The Nigerian Fintech Landscape has become the avenue we all look to for achieving financial inclusion goals
By Dayo Odulate for EFInA
Bringing more people into formal financial services has been the focus of developing countries for the past two decades. In Nigeria, financial inclusion is a priority for our federal government, with a goal of reaching 80% inclusion by 2020.
In order to have any hope of achieving this ambitious goal, we must explore all avenues possible for bringing financial services to excluded populations in Nigeria.
This is where FinTechs come in. Following the global financial crisis of 2008, the sector has evolved to disrupt and reshape e-commerce, payments, investment, asset management, insurance, clearance and settlement of securities as well as money with cryptocurrencies
Following EFInA’s decade-long track record of funding financial inclusion-focused projects with licensed financial services providers, we launched the FinTech Challenge Fund in 2019.
Ahead of launching this fund, we commissioned a survey of the global and Nigerian FinTech landscape, with a view to understand the current state of the landscape and extract lessons learned to advance the sector in Nigeria.
This was done in partnership with the Boston Consulting Group (BCG), leveraging their FinTech Control Tower research framework.
According to our research, FinTech is thriving globally, and has attracted over $100 billion in equity investments as of Q3 2018.
Four key segments exist globally – Digital Banking, Digital Wealth Management, Corporate & SME Payments and InsurTech – leveraging four key emerging technologies – API , AI, DLT & Biometrics. The largest proportion of these investments (~50%) has been in Digital Banking.
These segments are distributed across 9 key clusters: Digital Retail Payments, Payments Infrastructure, Lending (these 3 clusters have absorbed 80% of equity funding), SME Payments, Corporate Payments, Life and Personal Insurance, Claims and Benefit handling, Digital investment management and Retail Trading Platforms.
Our examination of the global FinTech landscape identified four key success factors throughout all case studies:
- Leveraging Strategic Partnerships
- Product/Technology Innovation
- Physical: Digital Mix
- Lower Barriers to Service
These success factors should be applied to the Nigerian FinTech ecosystem, which, as of September 2018, comprises of 210 – 250 FinTechs, three stakeholders (government agencies, banks and telcos), three enablers (technology, incubators and research) and funding partners who have invested over $250m in Nigeria over the last five years.
This level of investments highlights the potential of FinTech to transform the Nigerian financial services landscape.
However, we expect to see even more funding in the space in order to achieve the level of growth required to have a major impact on financial inclusion and deepening.
FinTech has immense potential in Nigeria and similar economies, as it utilizes modern technology and distribution channels to leapfrog infrastructure deficits and take financial services to excluded populations quicker and more cost-effectively than traditional financial services methods. Current market trends include:
- Increases in lending and savings players
- Partnerships with banks
- Competition from Telcos
- Improving technological innovation
From our study, 80% of the FinTech market is made up of Digital Retail Payment (36%), Lending (25%) and Payment Infrastructure (19%) firms, and these firms largely utilize API as the dominant technology.
However, key gaps exist, and hinder the growth of FinTech in Nigeria. These include access to funding, appropriate regulation, adequate information, establishing strategic partnerships, corporate governance limitations and intellectual property rights.
Most importantly, four ways have been identified to improve financial inclusion in Nigeria leveraging FinTech: more involvement from banks, increasing micro-credit access, enacting effective regulation and more innovative yet simple solutions.
It is important for all parties in the fintech ecosystem (regulators, operators, investors/donors, hubs, etc.) to collectively move towards proven policies and practices for advancing the success of the Nigerian FinTech industry .
These include the establishment of sandboxes, encouraging the adoption of APIs and other open banking policies, etc. With thought leadership and dedicated effort, we can all be witnesses to the Nigerian FinTech helping to usher in the “big bang” in financial inclusion in Nigeria.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.
Dayo Ademola is the Head of Innovation at EFInA, a Financial Sector Development organization focused on promoting Financial Inclusion in Nigeria and funded by the UK’s Department for International Development (DFID) as well as the Bill and Melinda Gates Foundation. Dayo holds a bachelor’s degree in International Business and Economics from Temple University, USA and is currently a Global Executive MBA candidate at INSEAD.