Home to Africa’s largest population, Nigeria plays host to a strong and growing fintech ecosystem which is largely driven by an increasing smartphone penetration and a massive unbanked population. It is also the leader in Africa in this regard, with many fintech startups and mainstream banks providing innovative digital solutions and offerings ranging from banking services, alternative lending and digital credit, public revenue collection, electronic payments, investments and financial management, blockchain, digital currency, crowdfunding and alternative financing, to foreign exchange and remittance transactions.
Evolution & Growth
In the first quarter of 2021, the Nigerian fintech industry generated about $293.2 million in revenue (with over 70% of the said revenue realised from foreign direct investments). The revenue is now projected to reach $543million by this year (2022), a huge growth from $178.3 million generated in 2018 and $153.1million generated in 2017. There are five fintech unicorns in Africa, and three of which – Interswitch, Flutterwave and Paystack – are Nigerian companies. This clearly indicates that the fintech industry in Nigeria has experienced massive development over the years.
Also, in recent years, the fintech industry in Nigeria has played host to enormous foreign investments, and business consolidations and collaborations. For example, between 2014 and 2019, Nigeria’s fintech industry raised more than USD 600 million in funding. Recently, Kuda Technologies – offering mobile-first banking services in Nigeria – raised the sum of $25million in a Series A funding led by Valar Ventures.
In the same year, Flutterwave became Africa’s fourth Unicorn startup after it had announced that it closed on a funding of $170million in a Series C round, valuing the company at over $1billion. The said round was led by Avenir Growth Capital and Tiger Global. Also in March 2021, Flutterwave announced a collaboration with Paypal to enable customers worldwide pay African merchants, thereby reducing the gap to the African market. Interestingly, Flutterwave is now being regulated by the US Securities and Exchange Commission, and it is considering the possibility of being listed on the New York Stock Exchange.
With respect to business consolidations, in October 2020, Lagos-based payment platform, Paystack was acquired by US payment giants, Stripe in a $200million acquisition deal, making the deal one of the biggest acquisitions in Africa’s fintech history.
It is also imperative to mention that the outbreak of COVID19 is a major factor that also contributed to the growth of fintech companies in Nigeria. Given that most Nigerians were unable to access mainstream banking services, they had no option than to resort to digital banking, mainly driven by these fintech companies, to make deposits, access funds and carryout other transactions. This served as a booster, and largely accounts for the rise in revenue which the fintech industry witnessed between 2020 and 2021.
Impact of Regulators
The fintech industry has also experienced significant legal and regulatory developments. Regulators have taken proactive steps to engage and see to the growth of the fintech industry. For example, the Federal Executive Council recently approved the Nigerian Start Up Bill (“the Bill”), a proposed legislation that is a product of the Nigerian Startup Bill Project (an initiative of Nigeria’s tech startup ecosystem and the Nigerian Presidency geared towards harnessing the potential of the Nigerian digital economy through co-created regulations). The Bill when passed into law, will ensure that Nigeria’s laws and regulations are friendly, clear, planned and will work for the tech ecosystem which the fintech industry is an integral part of.
Apart from the Start Up Bill, the Central Bank of Nigeria (“CBN”), the Securities and Exchange Commission (“SEC”) and other financial regulatory agencies have issued various circulars and guidelines aimed at the development of the fintech industry. For example, in July 2021, the Central Bank of Nigeria (“CBN”) issued twin regulations to govern mobile money services and operations in Nigeria. The said regulations were issued in furtherance of the CBN’s quest to ensure a robust and effective payment system in Nigeria, and in acknowledgement of the important role that mobile payment (i.e., payment through the use of mobile phones) plays as an effective driver of financial inclusion and the growth of commerce. Some other regulations include the Open Banking Framework, SEC Crowdfunding Rules (2021), the CBN Guidelines for Licencing and Regulation of Payment Service Banks in Nigeria, 2018, CBN Regulation for Bill Payments in Nigeria (2018), NCC Value Added Services and Aggregator Framework (2018), CBN Regulation for Direct Debit Scheme in Nigeria (2018), etc.
Challenges & Restrictions
Despite its enormous growth, the fintech industry in Nigeria, has been beset by certain challenges that have consistently forestalled its further development. As a matter of fact, compared to the position in developed climes, the Nigerian fintech industry appears to be struggling and this is as a result of certain factors, which include (but not limited to) regulatory barriers, ambiguous regulations, public illiteracy and ignorance culminating in lack of trust in fintech companies, ignorance of regulatory agencies on e-commerce and fintechs, fraud, etc.
