Companies in financial technology (Fintech) services have secured $560 million representing a 197 percent growth between 2017 and 2020, according to a report by Enhancing Financial Innovation and Access (EFInA).
The fintech segment which currently hosts over 200 companies has been a major attraction to investors most of whom are foreigners. The majority of the funding activities are around payment firms which accounted for 39 percent of the investment. Lending and savings took 28 percent and 11 percent respectively.
Despite the growth, the fintech landscape is still performing about 1 percent of its potential. To start with most of the fintech activities are focused in Lagos and Abuja where an overwhelming majority of the companies are located. And the solutions mostly target banked customers and high net worth individuals. The rural communities remain grossly underserved.
“Despite the increased activity in the fintech sector in Nigeria and the positive multiplier effect, the economic impact to date is low, with FinTech activity accounting for only ~1.25 percent of retail banking revenues in 2019,” authors of the report noted. “A concerted effort by all stakeholders to address structural challenges is required to capture a greater share of Nigeria’s $50 billion digital financial services opportunity, and mitigate emerging risks as the sector evolves.”
There are also consumer issues that need to be addressed. These include limited access to financial services and products. EFInA says the pricing of products is the biggest obstacle to fintech adoption. Consumers also have access to a few products that are tailored to their actual needs.
Another issue is the exorbitant rates charged by lending and insurance firms. In recent times, banks have capitalised on this to release various quick loan services. Top on the list of complaints for some customers is the underwhelming user experience on various fintech platforms.
Accessibility to funding in the sector is also biased to fintech firms with foreign affiliation. About 84 percent of funds were invested in foreign or foreign affiliated fintech excluding Visa into Interswitch. Diaspora founders often leverage their networks to deliver funding pitches based on the requirements of international investors.
“Foreign accelerators like YC Combinator and 500 Start-ups have helped few FinTech to bridge the preparation and access gap,” the report noted.
China which has invested more money than other countries – although in fewer startups – has focused exclusively on fintech firms with Chinese links. The $210 million investment it brought in 2019 went to Chinese founded businesses.