Most African Neobanks Struggle To Achieve Profitability Despite Glimmers Of Hope


It was only just over a year ago that McKinsey described Africa’s financial technology landscape as a “hotbed for investment.” Fast forward to today, and startups on the continent are facing many of the same problems plaguing fintechs in more mature markets like the U.K. and the U.S. Valuations are tanking, growth is flagging, revenue targets are being missed, and those investors are, well, searching for a rest in another hotbed. But look a little closer, and there are some glimmers of hope amid the bigger challenges.

Key Takeaway

African neobanks are facing challenges in achieving sustained profitability, despite some instances of short-term success. Strategic shifts towards introducing lending products and addressing bad debt are crucial for their long-term success.

TymeBank’s Profitability and Strategic Moves

TymeBank, the South African digital bank majority owned by African billionaire Patrice Motsepe’s African Rainbow Capital, recently announced it became profitable for the first time in the month of December 2023. However, celebrations might be short-lived as the bank’s profit run is for that month alone, not the full year. This underscores the problem facing many fintech companies in Africa: despite the huge growth potential, sustained profit for many of these businesses remains elusive.

Strategic Shifts for Profitability

Deposit-led digital bank Kuda is among the fintechs chasing profit, hinging its shift on scaling its overdraft and introducing more micro-lending products. Neobanks have not managed to turn a profit on consumer deposits alone, so introducing lending products is critical. African neobanks have taken different paths to get to the same place, with examples from TymeBank, FairMoney, and Carbon.

Challenges with Bad Debt

One of the significant issues that has weighed on how neobanks have performed in Africa has been the impact of bad debt. TymeBank and FairMoney faced challenges with increased operating expenses and impaired loans, impacting their net revenues. Addressing credit impairment challenges is an immediate focus for these neobanks.

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