Catalyst Fund and Briter Bridges have partnered to produce this new "State of Fintech in Emerging Markets" report that we hope can support more evidence-based discussion around the growth of the fintech industry across emerging markets, key product and business model trends, as well as the extent to which these innovations are reaching underserved communities.
We surveyed 177 startups and 33 impact investors to understand trends in the world of fintech across emerging markets. Our goal was to leverage the data collection and visualization experience of Briter Bridges, along with Catalyst Fund's depth of insight, and expertise particularly in inclusive fintech for underserved populations, to produce a detailed, data-driven report that highlights the trends and dynamics behind the headline figures we are accustomed to seeing.
Reflecting on this report, we remain impressed by the growth and strength of the fintech sector, especially the growth in funding we've seen across Africa, Asia, and Latin America, which totaled $23 billion over the last five years. We've also seen welcome increases in product diversification; from payments, to credit, to financial infrastructure solutions, insurance, savings and investments, crypto exchanges and many more.
However, we believe the fintech market is yet to realize its full potential, particularly when it comes to creating solutions that are tailored for women, poor, and otherwise underserved customers across emerging markets, as the core customer base for most fintech companies remains focused on corporates, merchants, and more mainstream users.
It is noteworthy that this report was conducted in a year of extreme global turbulence. While many expected funding flows and startup growth to dramatically slow or even cease in the wake of the COVID-19 pandemic, thanks to an increase in demand for digital financial services, we found the opposite to be true in emerging markets, where cash-based economies have rapidly adjusted to more digital transactions. However, although the volume of funding deals and the number of fintech users reached continue to grow around the world, this growth is uneven and is primarily dominated by growth-stage payments companies that largely serve mainstream customers.
Conversely, fintech startups in the savings and investment, and insurance spaces - services vital to building financial resilience for low-income households - and those serving excluded segments (e.g., women, rural, poor, unbanked populations) remain fewer in number. This signals an opportunity for fintech innovators across emerging markets to continue to develop more accessible, affordable, and appropriate solutions for consumers and small businesses, while also enabling greater reach of affordable products for the mass market in other sectors, such as agriculture, mobility, energy, health and more.
Methodology and sample composition
To inform this report, we designed surveys targeted at both startups and investors to understand investment trends, product and business model trends, as well as the impact existing fintech solutions are having on end-users. Our teams circulated the survey via our personal networks, social media, and newsletters, reaching leading impact investors and accelerator programs, as well as the fintech startups in their portfolios. This resulted in 177 startup responses and 33 investor responses.
Note that while our investor respondents were largely global in nature, our startup responses were dominated by companies in sub-Saharan Africa, with limited representation from South Asia (largely dominated by the Indian market) and Latin America, though both regions have very active fintech markets. This bias toward sub-Saharan Africa means that our sample may be skewed toward companies like Migo, Paga and Aella, which have cross-border regional strategies in a fragmented market of small countries. In contrast, South Asian companies tend to be anchored in a larger market - namely, India - while Latin American startups are similarly anchored in the Mexican or Brazilian markets.
The Africa bias of our database also influenced responses to certain questions - for example, location of company headquarters. Given the complexity of local financial and regulatory markets, startups in Africa seem to be likely to have their headquarters in the United States and South Africa. A more global database may have turned up Bangalore, Mexico City, or Singapore with more frequency.
Not only were our startups concentrated by region, they were also concentrated by stage. Companies in our sample were largely new and small; 85% of respondents were founded a#er 2015, 66.7% have fewer than 30 employees, and 32.7% have fewer than ten.
Figure 2: Geographical and stage focus of investors surveyed (multiple select allowed)
These small sizes are reflected in outreach: 38.8% of companies process fewer than 1,000 transactions per month, and only 17% process more than 1 million transactions per month. As of Q4 2020, 56% of companies had fewer than 10,000 unique users per month. Most startups in the sample are similarly early in their fundraising journeys; almost half had just raised a seed round.
Among the investors who took the survey, a larger proportion of investors invest at the pre-seed stage in sub-Saharan Africa compared to the other regions. Seed and series A deals dominated in Latin America and South Asia. Investors in our sample covered a wide range of geographies, with most investing in Africa, followed by Latin America, South Asia, and North America, and few focused on Southeast Asia and MENA.
The following report is divided into three chapters:
Finally, we look across both our sample and additional research in the industry to identify where we see gaps and areas of opportunity for startups and investors.
About the Authors
Catalyst Fund, the global inclusive tech accelerator managed by BFA Global, has accelerated 45 inclusive fintech companies across emerging markets since 2015, investing over $22M in catalytic capital and venture building support to early-stage startups. Catalyst Fund is a leading industry expert in the inclusive fintech sector and a go-to source for insights into the rising trends in fintech innovation, especially across its key markets: Nigeria,Ghana, Kenya, South Africa, Mexico and India.
Briter Bridges is positioned as the leading data resource for information on the tech and investment landscape in emerging markets. Their newly launched business analytics platform, Briter Intelligence, counts thousands of users globally and offers a first-of-its-kind interactive tool that puts Briter's rich database and analysis in the hands of tech founders, investors, facilitators and more, for the first time, enabling them to navigate valuable information on Africa's expansive tech startup industry.