‘Resilient, cost-effective and tough.’ What the UK can learn from South African fintech market
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Daemon
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At Daemon, we are proud of our close ties to South Africa, and our connections to a new, unique fintech scene. We talked to one of Daemon’s senior Principal Consultants, about how the two markets differ, and what possible learnings there are between the UK and South Africa.
An exploding market
In the UK, the fintech market is exploding, with over £9.7 billion in investment in 2023 alone. It’s also one of the fastest growing industries, expected to continue expanding by at least 20% year on year. If the UK is Europe’s biggest fintech hub, the same can be said of South Africa to the rest of the African continent:
South Africa alone is responsible for 40% of all fintech revenue in Africa, and interestingly, has the third-highest fintech adoption rate in the world, with 82% of digitally active South Africans using fintech. The UK and RSA markets are similar in their growth and tendency towards early adoption.
To explore the learnings between the two markets, we consulted with one of our most decorated Daemonites. A twice former CTO at agency and product development level, Vutlhari Rikhotso is a Daemon Principal Consultant with plenty of global experience.
VT’s career began in South Africa, and he’s seen first-hand how fast technology is being adopted on the continent.
South African fintech - Rugged, rapidly growing and resilient
1. Cost-effectiveness is a priority
In South Africa, technology needs to be cost-effective first. All start-ups face challenges, but in South Africa, the pressure to be resilient in tough times is greater. As a result, South African fintech companies bring a deep knowledge of cost optimisation. Technology stacks costs more, due to exchange rates, and so businesses have to find smart ways to grow.
“Focusing on making technology accessible for small businesses is vital to South African fintech. Small businesses need to extract as much value as possible from technology, so everything has to be intentional and well-considered. You don’t have that likelihood of waste.”
2. Small business first
Another key point about the South African market is how small businesses are at the forefront. There’s an estimated 2.6 million small and medium businesses in South Africa, with roughly 37% of those being ‘formal.’ Small business is growing, and now contributes over a fifth of the country’s business turnover. Although small businesses matter greatly in RSA, access to technology is less available and affordable.
In the African context, startups are trying to solve different problems. Big African fintech companies, such as Paystack and M-Pesa, came out of the founders wanting to find cheaper ways to send money home. Yet even these big businesses use language that focuses on the needs of the individual, and helping small businesses use technology. South African company Yoco markets itself on being the #1 supporter of small businesses, and uses ‘We The Underdog’ as a key marketing strategy. The market need in South Africa is different, yet the dedication to SMB is something the UK shares. Both countries' economies rely heavily on small businesses.
3. Digital currency
In the UK, digital currency is a mainstay. Uptake of Apple Pay or Google Wallet to tap through and pay is becoming more widespread. It’s used across almost every market, evolved around individual devices and increasingly widespread phone usage. In South Africa, the same can’t be said. Cash is still king. Yet, South Africa has one of the highest adoption rates of the fintech around the world. How does this apply? In South Africa, Fintech is looking not to replace, but supplement cash usage.
“Digital currency is a mainstay in the UK. It’s very much an accepted payment method. For the majority of South Africa, cash is still king. Fintech in Africa hasn’t yet replaced cash, and to try to do so would be to completely miss the mark.”
Individual resistance to adding credit information to apps is still high, but firms are adapting to this. For example, you can still pay for your Uber in cash in South Africa. Although fintech is established in the developed world, in growing markets like South Africa, no-one’s trying to replace cash, doing so would ignore the end user.
4. Different market problems, beneficial styles
Although the South African market problems are fundamentally different to the UK, the two countries share important similarities. Adoption is high and small businesses are emphasized. The UK fintech market is looking to the future, finding new ways of including AI and machine learning. Businesses like Monzo and Revolut are trailblazers, bringing ever new advancements to the marketplace.
In the South African context there’s less room for experimentation, for now, the fintech market is tight, businesses need to extract value from what they build, and new concepts have to be intentional, well-considered and highly targeted to the user. Neo-banks don’t yet have a place in this country, but the future holds plenty of opportunities. In many ways, the UK can learn from this. Fintech businesses should ask themselves, why are we building this, what’s fluff, and what truly adds value?
Read our article on Ubuntu, which discusses the concept of putting the user at the heart of technology.
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