The rise and rise of fintech in Nigeria
By Abimbola Mohammed
With the rapid advancement in internet technology and the proliferation of smartphones, fintech companies consisting of both startups and established financial institutions have also been on the rise in Nigeria.
The growth of fintech started out in 2012 when the Federal government of Nigeria introduced the cashless policy to curb the excess cash flow in the country. However, the fintech sector in Nigeria took the centre stage completely as a result of the monetary policy to redesign naira notes (1000, 500, and 200 notes) as well as cap on cash withdrawals by the Central Bank of Nigeria (CBN) in December 2022.
Even though the decision of the CBN to reduce cash flow in the country didn’t immediately take effect in 2012, the cash redesign forced the citizens of Nigeria to adopt the policy as it was difficult to access cash during this period.
Before the cashless policy that led to scarcity of cash, the fintech sector report showed that less than 30 percent of adult Nigerians have or used financial services from non-banking institutions. But that is not the case anymore as the fintech revenue in Nigeria is expected to reach $543.3million this year, against $153.1million in 2017.
The new policy has created a shift in consumer choice and model to solve financial problems while helping to redefine the fintech banking ecosystem as it led to the discovery of various mobile money platforms by customers.
Fintech growth in Nigeria has no doubt provided access to economic empowerment, growth of businesses and also contributed to nation-building which has improved national growth, economic stability and security. But it still has its down side.
According to an Africa Tech Startups Funding report, investment into the African tech startup ecosystem passed the US$3 billion mark for the first time in 2022, and more than $600 million in 2021, amounting to nearly a quarter of the total funds attracted by African tech startups. That figure rises to almost two-thirds in the case of Nigeria.
Nigeria is the most popular investment destination on the continent. Between 2015 and 2022, 383 tech startups raised a combined US$2,068,709,445, a higher total than any other country.
While the number of Nigerian startups raising funding grew steadily over the first few years of tracking, the real spike has occurred since 2020. That year, the number of startups securing funding shot to 85 from the previous year’s 48. In 2021, the figure almost doubled again, to 161. By August 2022, 107 Nigerian startups had raised funding well on track to beat the last 2021 figure again.
The growth of Nigerian fintech is a perfect proof of the untapped potential in African economies. Fintech startups have enjoyed success and growth in Nigeria due to certain factors, including the low penetration of banking services, a youthful population making good use of an explosion in smartphone ownership, and the recent regulatory changes that have increased the number of cashless transactions.
According to a report by McKinsey & Company, fintech growth is likely to be concentrated in 11 key markets: Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South Africa, Tanzania, and Uganda, which together account for 70 percent of Africa’s GDP and half of its population.
The report stated that based on the varying levels of digital maturity across these countries, the opportunities in each market will be different and that economies with more mature financial systems and digital infrastructure, such as South Africa and Nigeria, are likely to see more innovation in advanced financial services, including business-to-business (B2B) liquidity and regulatory technology such as anti–money laundering and know-your-customer (KYC) compliance.
Meanwhile, markets where financial systems and infrastructure are still growing, such as Egypt, are likely to see advances in financial services such as underwriting, servicing, claims, and assessments in insurance; banking-as-service and embedded finance in operations and infrastructure; and buy now, pay later services in retail and small and medium-size enterprise (SME) lending.
The report added that despite these growth predictions, the fintech industry will still grapple with four key challenges on the road to sustainability which are, reaching scale and profitability, navigating an uncertain regulatory environment, managing scarcity, and building robust corporate governance foundations.
It is therefore important for the sector to brace up and plan ahead of the challenges that may spring in future.
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