It is no mystery that Nigeria has a huge (and rapidly growing) youth population. According to the World Bank, of the 200 million people in Nigeria, more than half are under the age of 35. In this digital age, the penetration of smartphones and internet continue to increase and financial inclusion is becoming more critical, making this shift to digital banking inevitable. Aside from the fact that the younger population is more tech-savvy, fintechs seem to be especially attractive to youth because of its inclusivity, especially in areas that are usually excluded. It gives them the opportunity to conveniently store, save and invest their money, right from their phones — this is especially so as Nigeria moves towards being a cashless society.
Across Nigeria, about 40% of adults are financially excluded, with no formal banking account. As the COVID-19 pandemic has forced so many businesses to adopt an online presence, many were able to appreciate the convenience and efficiency of digital banking. A recent report from McKinsey notes that fintech apps have seen more recent growth than renown banks, such as GTBank and Access Bank, that have recently launched digital banking platforms for their customers. In fact, PwC recently projected that traditional banking as we know it may not exist beyond 2025–2030. That said, whether it is an individual looking to leave traditional banking for a more convenient option or a small or medium-sized enterprise (SME) looking for an easier connection between merchants and customers, it is clear the fintech in Nigeria is an industry with a wealth of opportunity.
FinTech and its rapid growth recently
The Nigerian’s fintech sector has seen rapid growth in recent years, raising $600 million between 2014 and 2019. Additionally, the EDC estimatest that the non-cash transaction volumes will at a rate of 39% between 2018 and 2023. This, along with the increasing mobile and internet penetration, creates a huge growth opportunity for fintechs, as customers and merchants alike can take advantage of these services.
Opportunity for SMEs
Researchers have identified SMEs as a viable market segment for Nigeria’s rapidly growing fintech industry. Financial inclusion and digital payments are becoming increasingly necessary for seamless business transactions and subsequent growth. For example, according to McKinsey, payments to SME have grown by 28% over the past three years.
Even accessing loans becomes a major barrier for businesses looking to scale and finance their ventures. Access to financial tools, such as loans, are essential, and fintech mitigates this barrier by tapping into the large market for digitized loans. Also, the low penetration rate for loans and credit is an opportunity for fintechs to expand their customer-base.
Nigeria’s FinTechs to Watch Out For:
Nigeria currently has approximately 200 standalone fintechs, many of which have made incredible progress within the sector. Here are a few that are worth highlighting:
Founded in September 2019, Kuda, a fintech startup, already has approximately 300,000 users, processing transactions worth over $500 million every month. They recently raised $10 million through European venture capitalist, Target Global, and aim to “become the go-to bank not just for those living on the continent, but for the African diaspora.”
Paystack is a payment start-up that integrates payment systems into online and offline transactions using an application programming interface (API). Commonly referred to as the Stripe of Africa, it was acquired by Stripe for $200 million last month. It has about 60,000 customers, which includes small businesses, corporations, other fintechs and more.
PiggyVest is an app that allows users to save and invest money. Money can be saved in small amounts daily, weekly, or month directly from a bank account or debit card. Since its launch 4 years ago, it has seen over 100,000 downloads.
Paga is a mobile payment company that was founded in 2009, but publicly launched in 2011. In addition to mobile payments, it also offers savings accounts, wire transfers, and merchant services. Ultimately, it aims to improve financial access for all of its customers.
Future of FinTech in Nigeria
The face of “fintech” is the younger generation, unlike the older generation that is often associated with banking and financial services. The emergence and growth of fintech speaks to the resilience and innovation commonly found among young Nigerians — even more so after the COVID-19 pandemic. The pandemic forced many to digitize customer interactions and payments, thus accelerating the growth of fintechs.
FinTech companies that have emerged have significant economic potential. The global shift to digital banking options will allow for individuals and SMEs to have increased financial inclusion, which can ultimately empower those in the most vulnerable populations and enhance the overall quality of life.
The rapid growth of this sector does not mean that all Nigerians inherently trust these fintechs with their money — especially as it pertains to banking. The Central Bank of Nigeria (CBN) urges that fintech will only be sustainable if there is customer protection and trust between individuals and financial institutions. Building trust amongst individuals that are inclined to put their money in the “trusted” banks that Nigerian’s have used for decades is certainly an area for fintechs to focus on. Also, without proper infrastructure and investments, the fintech industry will likely suffer. While government buy-in is critical, it is essential that any policies and regulations that emerge are inline with the needs of fintech companies. This means that policymakers and companies will have to work in collaboration with each other to have a better understanding of how regulations can promote the success of fintech businesses and the Nigerian economy as a whole.
Written by Opeyemi Solaru