Nigeria’s financial technology (Fintech) companies have increasingly become a top investment destination for foreign investors. To have a piece of the industry’s cake, investors are queuing and waiting for a window of entry. Considered a ‘goldmine’, the opportunities foreign investors see in Nigeria’s Fintech industry has forced them to turn a blind eye to the challenges that come with doing business in Africa’s largest economy.
While foreign investors usually factor in the emerging market risks when investing in a continent like Africa, the critical challenges that exist in Nigeria; policy inconsistencies, regulatory kickbacks, lack of infrastructure and insecurity challenges have prevented many foreign investors from entering the market of Africa’s most populous nation.
The promising Fintech industry in Nigeria, is, however, making foreign investors overlook the persisting risks in the crude oil-dependent country. “The potential in the Nigerian market is bigger than the country’s challenges, the huge population, although, mostly low income holds opportunity for the Fintech industry,” a UK-based venture capitalist whose firm recently invested in a Lagos-based Fintech start-up told BusinessDay on the sidelines of the Fintech Week in London on Wednesday.
While the Fintech Association of Nigeria (FintechNGR) expects investment in the financial technology ecosystem to top $400 million this year, data tracked by industry players showed that Nigeria’s Fintech industry attracted over $219 million in the first quarter of 2021 alone. Many more industry players have also raised funds in the second quarter, an indication that the sector is likely to outperform the forecast.
“Fragmented continent, growing population, young population, fast adoption of solutions are reasons why Nigerian/African Fintech is attractive to investors in Sweden,” CEO of Findec, Sweden’s Fintech Hub, Anders Norlin, said while speaking from the Swedish/Nordic investment landscape.
Analysis of the Q1 investment data showed that more than 60 percent of the total funds received in the first three months to March were into Fintech start-ups. The amount was almost triple the combined amount received during the corresponding quarter for 2018, 2019, and 2020 respectively. It was also bigger than the entire amount raised in 2020. Flutterwave’s $170 million Series-C funding from investors such as growth-equity firms Avenir Growth Capital, Tiger Global and among others, contributed the large chunk of the investment attracted in the review quarter.
The Central Bank of Nigeria (CBN) recently gave an official nod for telecommunications companies to apply for a licence to provide financial services. Although it is yet to fully take off. From 1892 when Nigeria’s first commercial bank was established in Lagos, the banking business in Africa’s largest economy has evolved to a point where bank customers can now complete a transaction at the comfort of their palm. The increasing ownership of smartphones, especially among the low-income groups, has been instrumental in reforming the financial services landscape.
According to the data by Nigerian Communications Commission (NCC), Nigeria had over 180 million mobile phone subscribers as of June 2021. With a 36 percent increase in Nigeria’s smartphone adoption rate to 53 million in 2019, the Global System for Mobile Communications (GSMA) expects the country’s smartphone adoption to increase to 144million by 2025.
As more Nigerian households increasingly have access to smartphones, especially low-income households, many more individuals and businesses are now gaining easy access to a range of price-friendly financial services. According to the World Bank, digital financial services, powered by fintech, have the potential to lower costs by maximizing economies of scale, increasing the speed, security and transparency of transactions and allowing for more tailored financial services that serve the poor.
While digital banking is already a widespread trend in most cities in Nigeria, the challenge, however, for financial service providers has been to reach the unbanked population who are mostly in rural areas. The financial exclusion rate in Nigeria (36 percent in 2020) created an opening that Fintechs have been quick to take advantage of, with many stepping up to develop enhanced propositions across the value chain to address pain points in affordable payments, quick loans, flexible savings and investments, and among others.
“A large number of unbanked population in Nigeria comes top on the list of reasons investors tell us they want to invest in the market, Victoria Kirillova, FinTech market analyst at Relevant Software, a tech company that works with investors and tech companies, said.
Read more at: https://businessday.ng/technology/article/fintech-attraction-investors-find-benefits-outweigh-costs-in-nigeria/
