The Nigerian fintech sector continues its rapid growth
Nigeria has been digitalising fast. Like many emerging economies, the COVID-19 pandemic gave digitalisation a new lease of life as people looked for alternatives to the physical bank branches they couldn’t – or wouldn’t – visit.
And it’s not just about COVID: the growth of digital banking couldn’t come at a better time for Nigeria’s enormous unbanked population. Earlier in 2022, research from the World Bank revealed that around 64 million of Nigeria’s population of nearly 200 million people still do not have an account with either a financial institution or mobile money platform, putting it among the seven most unbanked nations in the world.
Nigeria’s technology start-ups are undoubtedly rising to this challenge, and with over 187 million mobile connections across the country, the opportunities are huge.
Africa’s disruption giant
Over the last few years, the headlines have been dominated by stories of Nigerian start-up success. According to a report by Disrupt Africa, across the Nigerian technology sector, 383 Nigerian start-ups raised a combined $2 billion in funding between January 2015 and August 2022.
This is more than any other country within that period across Africa – even ahead of Egypt, Kenya, and South Africa, the other countries considered among the continent’s tech powerhouses.
As of August 2022, 107 Nigerian tech start-ups have raised around one-third of the continent’s total funding, with the running total of USD747.9 million putting the country on track to far surpass 2021’s record of USD793.8 million worth of funding.
In the fintech sector specifically, there are now between 210 and 250 fintech start-ups operating in Nigeria. The country also boasts five of the seven African fintech unicorns.
Research by Tellimer Insights identified payments as the biggest single subsector in the Nigerian fintech scene, at 28 per cent. Lending follows at 25 per cent, with software solutions, wealthtech, blockchain, insurtech and financial management making up the rest.
Among Nigeria’s major players is digital lender FairMoney, which recently completed a partnership with Oradian. FairMoney takes an innovative approach to loan decisioning, using repayment history and smartphone data to offer near-instant loans.
The regulator steps in
This rapid and impressive growth has certainly caught the attention of the Central Bank of Nigeria (CBN), which commented: “In the last ten years, Nigerian payment systems have experienced significant growth, especially with the development of a sound regulatory and supervisory framework, robust payment infrastructure, and the exponential rise in the number of fintechs operating in the country.”
The CBN is taking its role as the national regulator seriously. For instance, in 2021 it ordered all banks in Nigeria to cease transacting with entities dealing in cryptocurrency, citing security and the threat of money-laundering.
It also introduced a new type of banking license to regulate what it calls “payment service banks”, which essentially covers digital and mobile banking. Mobile banking, although common elsewhere in the continent, is still relatively unpopular in Nigeria, but these new licenses allow disruptors to compete with commercial banks by creating a well-regulated space in which to operate.
The future is bright
The Nigerian fintech space is expanding rapidly, but its future success depends on the regulatory landscape the country’s financial authorities create, and the Nigerian people’s willingness to adopt the mobile and digital banking of which they have hitherto been wary.
The country’s financial sector is still dominated by traditional banks and lenders, but even these have begun to embrace the possibilities of digital technology. Noting the threat posed by Nigeria’s disruptive new start-ups, established players are offering new payment options such as buy-now-pay-later, usage of which was estimated at USD325 million in 2021.
Next year, Nigerians will be heading to the polls to elect their next president. Polling is uncertain, but the whoever wins may be able to set the pace of financial development for the following five years – the sector will be watching the results carefully.
They will also be watching the development of the African Continental Free Trade Area, which came into force in 2021. This aims to remove barriers to the flow of commerce and capital across Africa; it will open new opportunities for Nigeria’s financial sector, but it will also introduce new competition.
Nevertheless, the stage is set for the Nigerian fintech sector’s incredible growth to continue. Observers will be watching closely over the next twelve months to see if it can sustain this rapid evolution.
