Nigeria at 60 West Africa

Nigeria’s fintechs drive growth of digital culture

Nigeria’s fintechs drive growth of digital culture
  • PublishedOctober 12, 2020

Nigeria has been one of Africa’s fastest-growing destinations for new investment in fintech, which is helping the country to address the longstanding problem of financial inclusion. Dianna Games reports.

More than half of all adults in Nigeria are not in the formal financial system and more than 90% of transactions across the country are still done with cash, despite efforts by the Central Bank of Nigeria (CBN) to introduce a cashless society.

The CBN has a target of financial inclusion of 95% by 2024 and analysts believe it will only get close to this with the growth of fintech companies, products and funding.

Nigeria benefits from its young, tech-savvy population in rolling out technology solutions, and the huge gaps in the market, although competition is rising, which will result in the survival of the fittest in time.

PwC, in a report titled ‘Fintech and the Banking Sector in Nigeria’, says fintech investments in the country between 2011 and 2018 stood at $204m, while in 2018, more than half of total start-up funding to tech companies generally was directed to this market segment. 

In the first quarter of 2020, Nigerian start-ups raised more than $55m, higher than the amounts raised in the same quarters of 2018 and 2019. Fintech start-ups accounted for 82.2% of the total funding, with most funding coming from outside Nigeria. 

Nigeria is, along with South Africa and Kenya, the top destination for start-up funding, not just in fintech but in other sectors such as health. One of the biggest fintech companies is digital payments firm Interswitch, which was valued at $1bn in 2019 after global giant Visa acquired a stake in it.

Many products focus on disrupting the payment systems space and providing more agile products and services than the traditional banking sector.

The segment does not yet have a dedicated regulator, while being served by several existing regulators, such as the CBN, the Nigerian Communications Commission and the National Information Technology Development Agency, which regulates data privacy.

While the Covid-19 pandemic has had an effect on the funding of these companies and on customers’ need and ability to pay for financial services, it has also boosted the acceptance and use of online banking and transactions as people have sought contactless solutions for their everyday requirements.

The Nigerian entrepreneur and former CEO of Diamond Bank, Uzoma Dozie, recently launched a technology-driven financial services company, Sparkle. He says getting people to change their habits has been a challenge, but the pandemic has helped to drive greater acceptance of online business, which has enabled his operation to scale faster than anticipated.

Tools becoming cheaper

The move to online is being fuelled by the way tools and data are getting cheaper. Research shows that data costs in Nigeria dropped by 75% between 2014 and 2019, driven by competition in the telecoms market.

Olugbenga Agboola, CEO of successful fintech Flutterwave, says that during the lockdown, they set up an e-commerce platform to help many smaller shops that did not have an online capability to take advantage of the new demand, integrating payments and delivery.

Flutterwave is also attracting international investment. In January this year, it raised $35m in a Series B funding round, which brings the company’s total investment to $55m. It has also formed partnerships with the global payment processing company Worldpay, and China’s Alipay.

The traditional banks are moving towards a more digital future, but it will take time, says Dozie. They remain the biggest competition for fintech companies in Nigeria. “They are starting to see the importance of the SME segment, but they need a paradigm shift to be able to address the needs of the real economy.”

He saw the impact technology could have on scaling a business while at Diamond Bank. The bank’s mobile app users grew from just over 200,000 people in 2014 to 3.3m by 2019. “It took us almost 20 years to generate the same customer numbers via our network of branches,” he said.

Nigeria’s biggest bank, Access Bank (which merged with Diamond Bank in 2019), recently founded the Africa Fintech Foundry (AFF), a tech hub that has been set up as an accelerator for the bank.

Olusegun Adeniyi, who heads up the AFF, aims to amalgamate the advantages of fintech with the scale of traditional banking. “We want to find innovators that the bank can use in this increasingly competitive space. We are also helping to drive a digital culture in the whole industry.” 

Read more from our Nigeria at 60 special report

Written By
Dianna Games

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