Paystack, Flutterwave, Piggyvest, Remitta, Kuda, etc. sounds familiar? Yes, these companies are disruptors in the Nigerian Financial industry; they are called FINTECHS. Earlier in the year 2021, precisely in March, Flutterwave one of Nigeria’s fintechs, raised a series C funding of $170M, at $1 billion valuation. Flutterwave became the second unicorn in Nigeria, after another fintech Interswitch, which reached $1billion valuation in 2019 when Visa acquired a 20% stake in the company. In October 2020, another fintech in Nigeria Paystack, was acquired by financial giants Stripe for $200 million in the biggest fintech acquisition in Nigeria.

These news and many more, coupled with the disruption of the Nigerian financial sector by these companies has led many stakeholders invest in these fintech companies. However, the rise of fintechs have not been fully adopted in the country especially by older generations, who still out their trust in traditional banking. Nonetheless, trust in fintechs is growing among lower-income segments, with 51% of youth and mass-market customers (according to Mckinsey). SME owners also say that they increasingly trust fintech because of its speed in operations.

What is Fintech?

Fintech is a very popular word in the lips of many people in all works of life; the term fintech stands for ‘Financial Technology’. It is defined as a technology that disrupts or causes innovation to traditional ways of conducting financial transactions. This includes digitizing processes that were previously handled with paper money and human interaction.

Financial technology at delivering financial services to consumers; such technologies include internet, apps, mobile phones and other technological devices. These companies offer services such as money transfer, depositing a check with your mobile phone, applying for credits, raising funds for business.

Fintech is not new, as it’s been around in one form or another as long as financial services have existed especially with the rise of technology & the internet. The global financial crisis of 2008 finally paved way for the drastic rise of fintech companies in the World, Nigeria inclusive. Fintech has evolved to disrupt and reshape banking, commerce, payments in various sectors, investment, asset management, insurance claims, etc.

One of the many qualities of fintech is its capacity to enhance achieve financial inclusion globally. This means individuals & businesses can have access to financial services & products from anywhere around the World

Rise of Fintech in Nigeria

Financial operations have always been a huge problem in Nigeria such as huge crowd within the banking all, use of paper for data processing, fraud & theft, difficulty in carrying lump sum of money around, difficult access to loans & credit facilities, challenging cross-border payments, etc. These gave rise to various policies by the Central Bank of Nigeria to ease these burden foster improvements. One of the outcomes of this decision was the inclusion & adoption of technology in financial services, starting from the banks. Traditional Banks began infusing technology in payments (Automated Teller Machine), money transfers, etc. before individual & private companies began to proffer solutions. This influenced the rise of Financial Technology in Nigeria. Early companies include Interswitch, E-tranzact, Paga, etc.

Fintech adoption is highest in Lagos and among middle-class and affluent customers. This is driven by the fact that most people in the city have higher educational levels, access to more reliable digital infrastructure, and stronger economic power.

Many sectors outside Banks later adopted these technologies to make transactions within & across their industry better. Students can easily pay for school fees without going to banks, Power bills can easily be paid, airline tickets can easily be booked using the internet, access to loans was made easy, insurance products can be bought, etc. all through the emergence of fintech companies in Nigeria. Infact, Nigerians can now easily pay for products & services outside the country, as non-Nigerians can also buy from Nigerians retailers without visiting Nigeria; this is called ‘ cross-border transactions’. There are also digital banks, saving & investments platforms making these services easy.

Sectors in fintech

Payment, Savings & Investments, Insurance, Consumer Lending, and Digital banking are all sectors in the fintech industry in Nigeria.

Payments sector is the oldest & biggest fintech service in Nigeria; be it payment gateways, remittance, or any form of online payments, the payment sector is really making commerce easy in the country.

Consumer lending is closely behind and is making waves in Nigeria. Savings & Investment sector is really gaining momentum and not far behind. Insurance is an unexploited opportunity for those that can leverage technology to provide affordable healthcare premiums & enhance insurance distribution.

Popular fintech companies in Nigeria include:

Flutterwave ( Payment)
Paystack (Payment)
Interswitch (Payment)
Piggyvest (Savings & Investments)
Paga (Payment)
Cowrywise (Savings & Investments)
Alat (Digital Banking)
E-tranzact (Payment)
Quicteller (Payment)
Remitta (Payment)
Carbon formerly paylater. (Payment)
Kuda (Digital Banking)

According to Mckinsey, Nigeria is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone.

Business Models of fintechs

Fintech business model is classified into two based on who they are offering services to; each model has its distinctiveness & challenges. These are business to consumer model (B2C) and business to business model (B2B). Some offer both B2B and B2C services.

