The Covid-19 pandemic, with its two forces of disruption and acceleration, is pushing foreign and domestic actors to develop opportunities in the field of financial technology (fintech). The announcement in October of the acquisition of Nigerian payment company Paystack by global fintech giant Stripe for $ 200 million, the move from MTN to mobile money in Nigeria, and banks’ efforts to digitize their operations are all signs of the future .
There is competition between telecommunications companies, banks and independent fintechs innovate and gain market share for financial services. Nigeria is home to more than 200 fintech companies that have raised more than $ 50 million per quarter recently. And in the land of more than 200 million people, 40% of the population remain without a bank account, according to McKinsey & Company.
Nigerian banks are under pressure to remain relevant and continue to attract unbanked customers. The surge in growth in the fintech sector means that some of the countries Big banks invest in promising start-ups in order not to be left behind.
“Top banks like Guarantee Trust Bank, Zenith Bank and Sterling do a good job in this area. Providus too. Many of these banks prefer to work with existing fintech providers rather than the competition, with the exception of one or two banks, ”says Joachim MacEbong, senior analyst at SBM Intelligence.
Nigeria has quickly become one of the most famous fintech hotspots in Africa. Renaissance Capital attracts capital from the world’s leading investors and fintech players in the US, Europe and Asia, says Renaissance Capital. According to McKinsey & Company, Nigeria’s youthful population, the proliferation of smartphones, and a targeted regulatory drive to increase financial inclusion and cashless payment together have the perfect recipe for one thriving Nigerian fintech sector.
The financing comes in
In a McKinsey & Company report capitalizing on Nigeria’s fintech potential, Nigeria’s “busy” fintech scene raised more than $ 600 million in funding between 2014 and 2019, pulling 25% ($ 122 million) of the 491.6 Million dollars raised by African tech startups in 2019 alone. It was second after Kenya, that attracted $ 149 million.
Last year, Visa announced a $ 200 million investment in Interswitch in Lagos, transforming the payments company into unicorn status – a company valued at at least $ 1 billion.
A few days later, OPay, an Africa-focused China-backed payment company, announced it had raised $ 120 million from Sequoia Capital China and SoftBank Ventures Asia. In the meantime, PalmPay announced it had raised $ 40 million from the Chinese mobile phone manufacturer Transsion.
Companies like Interswitch provide the systems for a large part of the online transactions in Africa’s most populous country Stripe’s recent acquisition of Paystack shows the growth potential for mobile payments.
In most African countries, telecommunications companies have a larger customer base than banks – one of the advantages that allow them to be dominant forces in mobile money and other innovations.
Heavyweights like MTN Nigeria, which saw fintech revenues grow 23% in March this year, are preparing their activities afterwards Years of complaint about the legal framework. Africa’s largest telecommunications company plans to expand its fintech service offering “from basic transfer service to airtime / data sales to a larger bouquet including cash deposit and withdrawal services, bill payments and e-commerce facilitation”.
In January the The Central Bank of Nigeria has introduced a new policy to help banks compete more cheaply. “It levels the playing field,” says Osaretin Victor Asemota, a technology investor who sees politics as “neither here nor there.”
The truth is, he continues “Banks are much more afraid […] since they are not finished yet. The cost structure at banks is the problem. Banks have a lot more effort than fintech [companies] and They depend on the fee range. Fintech seeks market share while banking seeks margins. “
However, the market exists in a country where much of the population remains financially excluded. “The worry banks may have concerns Recording of the under-banked population “ says MacEbong from SBM Intelligence. “The total number of bank verification numbers is only 44 million, so there is plenty of room for growth.”
A platform for simple phones
He continues: “Almost all commercial banks are already involved in fintech in one form or another through them various apps with which they offer services to their customers. However, the main actor now is unstructured supplementary service data (USSD). The acceptance of the platform is now higher than the use of mobile apps. The USSD is used by all banks and not by the fintechs. “Instead of using the internet or text messaging, USSD uses short codes that work on even the simplest of phones.
But who is making the profits from recent activities and will strengthen the financial ecosystem? While MacEbong sees local venture capitalists (VCs) as “incredibly involved in fintech,” fintech operators like Ahmed Inuwa, co-founder of AfriPay, say few local VCs are getting involved.
According to him, “most local VCs want to take over the startup with little investment that is less than what a company needs to scale up.”
However, MacEbong says the involvement of investors like Endeavor Nigeria, who are already supporting startups like Paga, Carbon and Flutterwave, will make it happen It’s not just a Silicon Valley game. “However, local investors can and should do more to support Nigerian startups,” he added.
For Odunayo Eweniyi, co-founder and COO at PiggyVest, the risk appetite is the most important factor. “So the question I’m going to put back is whether local VCs will be bolstered in this regard or whether they will continue to let foreign VCs enrich by believing more in these ideas. With the exception of a few VCs and notable angel investors, this question is very general, ”she says.
It is It’s hard to say how much of the Fintech payments ecosystem currently makes up. “The various players keep things close to their chests,” says MacEbong.
However, the market is growing rapidly: “The value of bill payment transactions rose about three times in the first nine months of this year,” he adds.
As Eweniyi sees it: “The Nigerian fintech sector seems like a lot of gamers – and maybe it is – but in general it is still very young. And the market share that we have captured is becoming more significant with the novelty of the ecosystem. Paystack and Flutterwave now process a significant portion of merchant transactions in Nigeria; and for the non-banks, the agent network of Kudi, Paga and OPay move faster than any other infrastructure. “
to close the gap
McKinsey’s report states: “The increase in fintech activity in Nigeria has led already established banks to develop new strategies to stay competitive, and the Covid-19 crisis has only made this imperative even more urgent. At this point, banks might consider not only competing in concentrated pools, but partnering with fintechs in new blue-sky spaces to expand the pool. ‘
The Pandemic accelerated changes in consumer behavior, and fintechs are able to fill the void left by traditional banks and create new products and services that add value to consumers and support them in troubled times. Today more than ever, it is very important that traditional banks “transform themselves into agile and customer-oriented organizations through the introduction of technology in order to remain attractive and competitive in a changing landscape,” argues the consulting firm.
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Some fintechs want to give banks a run for their money instead of offering complementary services. In November, the mobile-only bank Kuda announced that it had raised $ 10 million in a seed funding round. The bank has been in operation since September 2019 and now has approximately 300,000 customers.
In order for traditional banks to remain attractive, they have to learn to use partnerships and acquisitions to scale operations, McKinsey advises, “The quickest way to do this is to partner with or create corporate ventures with fintech players to open up their infrastructure to fintech players who can integrate with and drive innovation at this point.”
Tech investor Asemota sees an opportunity here new partnerships between the fintech world and traditional banks. “YES !!! This will definitely happen. Banks like FBN, Zenith, Wema and others are already doing this,” he adds.
Eweniyi sums up whether or not Nigerian banks are concerned about how quickly the fintech sector will react: “I don’t know how concerned they are. What I do know, however, is this: The fintech sector is here to stay. “
This article is available as part of the print edition of The Africa Report magazine: “Africa in 2021 – Who will be the winners and losers of the post-Covid era?”