Banking has seen a major uptake in financial technology (fintech). The Covid-19 pandemic led to further development in the sector, with Nigeria experiencing the same global shift from physical workspaces to online ones. The pandemic also increased the need for Nigerian businesses and traders to find capital abroad, as foreign investors moved towards safer investments. Fintech has proven to be invaluable in the search for funding.
At the same time, foreign exchange issues – such as the growing gap between official and parallel market rates and the depreciation of both – have made fintech a natural conduit for trading offshore in US dollars and other currencies. Nigeria has a well-developed fintech ecosystem, with the Central Bank of Nigeria (CBN) keen to develop and regulate the sector further.
Good Pedigree
Fintech goes back some years in Nigeria, with companies such as Interswitch and eTranzact established in 2002 and 2003, respectively. In 2007 the CBN launched the Nigeria Payments System Vision 2020 with the goal of creating a cashless society, resulting in a major jump in domestic and international interest. According to McKinsey, from 2014 to 2019 the country brought in around $600m in funding, attracting 25% of the amount raised by all African fintech start-ups in 2019 alone. More than 200 standalone fintech companies were registered in Nigeria as of September 2020.
Historically, domestic fintech players have focused on payment systems (Quickteller, Cellulant, Paga and OP ay) and consumer lending. Unstructured supplementary service data (USSD) channels are also popular, particularly in areas largely underserved by conventional banking services. “People in rural communities with low internet access can easily use USSD, especially if they do not have a smartphone,” Segun Adams, a banking and capital markets analyst at Afrinvest, told OBG.
Entities like Paystack offer a payments service for small and medium-sized enterprises (SMEs) that can also include accounting and invoicing services. In consumer lending, the CBN’s revised rules on Know Your Customer have opened up services in recent years, with outfits like Migo offering unsecured capital loans to SMEs and Renmoney offering similar ones to individuals. Mainstream banks now provide such services via Access Bank’s QuickBucks or GTB ank’s QuickCredit.
These services are being supplemented by fintech advances in areas such as savings and investment, insurance and asset management. Bamboo and Chaka offer opportunities to invest in international markets, as well as for international investors to enter African markets. PiggyVest and Cowrywise offer high-interest savings accounts via an app, while Casava – the self-described first 100% digital insurance company in Nigeria – shows the increasing breadth of Nigerian fintech and the sector’s capacity for innovation.
This has deepened the need for effective fintech regulation, with the CBN now assisted by the Securities and Exchange Commission (SEC) and the Nigerian Communications Commission (NCC). The NCC plays a particular role in issuing licences for value-added services using mobile phones, while the SEC is looking at issues such as regulating crowdfunding activities.
Competition & Cooperation
With such a dynamic fintech sector – which also leverages Nigeria’s young population – traditional lenders face three options, which each come with pros and cons. They can try to establish their own in-house units to provide mobile services to compete with standalone fintechs; they can partner with an established outside fintech; or they can buy out an entity and bring it under their umbrella.
Banks and fintech outfits can be complimentary, as the latter often lack the resources and networks of banks, while the former sometimes do not have the agility or mindset of a successful fintech. Yet they can also be competitors, with the period ahead likely to see more of this as fintechs find their footing. Indeed, the number of unicorns and venture capital outfits in Nigeria has been growing, and traditional banks have been attracting talent to develop their own services.
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