API Firm Empowers African FinTechs to Scale

Open banking initiatives have given consumers in many countries access to a range of new financial products and services. But across African nations, a lack of data sharing and open banking infrastructure limit the ability for innovative FinTechs to bring their services to more people across borders.

Kiaan Pillay, CEO and co-founder of South Africa-based API FinTech startup Stitch, saw many of the challenges FinTechs dealt with firsthand when it came to navigating outdated financial infrastructure across the continent. That led to the creation of Stitch in February 2021 to make it easier for businesses to build and scale innovative FinTech products.

“Our goal was really to make it easy for FinTechs on the continent to start and to scale. [And] as we continue to do this, the harder problems like moving money begin to show. Moving money between ecosystems, individuals and geographies is really, really tricky,” Pillay told PYMNTS in an interview.

To increase its chances of achieving this goal and further help fast-growing FinTech and embedded finance firms, Stitch recently closed a $21 million investment round led by New York’s Spruce House Partnership which has been earmarked for the expansion of the team, to launch new solutions and enter new countries across Africa.

Read more: South African API Startup Stitch Raises $21M Series A Round

The funding will also be used to create what Stitch calls the “financial graph,” which he described as an infrastructure for financial building blocks that can interoperate across regions, providers, banks, and other types of financial accounts, allowing businesses to write code once, launch in multiple markets and scale more quickly.

Complex Regulatory System

Pillay said the open banking scheme has impacted Europe positively and players like Tink and Truelayer have been able to leverage it effectively to create “incredible experiences.”

But while Africa doesn’t have a similar system, the recently launched Pan-African Payment Settlement System (PAPSS), which has been designed to enable instant payments across the region, would eventually lead to open banking being mandated across multiple geographies in the continent.

But given that regulation rolls out at a relatively slow pace across the region, it may take a while before consumers fully gain from the benefits offered by these innovations.

“Realistically, I think it will be maybe two years before you see a full-on implementation and maybe around four years before you actually see it working in production in a really effective way,” said Pillay.

To deal with the complex regulatory environment, Pillay said the best way to approach it is to be tactful and try to get all relevant parties involved. He acknowledged, however, that without open banking mandates, it can be a challenge to create valuable partnerships with banks and other financial institutions.

“Maybe sometimes counter-intuitively, we’ve always been really bullish on regulation. Sometimes it can be tricky to convince banks to work with you if there’s no regulation around open banking mandates,” he said.

Onerous regulations can also limit the ability for Stitch to explore and experiment with new products as those products will likely be subject to strict regulations.

For example, if the firm were to offer wallets to their users, they would have to navigate new regulations that dictate factors like how much money people can hold, if an eMoney license is required, as well as if a sponsoring bank is needed, he said.

Pan-African Ambitions

For now, Stitch plans to operate in Nigeria and South Africa, which is no small feat given that these are the two of the largest and most complex markets on the continent.

But once the company has a strong presence in these two countries and business operations are smooth sailing, Pillay said expanding across the rest of the African region will be an easier proposition.

“We’ve always viewed this as a very Pan-African opportunity. We do think there are huge network effects to being found in Africa and how quickly you can enable businesses to scale if you are Pan-African,” he said.

After Nigeria and South Africa, Pillay said Stitch will be looking to roll out operations in Egypt, Kenya and Ghana, markets that hold great promise for the firm. Kenya, in particular, with its mature digital market and strong FinTech presence, is also a potential target country, he added.

That said, the company does not plan to make any rush decisions when it comes to expansion plans. “We just don’t want to get too ahead of ourselves and kind of lose sight of the markets we’re already in,” he said. “But definitely, as soon as we feel comfortable, we will expand geographically.”

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