Factors Driving Fintech Growth & Revolution in Nigeria:

Customer Behavior

Consumer behavior is an important factor that determines the growth of an industry or business. Businesses are always advised to always know their target market. The major customers making Fintech thrive around the world including Nigeria are Millennial & Gen Z generation. These generations are driven by technology, they want things done fast & in convenience from the comfort of their homes, they want to travel light without the need to carry cash about, they want to easily purchase anything from anywhere around the world in a seamless manner. These behaviors to mention a few have influenced fintechs and how financial operations are done.

Access, Convenience, and Trust are primarily critical factors driving Customer behavior & adoption of fintech

Improved Technology

Increase in smart phone market & new technologies such as cloud computing, Artificial Intelligence, Machine learning, blockchains, etc. are really driving the growth of fintech companies. Consumer behavior & decision making are hugely influenced by these technologies, which is helping position fintech companies.

A focused regulatory drive

The CBN is one of the regulatory bodies driving the rise of fintechs in Nigeria, through some its policies focused on improving financial experiences for Nigerians. These policies include:

Financial Inclusion

Financial inclusion is the efforts made by The CBN to make financial products & services available, accessible and affordable to all individuals. Financial inclusion strengthens the availability of economic resources to the underprivileged, a major step to inclusive growth. This helps to reduce poverty.

The rural masses & undeveloped areas of the Nation can get access to banking like cash payments, balance enquiry, using technology such as USSD. Local farmers can easily send their farm produce to vendors & receive payments without the need to travel far distant to the city.

Cashless Policy

One of the goals of Central bank of Nigeria is the cashless policy. This is aimed at preventing people from carrying physical cash around, reducing theft, & making payments easily to fast track payments through mobile transfers, QR codes, USSD, etc.

Unmet Demand by Traditional Banks

There are lots of challenges faced by traditional banks, which they haven’t been able to fix. This has led to many individuals developing solutions, using financial solutions. Example of such is the issues of high bank charges & low interest rates given by bank. This led to the rise of fintechs like piggyvest, Kuda, etc.

Challenges faced by fintech in Nigeria

Despite the disruption caused by fintech, there are several challenges Fintech companies in Nigeria face. These are stated below:

Fraud, Cyber Security & data privacy issues

Fintech companies often have access to highly confidential data of customers such as card details, BVN, passport details, etc. This has attracted hackers who like to access these details, hence making fintechs prone to cyber fraud and cyber-attacks. It is important fintech companies put security mechanisms in place to protect against fraud. Inability to guide against these challenges can warrant lawsuits against fintech companies, and negative feedback from consumers which may result in customers’ boycott from such company.

Lack of trust:

Customers are usually skeptical about conducting transactions with Fintech companies and platforms; they prefer transacting with recognized Nigerian banks. This is most common to boomers and older millennial generations. This lack of trust leads to problem of early adoption.

Unfriendly regulations:

Regulations from CBN & other regulatory bodies such as the Security for Exchange Commission, for Fintech solutions are sometimes misleading & overwhelming. The recent case of Cryptocurrency & BVN validation which Fintechs used as KYC for customers is a good example.

Difficult Barrier to entry

Getting a mobile money license from the CBN requires providing evidence of having a minimum of 2 billion naira as shareholders’ fund; this is a big discouragement for startups who want to enter this industry.

Competition from Banks & other financial Sector:

Many traditional banks are beginning to add fintech solutions especially in the areas of payment, saving, investments & insurance, as products & services they provide. This proved to be a big challenge to private fintech companies, whose company’s valuation isn’t as big as those traditional banks.

Other challenges are chargebacks, lack of access to fund / investors, a difficult economy, etc.

The future is bright!

Untapped opportunities in the fintech space in Nigeria are still very high, many that haven’t yet being scratched. There are still many solutions to be provided especially with the consistent change in consumer behavior, leading to unmet demands which many industries haven’t been able to provide. For example, in E-commerce, Flutterwave has augmented its core payments business to speed up the launch of Flutterwave Store, a portal that allows African merchants and SMEs to create digital shops to sell online.

Digital banks are rising by the day to solve some problems with traditional banks; traditional banks are evolving daily to position themselves in the tech space. Many other industries are beginning to integrate financial technologies into their services. For example, companies like ThriveAgric, Farmcrowdy have been able to use fintech as a solution in Agriculture industry.

The Covid-19 pandemic also saw a rise in the use of fintech services. Logistics, food delivery, online retail, etc. were vehicles through which these rise was evident, as they use fintech solutions for their services.

The future is definitely bright for the fintech industry in Nigeria. Digital financial services have the potential to unlock significant benefits for Nigeria’s economy and society. All stakeholders in the fintech ecosystem, including government regulators, infrastructure players, private organizations, and providers of capital need to work together so that the country can start to unlock the potential of its fintech assets.

Fintech companies should be protected by the government & regulatory bodies. Access to loans & investments should be made easy to them. Private equity firms, venture capitalists, and angel investors, have a key role to play in unlocking the potential of fintech in Nigeria.