The number of fintech companies in Africa grew at a yearly rate of 24 per cent between 2009 and 2019, fuelled mostly by Nigeria, Kenya and South Africa. This is even as is projected that Fintech revenues in Nigeria will grow from $153million in 2017 to $543million by 2022, driven by expanding payment services, the e-commerce market, and rising smartphone penetration.
These statistics were contained in a document, titled: “State of Play: Fintech in Nigeria,” unveiled during a webinar conference organised by Mastercard and MTN, as Nigerian fintechs are branching out from payments into lending, micro-investment, wealth management, peer-to-peer transfers and insurance.
The document, put together by The Economist Intelligence Unit, stated that payments and remittances are the most-developed sub-sector to date, noting that Nigeria has seen a surge of new and simplified apps to help merchants, businesses and consumers.
It said the Central Bank of Nigeria (CBN), has passed laws and regulation to promote digital payments, and allow more actors to enter the space, boosting competitiveness and consumer choice, adding that it is balancing these with consumer protections through its cybersecurity framework and data protection regulation.
The report noted that recent reforms, such as easing entry of start-ups into the capital market, and the creation of a fintech sandbox, could also lead to an enrichment of the ecosystem.
Although, no fintech specific law yet, the report pointed out that a sector roadmap provides overarching direction to the industry, stating that a legal framework may prove necessary to manage the emergence of new types of fintech and accelerate fintech solutions for “insurtech” and wealth management.
In terms of investment, the report said Nigerian companies are proving a draw for investors, and particularly for venture capital (VC) firms. Referencing French VC fund, Partech, the report said Nigerian tech start-ups raised $306million from 26 deals in 2018, driven mostly by fintech.
According to it, WeeTracker, which produces a yearly funding roundup, reports that Nigerian fintechs raised $679million in 2019, but this includes internationally-headquartered companies that have raised investment to operate in Nigeria.
Specifically, it disclosed that between 2018 and 2019, Flutterwave raised $10million; Paga $10million; Paystack $8million; Lidya $6.9million; TeamApt $5.5million; Migi $20million; and Chippercash $8.4million.
To develop and flourish, the report said Nigerian fintech needs to address shortcomings in the broader ecosystem, and while venture capital investment is forthcoming; the majority comes from abroad with Nigerian investors currently playing a small role.
It observed that as the sector matures, skills gaps are emerging outside of product development in areas such as business management and marketing.
Given the challenges that fintechs in all markets are facing in terms of profitability, the report urged that expertise in business management and corporate governance is needed.
It added that some experts question whether fintech has truly moved the needle on financial inclusion, believing that it is easing financial transactions for those already in the system. It however said the jury is still out, and although a causal link with the rise of fintech is unclear, surveys conducted by Enhancing Financial Innovation and Access, a financial sector development organisation, revealed that the percentage of financially-excluded adults in Nigeria reduced from 41.6 per cent in 2016 to 36.8 per cent in 2018.
Meanwhile, globally, the report observed that the fintech sector is among the most appealing for investors looking for the next wave of disruptive innovation.
Accordingly, it said digital “neo-banks” are expanding their market share, especially among younger consumers, while bespoke apps and platforms are taking once-elite financial services, such as stock market investing, into the mainstream.
The report noted that while unique subscriber penetration was at 50 per cent in Nigeria at the end of 2019, less than peers like South Africa and Ghana — in absolute terms that still amount to 100 million unique subscribers.
According to a Senior Manager at GSMA Intelligence, Kenechi Okeleke, “that is South Africa, Kenya, Ghana, and Cote d’Ivôire put together, which gives you an idea of the size of the market of mobile and the impact it could have on growth of tech services.”
In the areas of skills development, Olayinka David-West from the Lagos Business School, in the report, believes there are deficits in areas like business management, marketing, and communications.
David-West noted that business expertise, rather than just technical coding knowledge, is crucial if fintechs are to generate the revenues they need to sustain themselves, particularly as they push towards zero-rated transactions costs and fees.