How much fintech is too much fintech?

June 6, 2021

Hey there,

This week, Chipper Cash announced their $100 million Series C, valuing the three-year-old company at over $1 billion. They're the sixth African unicorn - along with OPay, Flutterwave, Fawry, Jumia and Interswitch - five of which are fintechs.

There's tremendous fintech hype in the African ecosystem. According to Max Cuvellier and Maxime Bayen, since 2019, 47% of venture investments over $1 million have gone to fintechs. And this data precedes both OPay and Chipper Cash's 9-figure rounds.

It has me thinking... while both anecdote and data tell us of the increased focus on fintech, what it doesn't tell us is why - why the increased focus?

Are there substantially more business opportunities for fintechs than startups in other sectors? Are fintechs a better investment? Are fintech founders stronger than founders in other sectors?

And, is this a problem?

If you enjoy The Flip Notes, please do forward to a lucky friend. And if you're that lucky friend, join us by subscribing here:

The Flip Notes is sponsored by

How much fintech is too much fintech?

I suspect the increased focus on fintech is a combination of things:

Financial services cuts across all sectors, and through embedded finance practices, everybody is (or will become) a fintech.
While certain consumer-facing fintechs require physical infrastructure (e.g., agent networks), many fintech companies employ the asset-lite, scalable business models loved by VCs.
Investors invest in what they know. Especially beyond Series A, where we are seeing more US-based investors, they are presumably more comfortable and likely to invest in fintech versus something related to smallholder farming or pay-as-you-go energy.
Financial inclusion as a strong narrative and objective driving the investment theses of impact investors and development organizations may also put greater focus on fintech.
Fintech is (believed to be) sexy.

Now, is this a problem?

It's hard to say. On one hand, the increased focus on fintech may come at an opportunity cost. Time, attention and resources, including capital and talent, are finite. There are unquestionably large-scale problems to solve and opportunities to capture in non-finance sectors, as well. Are fundable businesses being overlooked?

On the other hand, might using $1 million-plus rounds as a proxy be the wrong method of analysis? Indeed, many companies building physical infrastructure in other sectors like cleantech to logistics garner debt financing, and those deals won't register in the above data.

Additionally, an initial focus on fintech infrastructure has been a catalyst for non-fintech industries. M-Pesa has enabled pay-as-you-go solar companies in Kenya, for example, and Nigeria has seen a steep rise in ecommerce and online payments made possible by the likes of Paystack and Flutterwave. The same will be said for those building open banking products and/or who are availing access to credit for MSMEs.

And ask founders in fintech, and they'll still tell you that there's way more to build.

"I think international money transfer is 1% built today."

- @Benji_Fernandes of @NALAmoney

Together with @MFS_Africa, we're exploring those working to improve informal & analog industries... and even in the money transfer space, there's so much still to build and improve! pic.twitter.com/Ps6fDYyuNR
— The Flip (@TheFlipAfrica) February 26, 2021

So perhaps this is an instance where two seemingly opposing conclusions are true at the same time: it is probably true that fintech is overhyped but also that there is more to build in fintech than what current venture-backed companies are capable of achieving.

What do you think - too much fintech?

See you next week,

Justin

‍

How much fintech is too much fintech?

How much fintech is too much fintech?

Get smarter about African tech.