How fintechs are putting Nigeria on the global map despite economic woes – InsuranceNewsNet


Over the past half decade, the financial services industry has changed dramatically, but it seems to remain hot and evolving. Like wildfire, what started with e-Tranzact and Interswitch as simple solutions to payment inefficiencies have turned into a monster, revolutionizing different aspects of the financial services industry, including credit, investments and insurance.

Industry sources estimate that Nigerian Fintech companies in 2020 alone raised $439 million, an amount that would equate to 20% of the amount raised by all African tech startups. This lead to Lagoswhere most of the organizations are based, being called the capital of africa fintech.

Investors in these companies do not necessarily expect immediate returns. But some attractive valuations point to rising profitability going forward. For example, Nigerian Fintech revenue is expected to grow to reach $543 million by 2022, driven by growing smartphone penetration and unbanked populations.

In a market where more than two-thirds of the population are excluded from basic financial services, there are clear gaps, and it is the gaps that continue to fuel innovation in the market as young and energetic talent continues to look for new ways to solve perennial problems. problems in daily life.

More than ever, there are three major problems that Fintechs often aim to solve: the time to complete a transaction, the stress of doing so and the sometimes exorbitant costs; therefore, value propositions are often anchored on the need and the possibility of doing something at a faster pace, in a simpler way, and at a lower cost.

Of course, we now live in a rapidly changing world where young people, especially GenY and GenZ, want something immediately. Also, the world is becoming more liberal and freedom is the buzzword, so no one wants to be limited or stressed because of a financial transaction. So if you can transact on your phone from the comfort of your bedroom, why not, and why do you have to walk miles, wasting otherwise productive time and other scarce resources in a physical office?

At a time when the rate of inflation is at its highest on record in three decades, why would anyone want to pay a higher cost for a transaction that can possibly be done for free or at low cost?

From savings and credit to payments and insurance, young people from different walks of life and varied experiences have launched different apps to compete with traditional players. Indeed, banks get what they pay for and Fintechs seem unstoppable in their quest to cannibalize banks’ revenue streams.

While banks focus on traditional customers, Fintechs focus on underbanked and unbanked populations, creating a network effect across all customer spectrums, including already banked customers, who opt for speed , comfort and profitability. For example, it takes days to send money from United States at Nigeria; even worse, it costs an average of 5% of the value to send the money to families and loved ones.

However, with one of the Fintechs offering instant remittance and conversion of foreign currency to naira at a parallel market rate, this exposes the inefficiencies of traditional players and banks in facilitating cross-border payments and remittance transfers from Diaspora Nigerians.

While payment solutions still dominate the Fintech space, accounting for more than a third of the industry as the regulatory driver for financial inclusion and cashless policy provide the impetus for the growth of these service providers Digital, lending and investment offerings have become new targets and are encroaching on private and public markets.

What started as an enabler for traditional players has quickly developed into new competition for conventional banks and asset managers, especially microfinance banks, who are now caught in the net of new competition. , because many Fintechs directly or indirectly obtain licenses with the Central Bank of Nigeria (CBN) and the Security and Exchange Commission (SEC) to break down regulatory barriers to their business models and build customer trust in the platforms.

Fortunately, improved phone and internet penetration are complementary and reinforcing for fintechs, especially since poor user experience with traditional service providers has been a driving factor for fintech adoption among young digital enthusiasts, who currently dominate from Nigeria demographic, representing more than half of the population. Interestingly, the frenzy is not limited to Nigeriaforeign investors looking to invest in the country’s fast-growing digital opportunities.

In what started with Interswitchwhich was rated at $1 billion in 2019, a valuation referred to as “Unicorn” status in the digital world, Paystack, a company founded in 2015, sold a 10% stake to $200 million in 2020, also valuing it at $1 billion and classifying it as a unicorn. O’Pay is another giant in the space as it is revolutionizing the payment ecosystem with its point-of-sale terminals, which many have referred to as small banks.

Many other fintechs continue to attract capital across borders, including Branch and Kuda, which raised $170 million and $10 million respectively in 2020. The biggest of them is Flutterwave, founded by Olugbenga Agboolawhich raised an additional amount in February $250 million to a valuation of more $3 billiona price that dwarfs the market capitalization of all Nigerian banks listed on the Nigerian Stock Exchange.

Flutterwave, which helps over a million businesses, mostly small and medium-sized businesses, process payments in 150 different currencies, has its infrastructure in 34 countries across the continent and has processed over 200 million transactions worth over $16 billion.

Unlike traditional companies, investors are not focused on the profitability of Fintechs at the moment, but rather on the growing penetration of the platforms.

It is exciting that the telecom giants are not ignoring the frenzy and are indeed ready to seize the opportunity, with MTN and Airtel taking bold steps to secure CBN’s payment services banking licenses, in hopes of provide end-to-end financial services. services to the many customers who already trust their networks.

However, Ernest and Youngin collaboration with the Fintech Association of Nigeriarecently observed in their nascent landscape report, that the nascent success of the Nigerian fintech market could be undermined by four key themes: talent, capital, demand and regulation.

With industry fragmentation, many fintechs are struggling to hire the right talent, slowing the innovation and execution power of many fintechs over the past two years, especially as the increasing migration of professionals continues to exhaust the skills available in the local market. .

Of course, one of the factors that has spurred the growth of Fintech is the sector’s ability to attract capital, especially foreign capital from Angel Investors and Venture Capitalists, including YCombinator, which has not only provided capital support to a number of Nigerian fintechs but also trained them through its incubation program.

With inflation and interest rates rising in developed markets, there are fears that capital flows may come to a halt for some time. While local institutions such as Assets and Resources Management (ARM) through its MRA Lab offer $120,000 to qualified Fintechs, this may not be enough to sustain the euphoria and pace of growth in the Fintech ecosystem.

Likewise, with the failure of some so-called fintechs lately, regulators, especially the CBN and the SECONDcould reconsider their relatively docile position, raising fears that Fintechs could become dinosaurs and perhaps less efficient once subject to the same or similar regulations as traditional players.

Like a zero-sum game, while Fintechs attract capital, traditional financial services companies lose it, including the big banks listed on the Nigerian stock exchange, which are poorly valued.

While O’Pay, whose business volume is still lower than Firstmonie (FirstBank’s network of banking agents) is valued at $1 billionall FirstBank Holdings Plcwhich includes its commercial and investment banking activities in Nigeria and offshore, was valued at less than half a billion dollars.

As fast-growing, profitable consumer goods companies crave capital for growth, fintechs are attracting more than ever imagined, a momentum that reinforces the prospect of Nigeria as an attractive investment destination.

With foreign direct investment at historically low levels, it may be useful for the government to seek a new approach to attracting foreign capital, in the hope that the energy and innovation of youth harnessed in the Fintech space can be channeled into the real sectors of the economy, where capital is needed above all to boost productivity and create jobs for young people.

FinTech Association of Nigeria and EY Nigeria.

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