The Nigerian Fintech space went agog when news broke recently that the country’s poster Financial Technology outfit, Flutterwave is now valued at $3B. A cause for real excitement for both active players and enthusiasts in this industry. But, what does the future truly for Fintech in Nigeria? Follow closely as the GNB news deconstructs Nigeria’s Fintech landscape for your education and enlightenment. And, who knows?! You might just be the one to float Nigeria’s next big brand in this space.
What is Fintech?
A Fintech ecosystem consists of consumers, financial institutions, fintech start-ups, investors, regulators and educational institutions. A well-developed ecosystem serves two purposes – it reduces the barrier of entry for consumers who are excluded from the socio-economic benefits that ecosystem is meant to deliver, and, it ensures that businesses (who often are at the centre of the system) efficiently improve their products or services while staying competitive and profitable. The Nigerian fintech ecosystem has made progress in achieving these purposes.
To put things in perspective, Nigeria ranks as one of the top three fintech hubs in Africa. This is a mean feat considering how fintech has evolved in Nigeria despite numerous challenges.
Nigeria’s fintech space is unique compared to that of South Africa or Kenya – the two other fintech hubs in Africa. Kenya had an early start with Safaricom’s M-Pesa, launched in 2007, while Nigeria is yet to have a telco-led MMO (though this is expected soon). South Africa has a large and sophisticated financial and banking sector, and over the years the top-four largest banks in Africa have been South African banks while Nigeria is ranked in the third class of banking in Africa by this 2018 Mckinsey retail banking report. Furthermore, both South Africa and Kenya had a head start in the adoption and penetration of mobile phones – the device that has come to play a central role in fintech today.
Thus, when you think about how far fintech in Nigeria has come, you should thank the incredible entrepreneurs and intrapreneurs who envisioned, pioneered and executed solo moves that have now crystallized into what is today- a strong and growing landscape. This has happened in spite of huge infrastructural, regulatory and financial challenges. While financial inclusion in Nigeria might not be at its peak yet (over 36% of Nigerians are still not part of the financial system), we must acknowledge that fintech in Nigeria has come far.
In the not-too-distant past, real-time payments were impossible, and the chances of individuals or SMEs obtaining quick loans were next to zero. Today, payments are defined by fast deposits and transfers, and many billboards in major cities advertise quick loans.
An increase in international investment has led to African fintech companies expanding their services across the continent. According to Digest Africa, a database of early-stage investments, African fintech firms raised USD 906 million in Q3 of 2021, which represents more than 60% of all venture capital invested in Africa during that time period. As the continent’s largest economy with a population of nearly 210 million, Nigeria received more than 60% of Africa’s inbound fintech investment last year, even though more than 50% of Nigerians do not yet have a bank account.
The potential is enormous, particularly in Sub-Saharan Africa, a region that has long suffered from poor access to financial services: 40% of the region’s population is under 15 years of age. In 2018, the continent had just one privately-owned start-up worth over USD 1 billion: the Nigerian e-commerce company Jumia. Today, seven African fintech start-ups have joined the unicorn club with four of them achieving unicorn status last year: Wave, a Senegal-based mobile money network; Nigeria’s Flutterwave, which offers payments services to businesses; Nigeria-based mobile payments company OPay which is funded by Japan’s SoftBank and Chinese investors such as Sequoia Capital; and Chipper Cash, a peer-to-peer payments operator that is backed by Jeff Bezos.
Gains
Pivotal to the future of the banking sector in Africa, open banking will provide third-party financial service providers with open access to consumer banking, transactions, and other financial data. This is already being achieved elsewhere through application programming interfaces (APIs), an open-source technology that allows third-party developers, such as fintechs, to access the data that is held by banks and to develop applications or services based on it. By having this seamless data connection, open banking provides customers with access to products that are best suited to their needs. In turn, this lowers costs, while facilitating innovation and inclusion.
Drivers
A youthful population
Increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion and cashless payments, are combining to create the perfect recipe for a thriving fintech sector. Nigeria is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
However, the sector is still relatively young. As Africa’s largest economy and with a population of 200 million—40 percent of which is financially excluded—Nigeria offers significant opportunities for fintechs across the consumer spectrum, notably within the small and medium-sized enterprise (SME) and affluent segments and, increasingly, in the mass-market segment.
Digitally savvy, middle-aged and young affluent individuals face poor user experience on products and find the value-add from using financial products underwhelming.
They expect speed and simplicity in their dealings with their financial service provider: “I want my online shopping to be seamless. I don’t want to stare at my screen waiting for a one-time password (OTP),” one respondent complained to us. The product value proposition for this segment is similarly limited. Returns on savings are low and there is limited access to investment opportunities, both domestic and international. With savings interest rates ranging between 4 and 5 percent per annum and inflation at 11 to 12 percent pre-COVID-19, traditional savings accounts have proven to be ineffective in achieving financial goals
To be continued…
