of the country and its neighbouring nations.

The Cape’s Contribution

Africa remains both problematic for financial services in that its level of banked individuals is far lower than the rest of the world. However, this is an opportunity Africa’s disruptive fintechs are looking to exploit, especially given the fact that it has a young demographic and increased speculation that a middle class will rise due to this. Most African citizens bank on their phones, with payments and remittance startups dominating the market at 41.5%, whilst there is a growing interest in Insurtech this year, becoming the second most popular fintech sector (32%).
Given the unbanked population of sub-Saharan Africa being at an astonishingly high 80%, South Africa by contrast has 38.2 million financially ‘included’ adults, and therefore provide a firm base to develop financial technology to benefit the whole continent. 77% have a formal bank account, for example. Sub-Saharan Africa is the area with the fastest growing mobile adoption rate in the world with half a billion smartphones expected by 2020 and has 54 active technology incubators to house talent. Given the high unemployment rate (26.6%), Irrational Innovations expects fintech startups’ recruitment drives to contribute to the economic and social development of South Africa, completely revolutionising the traditional working culture that already exists. A weak Rand also presents an opportunity to build at low local costs.
In all, Africa is home to 301 active fintech startups, according to African newsletter Mail & Guardian. Out of these, 31.2% are situated in South Africa, the other top two spots going to Nigeria and Kenya, in second and third place respectively. It seems that a mindset for homegrown entrepreneurship, lending and funding is something that is particularly bespoke to South Africa. Saving and lending in community groups, rather than formal banks, is part of their financial fabric. Known as “stokvels”, there is actually a trend for fintechs to lend their services to these projects, as well as to other traditional players who are look to adopt technologies to existing infrastructures or establish partnerships. It does not seem that fintechs are particularly looking to displace banks, but rather help them to adhere to the mobile-savvy population. In fact, financial regulation in Africa looks to further establish the stability of the financial system and financial inclusion, hence why these partnerships seem a wholly justifiable move, and it has been known that South African regulators are speculating a move towards a sandboxing principle to assist startups. In other news, one startup is StokFella: an app developed for people to run and expand their own stokvel, and to place financial management decisions with these organisations.
The growing number of software developers in South Africa has sprouted not just from universities, but also companies such as OfferZen, an online jobs platforms for software developers. It’s project Root is looking to develop a programmable bank account whereby developers can interact with transactions using their own code and can build their own interface. This whole project blends the finance and technology worlds perfectly, and Root has partnered with Standard Bank South Africa in order to provide the banking functionality, supply support and to fund and scale the application for a larger market.
UK Bank Barclays also has a fairly commendable presence in South Africa. In 2014, the first Barclays Accelerator (powered by Techstars) in Africa was set up in Cape Town, whereby Barclays signed collaboration agreements with 7 of 10 startups after a 13 week programme, as reported here. Similarly, January of that year saw Rand Merchant Insurance launch a fintech hub in the same city, AlphaCode, which has been modelled on Canary Wharf’s world-famous Level39. Other notable accelerators in South Africa include Bandwidth Barn and Workshop 17 in Cape Town and JoziHub, OPEN Johannesburg and SW7 Accelerator in Johannesburg.

Kurtosys employees enjoying a Hawaiian-themed party in our Cape Town office.

Lekker Startups

To finalise our safari across South African fintech, here are the most notable success stories in the startup ecosystem, starting with those from the KPMG Fintech 100 2016 report:
#41 – Wealth Migrate – A real estate investment marketplace with an online e-portal to allow investors direct investment opportunities in the global market. Transparency in transactions and efficiency of sales is paramount, founded in 2010 by Scott Picken (CEO) and Hennie Bezuidenhout (Chairman).
‘Emerging stars’
EasyEquities – Supplies access to equities and ETFs listed on the JSE. There are no minimum investments or monthly fees and it offers low trading costs. Fractional share rights (FSRs) are unique to the company, allowing investors to invest in fractions of shares through a contractual claim. Investors can invest in higher unit price stocks as they do not need to buy a full share. Founded in 2014 by Charles Savage (CEO), with its HQ in Gauteng.
Zoona – A mobile tech company developing products in transfers and e-voucher payments, and a growing network of agents provide jobs for young entrepreneurs, making safe money transfers and funding available to Africa’s underserved communities. It has processed US$1 billion in transactions, and is looking to expand to the Democratic Republic of Congo and Mozambique. Zoona has also raised US$15 million from the International Finance Corporation (IFC) and 4Di. It was founded in 2009 by Brad and Brett Magrath with its HQ in Cape Town.
As well as the many others…
Peach Payments – Offers payment solutions to online and mobile businesses, accepting payments globally (especially from emerging markets). Founded in 2012 by Andreas Demleitner and Rahul Jain and based in Cape Town.
Rainfin – Co-founded by Sean Emery and Hannes van der Merwe in 2012 in Cape Town. It is the largest peer to peer platform in South Africa designed for SMEs. It lends over 1 million Rand every day.
SnapScan – Based in Cape Town, it is a cashless and cardless payment app that can be used at over 30,000 merchants across SA, backed by Standard Bank.
TYME (Take Your Money Everywhere) – A tech company building and operating digital banking ecosystems, brings partners together, and has developed an KYC accreditation solution to allow users to open a bank account via mobile phone. It is one of the top 10 mobile money companies in the world, acquired by the Commonwealth Bank of Australia in 2015. It was founded in 2012 and is based in Johannesburg.
Yoco – Based in Cape Town and founded in 2012 by Lungisa Matshoba (CTO), Bradley Wattrus (CFO), Ketlego Maphai (CEO), Yoco is a P2P payments provider offering card payments for SMEs. It now has 10,000 merchants since launching in 2015, and 75% have never accepted cards before. It also offers merchants a portal allowing insights into transactions.
Kurtosys – Whilst we have perhaps matured past the status of a traditional startup at 15 years old, Kurtosys has however dramatically increased its presence in South Africa from a small workplace of only 6 people. In 2016, we reported an increase in recruitment, with our South Africa office comprising of 60 talented people. We can now proudly say that our Cape Town expansion is ever-growing, and we now employ almost 100 amazing individuals.
South Africa is the forerunner in taking advantage of an underbanked yet heavily mobile-reliant continent. With payments and insurance startups growing at an alarming rate, banks setting up accelerators and partnering with disruptors, and small community stokvels as well as an enthusiastic ecosystem bringing financial matters to the hands of many, the country is showcasing the global fintech potential of Africa to the rest of the financial world.
*Translation: “Beer, braai and rugby is the South African way. We truly are a rainbow nation with friendly and down to earth people. And we have animals.”
If you have any thoughts about South African fintech, let us know in the comments below, or you can tweet us.
Check back soon for more instalments of The Fintech World Series!

Elliot Burr

Elliot Burr

Fervently chatting about the future of funds and fintech.