Startups rewrite story
IN SA, RELATIVELY YOUNG BUSINESSES ARE PULLING IN MILLIONS A whirlwind of investment is swirling around fintech startups in South Africa, as innovation in banking and payments changes the rules of the financial game.
new story, laced with cliffhangers, drama and intrigue, is being written across the pages of the world’s financial newspapers. The plot does not include gangsters, espionage or murder – yet – but it has its readers riveted.
The story begins with the wellworn premise of how technology is changing the world of financial services. But it quickly hurtles into the heady world of startups that are rewriting the rules of this nascent industry called fintech, for financial technology.
It then charges across the balance sheets of venture capital firms transfixed by unprecedented opportunity to return untold multiples on investments.
Depending who does the counting, anywhere from $17 billion (R223 billion) to $25 billion in venture capital went to fintech firms globally in 2016. According to CBInsights, 2017 was the biggest year ever in fintech venture capital.
In South Africa, startups seem to pick up million-rand cheques on the basis of little more than PowerPoint presentations. Relatively young businesses that have already proven themselves are pulling in hundreds of millions.
Prodigy Finance, a company started by a South African in the United Kingdom before being brought back to South Africa, offers loans to postgraduate students accepted into leading universities around the world. This “borderless credit” provider has accumulated funding of R4.2 billion, with R3.19 billion raised in 2017.
One of the participants in the latest funding round, AlphaCode, the fintech investment arm of Rand Merchant Bank, is becoming a familiar brand behind much of the fintech venture capital in South Africa. It recently hosted an event at which R1 million was handed to each of four winners of a fintech competition for blackowned startups.
Luno, a trading platform for cryptocurrencies like Bitcoin and Ethereum, announced a R120 million funding round, led by UKbased Balderton Capital, and also including AlphaCode. An earlier R60 million investment came from Naspers.
Synthesis Software Technologies, an established fintech company that approaches innovation like a startup, was acquired by JSE-listed Capital Appreciation for R132.1 million. While it provides software development and integration services to financial institutions, it has also become a leading player in the rapidly evolving cloud computing space.
Last year, it became the first company in Africa and the Middle East to be named an Advanced Partner by Amazon Web Services (AWS), the fastest-growing division of Amazon.
The last is the most intriguing of the three, given that its value and potential are not grounded in a specific trend or marketplace. With the cloud as backdrop, its innovation plays out in the fields of financial channels, blockchain, big data and artificial intelligence.
“We constantly review current technology trends and formulate products and solutions based on common industry needs using available technologies,” said Synthesis managing director Michael Shapiro. “This is where our focus on cloud technologies was incubated and formulated five years ago.”
The combination of a 20-year track record and a fresh, startup-like approach to cloud computing gave Synthesis a head-start in an environment where the starting point is often not clear. It assists financial institutions in “becoming cloud ready, to execute mass migrations, to harness the benefits of big data analytics and to extract the cost savings and regulatory benefits of the cloud platforms”, said Shapiro.