Challenges Facing Fintech Firms in Kenya: Why Some Companies Are Collapsing

Challenges Facing Fintech Firms in Kenya: Why Some Companies Are Collapsing | Analysis

By Steve Biko Wafula / Published March 25, 2023 | 3:47 pm

KEY POINTS

Firms that are able to differentiate themselves, build strong relationships with their customers, and secure the funding they need to sustain their operations are likely to be the most successful over the long term.

KEY TAKEAWAYS

Fintech firms in Kenya have been at the forefront of efforts to expand access to financial services and products, particularly for low-income households and small businesses.

The fintech sector in Kenya has been growing rapidly over the last decade, with the country emerging as a leading hub for financial innovation on the African continent.

This growth has been driven by a number of factors, including a supportive regulatory environment, a large unbanked population, and the widespread adoption of mobile money services like M-PESA.

Fintech firms in Kenya have been at the forefront of efforts to expand access to financial services and products, particularly for low-income households and small businesses.

However, despite the growth and potential of the fintech sector in Kenya, a number of firms have collapsed in recent years. One reason for this is the intense competition in the sector, which has led to price wars and a focus on short-term gains rather than sustainable growth. Some fintech firms have struggled to differentiate themselves from their competitors and to build long-term relationships with their customers.

Another reason for the collapse of some fintech firms in Kenya is the lack of access to funding. While the sector has seen significant investment in recent years, much of this investment has gone to a small number of high-profile firms, leaving many smaller and newer players struggling to secure the capital they need to grow and compete. This has made it difficult for some firms to sustain their operations and weather the ups and downs of the market.

One example of a fintech firm that collapsed in Kenya is Craft Silicon, which was once one of the country’s most successful software development companies. The firm had developed a number of popular mobile banking and payment platforms but struggled to adapt to the rapidly changing market and to compete with new players. The company eventually filed for bankruptcy in 2020, citing the impact of the COVID-19 pandemic on its operations.

Other firms that have shut down or are about to are Kune Foods, SWVL, Sky Garden, Sendy, and Notify Logistics, among others, failing. Here are reasons why I think this is happening;

Lack of market research: Many Kenyan fintech startups fail to conduct sufficient market research to identify the needs and preferences of their target audience. This results in the development of products or services that are not aligned with the needs of the market, leading to low demand and eventual failure.
Poor product-market fit: Even when Kenyan fintech startups conduct market research, they may still fail to develop products or services that meet the needs of their target audience. This may result from a lack of understanding of customer pain points, failure to identify unmet needs, or inadequate product testing.
Insufficient funding: Funding is a critical factor in the success of any startup. Many Kenyan fintech startups lack access to adequate funding to scale their operations, hire top talent, and invest in marketing and advertising. This limits their growth potential and increases the risk of failure.
Intense competition: The Kenyan fintech industry is highly competitive, with numerous startups competing for the same customers and resources. This makes it difficult for new entrants to establish a foothold in the market and gain traction.
Limited talent pool: The pool of skilled talent in the Kenyan fintech industry is relatively small, making it challenging for startups to attract and retain top talent. This limits their ability to innovate and develop new products and services.
Regulatory challenges: The Kenyan fintech industry is subject to complex and evolving regulatory frameworks, which can create significant barriers to entry for startups. Compliance with regulatory requirements can also be costly and time-consuming, further limiting the growth potential of startups.
Lack of infrastructure: Many Kenyan fintech startups struggle to operate effectively due to a lack of adequate infrastructure, such as reliable internet connectivity and digital payment systems. This can limit their ability to reach customers and conduct transactions.
Limited access to mentorship and support: Many Kenyan fintech startups lack access to experienced mentors, advisors, and support networks, which can help them navigate the challenges of starting and scaling a business. This can limit their ability to learn from the experiences of others and make informed decisions.
Ineffective marketing and advertising: Many Kenyan fintech startups struggle to effectively market and advertise their products and services, resulting in low customer acquisition rates and limited growth potential. This can result from a lack of marketing expertise or insufficient funding for marketing campaigns.
Lack of strategic partnerships: Strategic partnerships can be critical to the success of fintech startups, providing access to new markets, resources, and expertise. However, many Kenyan fintech startups struggle to establish and maintain such partnerships, limiting their growth potential.
Poor management and leadership: The success of any startup is heavily dependent on the quality of its management and leadership. Many Kenyan fintech startups struggle with inexperienced or ineffective leadership, leading to poor decision-making and a lack of direction.
Weak business models: Many Kenyan fintech startups fail to develop sustainable business models, resulting in a lack of revenue and profitability. This can result from a failure to monetize products or services effectively, inadequate pricing strategies, or insufficient market demand.
Inadequate risk management: The fintech industry is inherently risky, with startups facing numerous legal, financial, and operational risks.
Expensive salaries for the management team; Seems most of the funds raised went into recurrent expenditures, reducing the needed funds for research, marketing, and growth and this is a big challenge as it has exposed cancer that is poor corporate governance and ethics.

Overall, while the fintech sector in Kenya offers significant potential for growth and innovation, it is also a highly competitive and challenging environment. Firms that are able to differentiate themselves, build strong relationships with their customers, and secure the funding they need to sustain their operations are likely to be the most successful over the long term. However, the sector also needs to address the challenges of intense competition, access to funding, and regulatory uncertainty if it is to continue to thrive and expand access to financial services and products for all Kenyans.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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