Ecosystem Coverage of the Nigerian Fintech Sector
Technology is shaping the way people live, communicate, work, play, interact and transact business in a country like Nigeria which has the highest population in Africa. Although there are still some sectors that are yet to catch up with technological advancements, many have however evolved with technology resulting in ease of operations and better customer service.
The financial industry is one of such sectors that have grown at an exceptional rate.
For one thing, there was a need to eradicate the long queues in banking halls, make cash transactions easier and faster without a visit to the banking hall and resolve other issues associated with payments and financial transactions.
Financial Technology or Fintech as it is fondly called is the use of technology to carry out financial transactions in a seamless and affordable manner.
Start-ups
Fintech is a rapidly evolving segment of the financial services (FS) industry where technology-focused start-ups and other new market entrants are disrupting how the industry operates.
Fintech start-ups function by innovating the traditional products and services provided by FS industry. This innovation is achieved by introducing technology-driven applications which transform customers’ expectations and create opportunities in the underserved market. As such, Fintech is gaining significant momentum and causing disruption to the traditional FS value chain.
Businessday categorized Fintech start-ups based on the products they have and the services they render:
Paytech: payment transactions through the use of technology (Paytech). This is one key area where Fintech leverage on to render services to Nigerians,
With the rapid adaptation of card payments in Nigeria, platforms like Remita, a payment platform designed by Systemspecs which is used by government and its MDAS to receive payment from the general public, Flutterwave and Paystack are taking the lead role in making it easy for businesses to start accepting online payments with the click of a button.
These companies allow both individuals and business to accept payments over mobile and web. They aim to integrate payment process in websites and apps and transfer the money directly to their bank accounts or digital wallets.
Lendtech: leveraging technology platforms to disburse loans has fuelled the growth of alternative lenders which offer both higher yields to investors and faster, cheaper, more convenient loans for borrowers compared to traditional banks.
Lenders who use the services of Lendtech firms can easily apply online for a loan and get the fund sent to their bank account in less than an hour without having to go to a branch of the financial service provider.
Private lenders like Carbon, QuickCheck, Kwikcash, Lidya, Renmoney, and infracredit, etc. coupled with some Fintech companies established by commercial banks are injecting millions into alternative-lending space in Nigeria making it easy for anyone to access quick loans (business or personal) when needed.
These Fintech companies also help individuals to invest their surplus funds to earn returns greater than fixed deposit or savings account interest rates.
Finance manager: The Fintech startups in this space provide products designed to help its users track and manage their finances. The tech start-ups are introducing simple ways to easily enable people to manage their spending.
Instead of relying on a pen and paper or spreadsheet, Nigerians through platforms like Piggybank, Cowrywise, Invoice NG, Kliqr, etc. can now use digital financial solutions to manage their finances in real time.
Users
The users of the financial products created by the Fintech start-ups in Nigeria cuts across board: the elite, less educated, financially included, under included and most importantly the financial excluded segment of the society.
From buying airtime through the use of mobile apps to sending money and accessing a loan, there are now products that meet each of these needs.
This means that anyone in Nigeria, as long as the person has the will to carry out any of the aforementioned transactions and has some basic requirements, can leverage on the products by the Fintech start-ups to have a seamless transaction.
Nigerian customers have shown an unexpectedly fast rate of adoption to
Investors
To many investors, the Nigerian Fintech industry is a sleeping giant that can give a high return on investment.
In recent years, investors’ appetite for the industry has increased beyond expectation and most recently foreign investors are entering into the Nigeria market space to get a share of the high growth industry.
Nigerian Fintech funding exceeded $250 million investment in 2018 alone, making it the most of any period, figures from industry sources show.
Some start-ups that raised big ticket funding in the review year include: Branch which raised $70 million in Series B; Cellulant secured $47.5 million in Series C to expand into more countries; Mines got $13 million Series A investment to hire talent, expand into Africa and beyond; Paga raised $10 million in Series B2 to expand into Africa and other markets; Paystack raised $8 million in Series A to expand into other markets; Sureremit raised $7 million in an ICO to develop its noncash remittance platform; and Lydia secured $6.9 million in Series A to hire skill and expand its loan book.
Armed with increased investment, some of these start-ups have launched ambitious products and services targeted at both existing banking customers and the millions of unbanked Nigerians.
According to a recent report by Partech, a global investment firm, financing a wide range of technologies, out of the total $1.163 billion in Venture capital (VC) funding raised by African tech start-ups in 2018, $582 million from over 64 transactions was channelled to the financial sector. This represents half of the total fund raised in the year.
Financial institutions
The emergence of Fintech companies may have been a threat to Nigerian banks but the financial institutions are not throwing in the towel as they have increased their investment, reviewed their digital banking strategies and unleashed new technology-driven products and services into the market.
Traditional banks have therefore joined forces with Fintech companies to utilize more financial technology offerings. Checks by Businessday revealed that Nigerian commercial banks are taking fintech into consideration and it is reflating in their bottom line.
In 2018 investment in financial technology by 11 Nigerian banks earned them about N124.45billion revenue from electronic transactions. This represents a 43.2 percent increase when compared to the corresponding period of 2017 when it reported revenue of N86.7 billion.
Government/regulators
The Central Bank of Nigeria (CBN) is the regulator of the Fintech industry.
In a recently drafted policy document, CBN recognized products by Fintech companies are gaining reception but argued their emergence would heighten existing risks in the financial system.
In the quest to address the emerging issues such as risk management and capital adequacy, the apex bank raised a new policy which will require Fintech start-ups to have minimum shareholder funds ranging from $275,000 to $14 million before obtaining licenses for their operations.
To industry sources, it represents a significant barrier to entry for new Fintech businesses which-like most start-ups; depend on revenue growth and investor backing after they launch to scale operations.
Most Nigerian early stage start-ups raised well below the CBN’S new financial requirements even before taking into account their operating costs and expenses.
While the apex bank offers a blanket reference to Fintech companies, the regulation will mostly impact start-ups looking to offer digital banking services, as there will be confidence in the service providers as much as there is in the conventional commercial banks.
Industry sources are of the opinion that the move by the central bank is to avoid situations where people lose money but they also argued that the apex bank has to find balance in ensuring it protects the interest of the people and also encourage more companies to operate in that space.
University & Research Institutions
A cutting edge fintech eco-system needs to prioritize on innovation and thus leverage on academic bodies such as universities and research institutes to help build an entrepreneurial mind set in Nigeria’s young technical talent.
Incubators, Accelerators & Innovation labs
The fintech sector has witnessed an upsurge in mentorship programs for young tech entrepreneur s which has contributed hugely to the growth of the Nigerian fintech eco-system.