New fintech in Kenyan market? Here is where to invest your cash

Financial technology (fintech) firms interested in the Kenyan market have been advised to look for novel areas of investment besides payment solutions, which is said to be a saturated space.

The dominance of telcos in this space is said to be both an enabler and an impediment for new players who seek a slice of this market.

While investing in payment solutions may seem lucrative, KPMG Partner in Strategy and Deal Advisory Makenzi Muthusi cautions that it will be difficult for such businesses to scale.

He noted that the space is already crowded by the virtue of already existing mobile payment solutions being provided by leading market players, key among them Safaricom’s M-Pesa solution.

Instead, investors should look for ‘virgin’ areas such as insurtech or open banking, which have huge potential to grow.

As London-based fintech firms lined up to pitch their businesses in a session attended by Principal Secretary in the State Department for Micro, Small and Medium Enterprises (MSME) Development Susan Mang’eni, Mr Muthusi also cited pension and saving solutions as other areas that are yet to be crowded.

He said new payment solutions will have to contend with competition from the telcos, who have already captured the market.

“Eventually, it will be one of your biggest competitors. It is a good thing, but again difficult when you need to scale,” he said. “Try to look for spaces that are virgin but with potential.”

In the pitching session, 13 firms with their base in the United Kingdom shared their ideas, ranging from digital payment systems to cross-border payment solutions that seek to tap into the African Continental Free Trade Area (AfCFTA).

Others are specialists in digital finance, banking software, and anti-money laundering solutions. Some of these firms already have a footing in the country with plans to extend to the rest of the East African Community (EAC) market.

Mr Muthusi said the asset management space still has room for more players to venture in. “A lot of Kenyans want to save and do not have access to pension plans,” he said.

He noted that the key in getting a grip of the Kenyan market is to make every solution tech driven. He cited areas such as microinsurance where insurtech can play a role.

Additionally, open banking, which is big business in the UK, is also an uncharted space.

“But you have to be patient until the regulator figures it out,” he said. “The payment solution space is a bit saturated.

Open banking is a financial practice where third parties can access customers’ data, such as transactional behaviour, and it is shared among players.

According to the Communication Authority Q3 2024/2025 statistical report, mobile money subscriptions in the period grew by 86.6 per cent. “This growth is synonymous with the increase in active mobile (SIM) subscriptions,” the report says.

The report documents 416,994 mobile money registered agents. This is as mobile money subscription standing at 45.4 million in the period having grown from 42.3 million in the previous quarter.

Considering smartphone penetration is at 42.2 million and feature phones at 32.7 million against an adult population of about 27.1 million and a total population averaging 53.3 million as per Kenya National Bureau of Statistics (KNBS) estimates, telcos will always have an upper hand when it comes to payment solutions.

Solutions such as buy now, pay later have accelerated this growth. “Buy Now Pay Later is financing 230,000 smartphones every month,” said Kevin Mutiso, the chairperson of the Digital Financial Services Association.

Ms Mang’eni, while pointing out Safaricom’s role in pioneering mobile payments, said it is the same thing the government is doing with the Hustler Fund.

She said the government’s decision to repair the bad credit of indebted Kenyans has enabled formal financial institutions, among them fintechs, to have access to 4.5 million borrowers who, before, could not access loans.

The PS observed that when the financial inclusion fund was started in 2022, about eight million Kenyans could not access formal financing due to bad credit reports. 

She noted that what the government has done is a primary cleanup so that when new businesses venture into the Kenyan market, they do not have to begin from ground zero.

“We can widen our risk appetite, but then we graduate those that we see have started showing tendencies of being responsible to our fintech companies or financial institutions so that they can be integrated in our formal financing system,” she said.

She acknowledged the government’s rather strict demeanour when handling fintechs, saying the industry has had a reputation for predatory behaviour associated mainly with digital lenders.

“If you see us coming in strongly, there are those people who are not doing it in the right way. Those few who are doing it right get punished because of the majority who are doing it in the backstreet,” she said.

Wayne Hennesy Barret, founder and chief executive of 4G Capital, a lender with local operations, noted this stance from the government. He referenced the country’s tax regime, insinuating that the levies are wearing down on businesses.

This is even as he acknowledged that the sector, back when he ventured into it, was highly unregulated. “When I got here, it was the wild west,” he said.

He referenced Mr Muthusi’s view of a crowded market. However, he noted that there is still a vast demand for debt with opportunities in the asset management space.

However, the country’s tax regime is not friendly to businesses. “You have a tax authority that seeks to tax losses of lenders. In what world do you tax losses or revenues instead of profit?” he posed.

Mr Mutiso also held the same opinion. “In Kenya, the government has a very suspicious way it looks at the private sector, especially where there is a large foreign presence (of players),” he said.

Away from the regulatory issues, another challenge that new players in this market as pointed out by Mr Muthusi, includes accessibility of local currency.

He said the cost and ability to access local currency at scale are a challenge for investors. “It is very easy to get European Union loans but once you come to the solution in the local market, it has to be in Kenyan shillings,” he said.