African embedded finance start-ups are raising funds to scale up their businesses

African embedded finance start-ups are raising funds to scale up their businesses

African embedded finance start-ups are raising funds to scale up their businesses

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Maximum businesses in the African region comprise of small and medium enterprises; however, these businesses do not get credit easily from financial service providers and thus are unable to grow. Now, this problem has been addressed by several tech-enabled platforms and unique embedded finance models and has helped the scenario to change. The region's rise in embedded finance can be attributed to increase in smartphone usage, booming digital adoption, and also a large unbanked population. These factors have placed Africa to create a hub of modern financial sector depending on embedded finance. 

The embedded finance space has attracted investors since it represents one of the biggest opportunities in emerging markets such as Africa. Its impact is expected to be transformational, providing a huge stimulus to supply (merchants) and demand (consumers). For instance,

  • In August 2022, an Africa-based embedded finance platform, Pezesha, announced that the firm had raised US$11 million in its pre-Series A funding round, which was led by Women's World Banking Capital Partners II (WWBCP II). This platform, which is headquartered in Kenya, provides digital lending infrastructure to financially excluded SMEs, mostly for those residing in the Sub-Saharan African region. Pezesha entered the embedded finance space after noticing the information gap of these MSEs, which restricts these firms from ensuring quality and responsible borrowing. Pezesha launched its scalable product based on robust API-driven credit scoring technology to solve this issue. 

In order to provide its customers with a real-time loan facility, Pezesha partnered with Twiga and MarketForce, which integrate its credit scoring APIs into the customers' platforms. Currently, the firm has partnered with 20 companies, thereby enabling Pezesha to extend loan facility to over 100,000 businesses.

Apart from solving Africa's working capital problem through its robust lending infrastructure, the platform also targets to provide lending opportunities for women entrepreneurs who cannot access formal banking services. Additionally, Pezesha intends to tap the local and international banking institutions, high-net-worth individuals and also the decentralized finance space to create around US$100 million in financing opportunities for SMEs in the region.

Since small enterprises make up 90% of Africa's businesses that face credit constraints, Pezesha's business model earned significant profit and is seen to attract investors' eyes. The platform, which is currently serving, Uganda and Ghana, plans to utilize the fresh capital to expand in Nigeria, Rwanda and Francophone Africa.

  • Similarly, in September 2022, another African fintech, NowNow Digital Systems (NowNow), raised US$13 million in a seed round. NowNow, which is entering the embedded finance space, initially provided digital banking solutions to consumers and businesses in the region. This fintech now provides an array of financial products to agents, individual consumers and also small businesses. 

The platform’s business model includes several agents who help in providing financial services to the unbanked and underbanked population residing in rural and semi-urban areas. Especially, Nigerians, with the help of around 50,000 agents across the country, can access several financial services such as sending money, paying bills, and much more. Furthermore, the fintech also offers other financial products such as insurance and loans. However, only smartphone and feature phone users can access these services.

Moreover, this fintech also has a business-in-a-box platform which helps these SMEs with several tools and also with services such as, storefront and marketplace. Notably, the platform is increasingly becoming a BaaS company with this tech and its own IPs, thus providing its product to several fintechs in Nigeria and Africa. Moreover, many key financial institutions are using their products and have been successfully offering white-label solution to their clients. 

Going forward, NowNow, aims to develop NFC-enabled technology to enable tap-in functionality within its product offerings, thereby attracting more businesses over the long run. This new tech will allow users to use their virtual, physical cards on their NFC-enabled phone or POS. Moreover, the new tech will also enable wallet to wallet transfers for users. Though this product has been developed for a few small businesses, it is still in the testing phase. 

Through its business-in-a-box product, along with NFC-enabled services, the fintech is targeting to capture 5,000 SMEs by 2022. NowNow, which expects to reach a GMV of about US$5 billion by the end of this year, will use the fresh capital to further expand and scale up its business across Africa.

  • In June 2022, Thepeer, an African API-based fintech provider connecting several businesses' wallets, raised nearly US$2.1 million in a fundraising round led by Raba Partnership. Thepeer mainly provides tech infrastructure for small to medium-sized fintech businesses, offering many services such as payments, neo banking, investing and many more. Though these fintech platforms have capabilities to facilitate money transfers through digital wallets, mobile wallet interoperability is lacking in their ecosystem. Specifically, transferring money from one fintech platform to another fintech or non-fintech platform becomes difficult. 

This problem is solved by Thepeer, which allows fintech companies and businesses to embed several products into their apps and websites enabling quick transfer of money by their customers. Together with this, Thepeer, also launched a new feature called Send that allows the customers of several businesses who integrate with its APIs to send money across both platforms using emails or usernames.

In Africa, the number of fintech platforms increased from 491 to 573 in 2021, according to Disrupt Africa and Thepeer observed increased demand for its product. Consequently, it partnered with Flutterwave, an API gateway provider which has a wide network in Africa, to acquire more customers. The embedded payments start-up had witnessed an average sequential transaction growth of more than 150% since its launch, with monthly transaction volume growing over 65x. Since the proliferation of consumer and B2B fintechs across Africa is increasing, Thepeer is expected to see increased businesses over the next four to six quarters in the continent. Therefore, PayNXT360 projects with digitization expanding further in Africa, more sophisticated embedded finance and embedded payments model will evolve, attracting more investors globally.

To know more and gain a deeper understanding of the embedded finance market in Africa and Middle East region, click here.

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