The African fintech sector is experiencing rapid growth, driven by a combination of economic expansion, high demand for financial services and innovative solutions addressing longstanding gaps in access and affordability.

This is according to the 'Fintech’s Next Chapter: Scaled Winners and Emerging Disruptors' report published by consulting firm Boston Consulting Group (BCG) and venture capital firm QED Investors.

Africa and the Middle East are still very early in their fintech growth story, accounting for less than 1%, or about $3-billion, of scaled fintech revenues, but, in Africa, mobile-driven fintechs and those solving real-world challenges are leading the way, the report says.

Investment and activity within the sector are highly concentrated in four key markets – South Africa, Nigeria, Egypt and Kenya – which collectively attract about 67% of fintech investment on the continent.

Several structural challenges have historically hindered financial inclusion in Africa, such as low penetration of traditional bank accounts and credit access, particularly among individuals and small and medium-sized enterprises (SMEs).

High costs of maintaining physical bank branches, limited digital infrastructure and low financial literacy have contributed to these gaps. However, rising smartphone adoption and increased investment in digital platforms are enabling fintech companies to deliver innovative, scalable solutions, the authors of the report say.

Fintechs serving the needs of unbanked and underbanked consumers through mobile, which is seeing rapid growth in penetration, have gained the most momentum here. Telecommunications companies have formed some of the most successful fintech platforms, such as M-Pesa and Orange Money.

The primary fintech verticals fuelling this growth are payments, banking and deposits and lending.

“Payment solutions, including digital wallets, remittances and business-to-business payments, dominate the landscape, as they address the continent's transition from cash-based economies to digital transactions,” says BCG Johannesburg associate director Kitso Lemo.

Payment tools play a crucial role in today’s economy because they enable secure storage and transfer of funds both locally and internationally for consumers, while also helping individuals build emergency savings and reduce vulnerability to financial shocks.

“For SMEs, digitising payments is transformational because it reduces the high costs and risks associated with handling cash, accelerates settlement times from days to seconds, and creates a verifiable transaction history that is essential for accessing credit and supporting business growth,” he explains.

A key area of focus for fintech innovation in Africa is strengthening the merchant payment value chain. By integrating payments seamlessly into merchant operations, fintechs enable SMEs to access a wider customer base and benefit from streamlined transaction processes.

Enhancing digital payment solutions for merchants can drive broader adoption of cashless transactions, improve business efficiency and foster economic growth, says Lemo.

Additionally, lending is also a significant vertical, encompassing secured and unsecured personal and business loans, as well as buy-now-pay-later and point-of-sale financing, he adds.

Lending remains essential for individuals and businesses in Africa, and expanding access to secured and unsecured loans, as well as innovative products such as buy-now-pay-later and point-of-sale financing, provides the financial stability necessary for growth and entrepreneurship.

“As fintech platforms continue to develop, these improvements in merchant payments and lending are set to play an essential role in empowering businesses and boosting financial inclusion,” Lemo says.

Further, cross-border payment flows in the Global South represented only about $14-trillion out of a total of about $1 637-trillion in global domestic and cross-border payment volume in 2024.

Remittances remain a critical and costly service, with average fees in Africa at about 7% to 8% per transaction, which is well above the World Bank’s target of less than 3% by 2030, he points out.

The complex remittance value chain and risks associated with currency fluctuations and cash handling drive these high costs.

“There is significant scope for innovation in this area, including blockchain and crypto solutions, which could reduce costs and enhance interoperability among financial institutions and telecommunications companies,” Lemo says.

Meanwhile, global fintech is entering a new era of maturity and momentum, and the sector has emerged from a tough funding environment stronger, more disciplined and with greater growth prospects than ever.

“Emerging disruptors are harnessing next-generation technologies like agentic AI and pioneering new business models, pushing established players to continuously innovate,” says BCG MD and senior partner Deepak Goyal.

“A class of scaled fintechs is coming of age. Investors are demanding greater maturity and regulators want more accountability,” he says.

In 2024, fintech revenues grew by 21%, up from 13% in 2023, marking a threefold acceleration over the financial services industry at large.

Additionally, the average earnings before interest, taxes, depreciation and amortisation margin of public fintechs climbed to 16%, and 69% of public fintechs are now profitable.

Much of this performance is being driven by a new class of scaled players generating $500-million or more in yearly revenue, with these players now accounting for about 60% of total fintech revenues, he notes.

Meanwhile, AI is already reshaping the industry. Many early-stage fintechs are ahead of their larger peers in leveraging AI, particularly for software development.

Agentic AI is the next wave of disruption, and will change the game in commerce, vertical software-as-a-service, and personal financial management, the report highlights.

“The evolution of fintech in Africa is also marked by the adoption of AI, which is being used for customer value management, advanced credit scoring and delivering efficient, multilingual customer support at scale.”

In credit scoring, AI enables the analysis of alternative data sources, including transaction histories, social networks and business activity, thereby offering a more accurate assessment of risk for individuals and small businesses that may lack formal credit histories.

This results in broader access to credit and more tailored financial products. AI has the potential to further lower costs and improve financial access.

“Fintechs are winning in spaces where traditional banks have largely ceded the competitive ground, such as banking for lower-income households and buy now, pay later,” says QED Investors managing partner Nigel Morris.

“Fintechs are growing three-times faster than incumbents, as they leverage digital distribution channels and increasingly use AI. Fintechs have emerged from the last two years with stronger fundamental unit economics and high net-promoter scores, which is why there’s an appetite for initial public offering-ready companies that deliver profitable growth.

“Fintech is ushering in a new era in financial services,” he says.

“Continued innovation, regulatory support and a focus on interoperability will be crucial to sustaining the sector’s momentum and supporting the continent’s broader economic advancement in the years ahead,” concludes Lemo.