FUTURE TRENDS IN FINTECH IN NIGERIA1
Notwithstanding the challenges posed by the COVID-19 crisis, the Nigerian FinTech industry is positioned for growth in the coming years. In fact, the circumstances created by the crisis have accelerated digital adoption and consequently, the use of technology for financial services.
The value proposition offered by FinTechs across the financial services value chain includes payments, savings and investment, lending, and wealth management. In the last decade, the payments sub-sector has experienced the fastest growth accounting for about 38% of market solutions2 and 15% of banking revenue pools in the country.3 The consumer-lending sector has also experienced tremendous activity following the COVID-19 crisis.4 However, what lies ahead for the Nigerian FinTech industry beyond payments and consumer lending?
are financially excluded, and a regulatory drive to increase financial inclusion and a cashless economy, Nigeria offers a huge potential for the growth of financial technology.
- Beyond Core Payment
In the coming years, we should expect to see the adoption of FinTech infrastructure to provide non-core financial services in other industries, such as energy, insurance, education, healthcare, etc. An example of this in the sub-region is the use of M-Pesa's payment infrastructure to provide payment for solar energy and healthcare services, financed by M-Kopa and M-Tiba respectively, in Kenya.
Using these services, customers can build a credit history to secure further financing. M-Kopa, for instance, enables its customers to have instant access to its product and build ownership through instalment micro-payments. A customer who diligently pays off the instalments may leverage on his / her credit history, built through the instalments and the asset, to access more products within the M-Kopa ecosystem.
Additionally, with the launch of mobile payment platforms by telcos in Nigeria, following the creation of Payment Service Banks by the Central Bank of Nigeria (CBN), there is likely to be a push for the adoption of mobile money services to finance healthcare, education, asset acquisition, and other basic consumer needs.
Insurance remains an untapped opportunity for FinTech in Nigeria. The challenges facing the Nigerian insurance industry include low penetration levels and a lack of consumer trust.5 Insurance penetration in Nigeria has been estimated to be less than 1%.6 Meanwhile, mobile phone penetration is estimated to be over 70%.7 While the low penetration rate indicates a huge potential for the growth of the insurance industry, the high mobile phone penetration provides the vehicle for deep penetration of insurance products and consequent growth of the industry. We are likely to see a trend of tech being deployed to enhance consumer education on insurance products, increase the speed with which insurance companies pay claims and other aspects of the insurance value chain.
In 2020, we have seen FinTechs bring insurance products to more customers through strategic partnerships. Aella Credit, a digital lender, partnered with Hygeia HMO to offer health insurance services on its lending application. Carbon, also a digital lending company, partnered with AXA Mansard to introduce insurance services on its mobile application. Sparkle recently partnered with Visa to provide digital distribution of general insurance products. Meanwhile, Tangerine Life, the fourth-largest insurance company in Nigeria, describes itself as a "financial technology company".8 We are likely to see an acceleration of this trend.
- Niche-Focused Players
As FinTech grows in Nigeria, we are also likely to see niche-focused players arising to solve problems within a specific product niche, market-segment, or geography. An example of market-segment niche-focused players are platforms empowering the education sector, to increase access to student loans, scholarships, grants, and payments to educational institutions.
The implementation of the African Continental Free Trade Area Agreement (AfCFTA) from January 2021 will spotlight the problem of the multiplicity of local currencies and exchange rates in Africa. This will create a hindrance to trade and the free movement of goods and services in Africa. In 2021, we are likely to see more FinTechs create payment solutions for Africa. Eversend, a neobank, already provides a multi-currency e-wallet that enables Africans to send money to any mobile wallet or bank accounts in Africa or globally, while saving up to 70% in fees and foreign exchange.
- SME Finance
The SME segment of the market has relatively been underserved. According to McKinsey, SME payments have grown at a 28% compound annual growth rate over the last three years.9 However, there has been little activity in SME insurance, SME lending, and SME savings and investment. As a ripple effect of the growth of consumer lending, SME lending is bound to grow exponentially. In addition, solutions geared towards helping businesses digitise their operations, such as Flutterwave Stores, Paystack Commerce, GT Bank's Habari, and Remita's Paylink, will become increasingly popular as businesses seek to tap into opportunities that lie in the digital marketplace.
Twitter CEO, Jack Dorsey, tweeted in November 2019: "Africa will define the future (especially the bitcoin one!)". With a double inflation rate and citizens' loss of confidence in the Naira, Nigeria lies at the centre of the future of cryptocurrency in Africa. Cryptocurrency is increasingly being used in Nigeria to transfer money within and outside its borders. In May 2020, Nigeria had the highest trading volume in one week in Africa at $7.2 million.10 Applications like Cryptofully enables remittances from anywhere in the world to any Nigerian bank account using bitcoin. We are likely to see more applications like Cryptofully enabling the use of cryptocurrencies to pay bills, purchase items, and move money.
If the present is any indicator of the future, then the future trends in the FinTech industry are bound to follow the predictions made above. The FinTech industry will move beyond facilitating core financial transactions to financing healthcare, education, insurance, asset acquisition, and other basic consumer needs. Cryptocurrency is bound to play a central role in the new era of FinTech. This adoption of technological innovation in other industries is likely to revolutionalise the business models of companies operating in these industries. The winners of this decade will be businesses that are able to create a 'blue ocean' by integrating existing technological solutions into industries that have hitherto not been tech-driven, to create unique results. Indeed, these are exciting times!
1. Olayanju Philips, Associate Corporate Finance & Capital Markets Department, SPA Ajibade & Co., Lagos, Nigeria.
2. Ernst & Young, Fintechs in Sub-saharan Africa: An Overview of Market Developments and Investment Opportunities, 7.
3. Eyitope Kola-Oyeneyin, Mayowa Kuyoro and Tunde Olanrewaju, Harnessing Nigeria's Fintech Potential (McKinsey & Company, September 2020), https://www.mckinsey.com/featured-insights/middle-east-and-africa/harnessing-nigerias-fintech-potential accessed 10 December 2020.
4. See Olayanju Phillips, 'Regulation of Digital Lending in Nigeria' (SPA Ajibade & Co., September 2020) http://www.spaajibade.com/resources/regulation-of-digital-lending-in-nigeria-olayanju-phillips/ (accessed 14 December 2020).
5. PwC, Africa Insurance Trends (October 2015) 7 https://www.pwc.com/ng/en/assets/pdf/nigeria-insurance-survey.pdf (accessed 11 December 2020).
6. ' Low Insurance Penetration Rates in Nigeria Suggest Growth for Local Players' (Oxford Business Group) https://oxfordbusinessgroup.com/overview/eyes-prize-low-penetration-rate-suggests-future-growth-local-insurers/ accessed 8th December 2020.
7. PwC (n 6).
8. Abubakar Idris, 'Inside the Wave of Disruption Sweeping Nigeria's Sluggish Insurance Industry' (TechCabal, 10th June 2020) https://techcabal.com/2020/06/10/nigerian-insurance-fintech-disruption/.
9. Eyitope Kola-Oyeneyin, Mayowa Kuyoro and Tunde Olanrewaju (n 2).
10. George Hashemi, 'Cryptocurrency in Africa: The Future of a Continent's Economy' (Borgen Project, 17 July 2020) https://borgenproject.org/cryptocurrecy-in-africa/ (accessed 13th December 2020).
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