Payments, lending and neobanks are the top trends in emerging fintech markets
Ted investors had their own lucid decision in emerging markets over the past few years resulting in their flourishing ecosystems.
Some of these reports from some of the markets like Africa, Latin America and India, showing firms on trends and investments in their individual regions. However, none of the almost a report comparing and contrasting trends and investments between these regions. It is called Herculean.
Briter Bridges and Catalyst Fund have released a report today offering a comprehensive representation to the interesting sector of these three markets: fintech.
The report “State of Fintech in Emerging Markets Report” has three aspects - to evaluate the investment, product and concentration trends across emerging markets.
A survey implemented on over 177 startups and 33 investors across Africa, Latin America and India. Although this scale is not huge, the main results are quite impressive.
Fintechs have been poured $23B on investment from over the regions since 2017
Appearing for a long time, but still accounting for the key role in emerging markets. Fintech remains the industry receiving the largest share of investments year on year for the past five years.
Making up 17% of the world’s unbanked population, Africa has more than 300 million unbanked adults. That is why in 2019, the continent witnessed five mega-deals in Branch, Tala, World Remit, Interswitch, and OPay with a total amount of over $775 million. Compared to the last year, with a dropped amount of $362 million, companies like Flutterwave, TymeBank, and Kuda have raised sizable rounds during this period.
A growing number of digital users in Latin America have enabled regulation and reforms, and vibrant small businesses. Africa, one of the regions in Latin America, has 70% of residents Who are unbanked. Based on that, Fintechs in the region have caught the opportunity and have gained with mega-rounds that companies like NuBank, Neon, Konfio, and Clip have gained. Generally, fintech startups have raised $10 billion in the past five years.
In only India's market 2019 alone, fintech startups raised a record $4.8 billion under the report. This sector brought in $3 billion continuously last year. Over the past five years, they have gained a total of $11.6 billion from well-known names as CRED, Razorpay, Groww, and BharatPe, among others.
Image Credits: Briter Bridges & Catalyst Fund
The average of seed rounds in Africa is at $1M and $4M in India and Latin America
According to the report, the amount of early-stage transactions in Africa, making up over $ 1.6B, showing growth over the past five years. Especially for seed rounds, it has grown from $750,000 in 2017 to $1 million in 2020 compared to their average size.
For Latin America, the seed deal was around $5.7 million on average in the last five years, where India did approximately $4.6 million. In the report, the data for the latter was skewed because of CRED’s $30 million seed round.
Image Credits: Briter Bridges & Catalyst Fund
Latin America crave for IPO, India bears unicorns while Africa is just commencing with M&A
The event of acquiring Paystack of Stripe last year was the highlight of Africa’s M&As because of its scale and the homegrown status of the Nigerian fintech startup. Other larger rounds creating the headlines include WorldRemit's acquisition of Wave of the $500 million (which happens to be the largest from the continent) and the DPO Group buyout by Network International for $288 million.
The Latin American fintech market, unlike the African fintech market that has noticed mega acquisition deals and many unrevealed seven-figure deals, is a sucker for IPOs. Fintech in the region has several $100 million rounds (Nubank, PagSeguro, Creditas, BancoInter and Neon) and M&A activity is sparse based on the report. But a number of them have been disclosed recently including Arco Educacao, Stone Pagamentos and Pagseguro.
Otherwise, India has more than 25 billion-dollar companies and keeps increasing yearly. The country recorded more than eight entities just last year. These unicorns range from established companies like Paytm to new ones like CRED.
Payments, credit and neobanks is the key in fintech activity
Payments companies are the background for fintech investment across the three regions, reflected in the report. Notably, B2B payments reign supreme among them. The next two fintech categories paid attention to are credit and digital banking.
In Africa, payments startups have been poured into more investments than credit and neobanks, as Flutterwave, Chipper Cash, Wave, Paystack and DPO.
Neobanks, not strange to the fintech market, is Latin America’s most funded. And it is the only region with all three product categories closely funded at $2 billion-$3 billion each. Some of these companies include NuBank, Creditas and dLocal.
In India, top-funded fintech startups are operating in the payments sector. However, some considerible representatives are in credit and neobanks, some of which have raised nine-figure rounds like Niyo, Lendingkart and InCred.
Image Credits: Briter Bridges & Catalyst Fund
Investors are expecting the future of insurance, payments and digital banks
From the report surveying the investors' view on future trends in fintech products in the next five years, most of them chose insurance, payments and digital banking models.
Investors are also in favor of platforms and embedded models. They paid less attention to agriculture and remittances while wealth tech platforms and neobanks were also behind.
Underserved consumers in these regions and how fintech startups are serving them that are mentioned almost in every part of the report. Besides, It also discusses whether these fintech startups drive financial inclusion and what features and products they need to perform that issue.
Image Credits: Briter Bridges & Catalyst Fund
In general, the evident fact is that Africa is behind the times Latin America and India. Talking with Briter Brid shared that it took him five years for the continent to get to where Latin America and India are at the moment. He added that what makes India a better market at this stage is because it isn’t a continent like the other markets and operations are uniform across the board.
He said to the news “It is not more difficult to manage one country than 54 countries in Africa and 20 in Latin America,”. He added “In Africa, we use the label ‘Africa,’ but we’re very much talking about 4-6 countries. Latin America is basically Brazil, Mexico, Argentina and Colombia who are witnessing giant companies rise. India is one.”
Last but not least, the report mentions one key point is that most fintechs across emerging markets are turning over to different aspects like crop insurance, credit lines for distributors and vendors, KYC, e-commerce payment gateways, medical finance and insurance. Guiliani says he expects this to continue.