Failure of #Fintech Startups


This is the verdict. Africa is at the beginning of its growth curve with opportunity to leapfrog international trends. The potential is promising. The market is virgin. East and West Africa markets are the preferred locations. That is what the Africa Payments Innovation Jury 2017, an insider’s view to Africa’s payment and fintech services, said at a connect conference recently.

The jury chair, John Chaplain, believed the electronic payments industry is experiencing continuous innovation on a global scale with new entrants that are determined to have a share of the market. However, the established players are not quiet. They are at alert to defend their turfs and grow existing business.

To sustain the growth, the industry needs to surmount some critical factors that have stunted the development of fintech startups. These factors include un-scalable business model, insufficient funding, and lack of advantage over existing solutions, skill shortage, regulation, and stiff competition.

Nevertheless, the jury sees Africa as the best location to start payments business today. However, these limiting factors are impediments to the growth of Africa’s fintech startups. Through this, the jury has seen impetuses in the region that could lead to innovation. This is because of the presence of opportunity to attract large sections of the population that have access to electronic payment services into the digital payment world.

However, challenges abound. One of the challenges is that the operating margins are always under pressure. In spite of these challenges, nonetheless, the electronic payment sector is still attractive. That is why the market has continued to expand. There is opportunity for new players to participate in the transaction value. The market is boundless.

According to the jury, the challenges include un-scalable business model, which accounts for 27 per cent of reasons for payment start-up failures. Insufficient fund covers 24 per cent while lack of advantages over existing solutions is 15 per cent. The skills gap is 13 per cent; regulation is 12 per cent while too much competition gets nine per cent.

African payments and fintech entrepreneurs, the jury observed, face shortage of venture capital. This is acute in Nigeria more than in other regions of the world. This is restricting the ambitions of most fintech startups. The shortage of investment is visible at the angel and series level.

At the angel’s level, many investors normally keep their chequebooks close to their chests. They then wait until the business model is tested and the company is profitable. This stifles growth. Chaplain advised that when introducing electronic payments into substantially under-banked markets like Nigeria, for instance, the breadth of service offering is critical to long term profitability.

“It is important to identify the first use cases that encourage consumers to use digital payments services. When a consumer uses one electronic payment service regularly, it is easier to encourage the use of further services. The first service is important.” Chaplain has said it well.

However, one key ingredient that has further contributed to the failure of fintech startups is lack of “strategic alliances”. If a fintech-startup has sufficient fund, if it has an advantage over existing solutions, if it has abundant brainpower, if regulation is relaxed and competition is not stiff, if such a fintech startup lacks strategic alliance, it would still fail.

Lack of strategic unions, local or foreign, has led to the demise of several fintech startups. Some fintech startups that are alive but lack such coalitions have remained comatose. Travelling alone on the fintech startup expedition is suicidal. On the flipside, Andela has strategic partnerships. Flutterwave has it. Paylater has it too.

Few others fintech startups are walking in this direction. Strategic collaborations are the catalysts that would pave the way, and catapult fintech startups to leapfrog international trends and modernize their payments infrastructure. To seize this opportunity, fintech startups need to step out of their cocoons and build strategic coalitions, locally and internationally. That is the verdict.