The emergence and growth of the financial technology sector have disrupted the traditional approach to financial service, contributing significantly to Nigeria’s economy, writes EHIME ALEX
Recently, former President of the Senate, Bukola Saraki, hosted experts to discuss the untapped economic potential of financial technologies as part of measures to reduce widespread poverty in the country. The event, which was held for the third time, was the monthly series of interactions under the Grow Nigeria Conversation themed, ‘Growing Nigeria with FinTechs: Bridging the gap between the rich and the poor’. Stakeholders at the event advocated utilisation of the fintech sector to create opportunities, good jobs and wealth in the country.
“With over 23 million (33.3 per cent) of Nigeria’s working age population out of job, we must begin to look into how we can create more job opportunities for more young Nigerians using fintech. We must discuss the strategic interventions that the government and the private sector can embark on to enable fintech expansion across the country,” Saraki, who is the patron of GNC, said.
Inroad to fintech adoption
In 2011, the Central Bank of Nigeria launched the cashless policy to promote the use of electronic payment channels, instead of cash, in the country. The programme was designed to provide mobile payment services, break the traditional barriers to financial inclusion of millions of Nigerians, and bring low cost, secure and convenient financial services to urban, semi-urban, and rural areas across the country.
Remita had, in 1991, set the pace for fintech companies in the country, but was barely known. Today, the number of established fintech companies in Nigeria has hit over 200. Its widespread adoption came not until the CBN launched its Payment Service Vision in 2007. In 2008, Interswitch became the first fintech firm with a transaction-switching network.
According to new Fintech report released by Findexable, which identifies emerging hubs, fintech companies and fintech trends across the globe, in the last decade, there was a boom in African fintech.
A report powered by Mambu showed that 2020 was a year in which the fintech sector expanded globally, building upon a surge in demand for technology that increased access to digital finance.
In the 2021 Global Fintech Ranking, Nigeria fell five spots to rank 57th in the world, placing the country third in Africa – below South Africa and Kenya, which solidified their lead in the continent.
The country’s fintech industry is nascent compared to fintech ecosystems globally, but maturing at an exponential pace. It was estimated that Nigerian fintechs raised $439m in 2020 alone, equivalent to 20 per cent of the amount raised by all African tech startups.
“Nigeria’s fintech revenue is expected to reach $543.3m in 2022,” says Frost and Sullivan in a report. In the next three years, however, findings show that this would translate to about $1.63bn revenue generation to the economy.
Fintech services serve the demand of clients across consumers, corporates, financial institutions and government. Experts are of the view that its popularity lies in its ability to greatly expand access to capital to small business owners, including women, minorities and immigrants, who were under-served before technology levelled the playing field.
Lanre Babalola of The African Politeia Institute and Ariyo-Dare Atoye of the Adopt a Goal for Development Initiative, the organisers of GNC, have said that the fintech ecosystem possesses huge potential that could benefit the Nigerian economy, if properly managed.
“Interestingly, beyond facilitating core financial transactions and increasing financial inclusion among the underbanked and unbanked, fintech is fast evolving into agriculture, transportation, healthcare, education, insurance, asset acquisition and other basic consumer needs.
“While the total value of investments into fintech is on the rise globally, totalling about $165bn in 2019, in Nigeria, some are already projecting fintech as the new oil or digital oil, raising about 439m in 2020,” they stated.
Impending challenges
While the Nigeria fintech industry continues to grow, there are issues of policy and regulation, where a large proportion of fintechs believe the financial industry in the country is overregulated, and this may stifle innovation and global competitive advantage.
Also, while there remains a high degree of optimism, the industry is facing some scale-up challenges. Two fundamental foundations for continued success will include the level of effective collaboration with major players and the level of government support.
“While about 38 million citizens — 36 per cent of adult population — remain completely financially excluded, and short of the 2020 CBN’s 80 per cent projection, we must equally address the challenges militating against the Nigerian fintechs ecosystem: from regulations, access to data, cybersecurity concerns to fund-raising, competitive issues and high cost of operations,” said Babalola and Atoye.
Lately, the CBN secured a court injunction on some fintech firms for illegal operations.
Positioning fintechs for growth
According to a report by McKinsey and Company, banking in Nigeria remains an attractive sector, with over $9bn in value pools. Despite high level of competition, the vast majority of consumers are underserved. Lack of access to services, especially in rural areas, issues of affordability, and poor user experience all contribute to the frustration consumers experience across the customer spectrum, the report pointed out. This has created an opening that fintechs have been quick to take advantage of, with many stepping up to develop enhanced propositions across the value chain to address pain points in affordable payments, quick loans, flexible savings and investments, among others, it added.
Rise of fintech unicorns
The Nigerian fintech sector was in its infancy stage a few years ago, but has matured to become a major player in Africa and classified as a developing fintech economy compared to its more mature global peers such as the United Kingdom, Singapore, Australia, Sweden and India. Nigerian fintech revenues is estimated to reach $543m by 2022, driven by increasing smartphone penetration and the unbanked population.
In 2019, Nigeria officially recognised its first fintech unicorn, with Interswitch achieving a valuation of $1bn based on a $200m investment from VISA. Following shortly, in 2020, Stripe, a United States-based financial services company, agreed to buy Paystack in a $200m deal. Today, Flutterwave and Chipper Cash have joined the league.
With $400m in funding from SoftBank that takes its startup’s valuation to $2bn, OPay recently became one of the continent’s five tech unicorns.
“We believe our investment will help the company extend its offering to adjacent markets and replicate its successful business model in Egypt and other countries in the region,” Bloomberg reported Kentaro Matsui, a SoftBank Group Corp. managing director and former managing partner at SoftBank Investment Advisers, as saying.
Paga, a Nigerian mobile payments company, could reach a valuation of at least $1bn “in the next year or two,” said the Chief Executive Officer, Tayo Oviosu, sometime in June.
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