Investments in businesses leveraging technology for financial services (Fin- Techs) in Nigeria totalled $560 million in the last three years, a report by the Enhancing Financial Innovation & Access (EFInA) has revealed. This, according to the report, is a growth of over 190 per cent as more investors continue to harness the huge opportunities in the country’s FinTech landscape. As of this year, EFInA said there were over 200 FinTech companies in Nigeria offering services ranging from payments to savings and lending. These businesses are said to have accounted for around 10 per cent of direct investment into Nigeria from 2017 to 2019 and have been projected (pre- COVID-19) to contribute up to $3 billion.
EFInA noted that that the increased FinTech funding over the last three years was driven largely by Visa’s $200 million investment in Interswitch, $170 million Chinese capital in OPay and another $40 million Chinese investment in Palm Pay, all of which were consummated in 2019. The body, however, noted that funding has been concentrated on later-stage in vestments, adding that there is a perceived gap in pre-seed funding partly due to limited local participation. “This is reflected in the fact that 50 per cent of the funding has gone to companies with foreign affiliations,” EFInA stated in the report in its ‘FinTech Landscape and Impact Assessment Study 2020 Report.’ “The Nigerian FinTech landscape is attractive and growing, with a concentration in Lagos, focused on banked customers and providing payment and lending solutions.
“However, dynamics are changing, new pockets of growth are emerging, driven by changes in consumer behaviour, funding sources and new business models; leading to an extension of Financial Services to unserved and underserved populations,” EFInA said.
The group, however, noted that despite the increased activity in the FinTech sector in Nigeria and the positive multiplier effect, the economic impact to date is low as FinTech activity accounted for only about 1.25 per cent of retail banking revenues in 2019.
“A concerted effort by all stakeholders to address structural challenges is required to capture a greater share of Nigeria’s $50 billion Digital Financial Services opportunity and mitigate emerging risks as the sector evolves. This could help accelerate the ambition to include more individuals into the formal financial system,” it said.
“There are a number of actions that could enhance Nigeria’s Digital Financial Services landscape – leading to a higher number of people included in the financial system. However, five of them, if well executed, could yield the biggest impact – Innovation enablement, Digital ID, Credit structure, Digital infrastructure and Technology talent pipeline,” EFInA added. The report also noted that FinTech activity in Nigeria had been concentrated in consumer segments, particularly payments and lending, with increasing activity in savings and wealth management.
This, it said, had created gaps in MSME lending, insurance and pensions. Aside from that, the EFInA study also revealed that the FinTechs are mainly located in Lagos, with limited presence in Abuja, with most employing Business to Customers (B2C) models. Giving further insights into the FinTech landscape in Nigeria, EFInA stated that FinTechs in the country “has evolved from the early players- FinTech 1.0 focused on B2B to the emergence of FinTech 2.0 players focused on niches and the recent emergence of FinTech 3.0 players orchestrating ecosystems. “These FinTechs are addressing critical customer pain points around access, affordability and ease of use of financial services which have historically hindered financial inclusion.”
With the outbreak of COVID- 19, stakeholders in the FinTech industry have projected further growth in the business. According to a former Chairman of Renmoney, Mr Rotimi Oyekan, FinTech, which is an important factor in achieving the Central Bank of Nigeria’s 80 per cent financial inclusion target, has a huge opportunity for growth in this period. According to him, with banking penetration in the country still at 40 per cent, more Nigerians would be taking advantage of the FinTech for financial services. For Chief Operating Officer of Piggyvest, a fintech startup, Odunayo Eweniyi, though the scourge would lead to a decline in FinTech start-up funding as venture capitals and investors are being cautious, it has created an opportunity for growth.
She, however, pointed out that the main challenge that would inhibit the FinTech growth is regulation. According to her, in the four years of the FinTech revolution in Nigeria, there has not been a clear regulatory direction. “We need enabling environment and the chance to innovate. There has been no enough enabling regulation four years after the first fintech company launched in Nigeria. This is one of the reasons why investors are afraid to invest in the fintech space in Nigeria,” she said.