For instance, in January 2017 the CBN via a circular dated 12 January 2017, declared that virtual currencies i.e., cryptocurrency, are not legal tenders in Nigeria, and as such any bank or financial institutions that transacts with them does so at their own risk. In another similar move four years after, via a letter dated 5 February 2021, the CBN directed all banks and financial institutions not to hold cryptocurrency or facilitate payments with them. In the same letter, the CBN further instructed all banks and financial institutions to identify persons i.e., their customers transacting in cryptocurrency or operating cryptocurrency exchanges and immediately close their bank accounts. This regulation has largely impeded the growth of cryptocurrency.
The SEC has also taken steps in a bid to regulate the fintech industry, that indirectly impeded its growth. For example, in April 2021, via a circular dated 8 April 2021, the SEC warned capital market operators in Nigeria to refrain from enabling and facilitating online trading and investment platforms to have direct access to the securities of foreign companies listed on securities exchanges registered and operating in other jurisdictions. SEC’s view was that these actions contravened the Investments and Securities Act (ISA), 2007 and the SEC Rules and Regulations.
With respect to customers, despite the innovative products and services being offered by fintechs, most customers, as a result of their ignorance and illiteracy, do not consider them as viable enough or trustworthy. They still prefer to carry out transactions and make deposits with traditional banks. This means that the fintech companies still have a lot of sensitizations to carry out within the public sphere.
Fraud and cybersecurity issues have also contributed to some of the challenges faced as most fintech companies are susceptible to cyber fraud, and their systems are constantly under attack by fraudsters and cybercriminals. Thus, FinTechs ensure they have adequate measures to protect their system from the activities of cybercriminals.
Outlook for the Future
No challenge exists without solutions, particularly in a sector like the fintech industry that boasts of providing solutions to payment and e-commerce issues. The various issues plaguing the fintech industry, we believe can be adequately addressed. The issues of lack of trust amongst customers for example, can be addressed by increasing the awareness on the operations of FinTechs. This may also impact on the regulators as where these regulators are better informed and aware on how the fintech industry works, they may make the appropriate regulations.
The government on its part needs to be ready to see the fintech industry grow. Currently, CBN licencing regime provides for up to a N5billion shareholder funds requirement for the highest licence. This type of regulation appears discouraging because most fintech companies are startups with little funds. This requirement should be amended to allow applicability to small fintech companies. Additionally, the government should be willing to make provisions for tax reliefs and incentives in the fintech industry, as this will attract investors. An incentive like the Pioneer Status Incentive (“PSI”) which the President under the Industrial Development Act is entitled to grant, can be made to apply to the fintech industry. When a PSI is granted, it gives the company corporate tax relief and holidays for the first three to five years of its operation. This will serve as a major incentive for the players in the fintech industry to create more financial innovations.
Indeed, the fintech industry has experienced massive growth in Nigeria, and it now contributes largely to Nigeria’s GDP. Interestingly, the fintech industry has achieved all this feat with little or no support from the government. Hence, with the necessary support from the government and key stakeholders, fintech is sure to continue its significant growth in Nigeria.
With Nigeria’s ever growing young population with access to internet services, it is indubitable that the future of banking and financial services rests majorly in the hands of the stakeholders in the fintech ecosystem. Interestingly, it is a sector that has been able to generate massive revenue with little or no government/stakeholder intervention. At this point, it is imperative for the fintech ecosystem to begin to get the much-needed support for it to thrive further.
- Adebayo B. Moito “Fintech Evolution in Nigeria: Achieving Double Bottom Line Impact Through Innovation and Entrepreneurship”
- Nosa Alekhuogie “Report: Nigeria’s FinTech Industry Rakes in $293.2m in H1 2021“
- Disrupt Africa “African Tech Startups Funding report 2020”
- Ingrid Lunden “Kuda raises $25million more led by Valar to become the Neobank for every African on the planet”
- Tage Kene-Okafor “Africa Payments Company Flutterwave raises $170M, now valued at over $1B”
- Njera Perkins “Flutterwave, Paypal Announce collaboration to allow customers worldwide to pay African”
- Daniel Iyanda “All you need to know about Paystack, the biggest Nigerian Startup acquisition”
- The Nigerian Startup Bill
- Guidelines on Mobile Money Services in Nigeria
- CBN “Circular to Banks and other Financial Institutions on Virtual Currency Operations in Nigeria”
- CBN “Letter to all Deposit Money Banks, Non-Bank Financial Institutions and other Financial Institutions”
- SEC Nigeria “Proliferation of Unregistered Online Investment and Trading Platforms Facilitating Access to Trading in Securities Listed in foreign Markets”
- Proshare Nigeria “Fintech and Financial Development in Nigeria”