The rise of fintech in Nigeria is facilitating trade and business for millions of unbanked citizens, with plenty of knock-on effects on the African country's economy.
the most populous nation and the largest economy in Africa, Nigeria enjoys a thriving business ecosystem, especially in Lagos, its financial hub. Despite the progress that the economy has made, however, a surprisingly large number of Nigerians still have no access to traditional banking services.
As of 2021, over 40 million adults are not included in any way in the nation’s financial ecosystem, meaning they have no bank accounts, debit cards, or—it goes without saying—credit cards. Many reasons have been listed for Nigerians’ overall lack of interest in traditional banking, including lack of trust, high account maintenance costs, and the low number of bank branches and ATMs available, especially in smaller cities and villages. It is estimated that over half of all Nigerians enjoy no form of financial inclusion whatsoever. However, this cannot continue for much longer. If Nigeria is to transform into a truly developing economy, its citizens should be able to carry out financial transactions in a manner appropriate for the 2020s. Otherwise, the wheel of the economy will simply not be able to spin fast enough.
Since 2012, the Central Bank of Nigeria (CBN) has determined that at least 80% of all Nigerian adults must gain access to banking services by 2020. This, unfortunately, did not happen in time, although not all is lost. Methods and technologies that were not ubiquitously used in 2012 are now simplifying banking, leading to greater financial inclusion for everyone. With the rise of mobile connectivity and internet access in Nigeria over the last decade, many entrepreneurs have come up with technology-based financial solutions (often referred to as fintech) that can make banking accessible to everyone with a mobile number and a low-end smartphone—or even a budget, old-fashioned feature phone. Nigerians may not be ahead of the curve in traditional banking, though they are truly keen on mobile phones. In as early as 2018, there were over 172 million active registered mobile phone subscriptions in the country. The figure must have passed the 180 million mark by 2021—which means the penetration rate of mobile phones among Nigeria’s adult population is approaching 90-100%.
This has created a unique growth opportunity for fintech start-ups that offer solutions that can carry out monetary transactions using readily available 3G and 4G connections in a safe and simple manner. Many companies have risen to the occasion. In Nigeria’s competitive start-up ecosystem, rising fintech companies have attracted a great deal of funding thanks to the great opportunity for success in a country with a low financial inclusion but a high demand for business transactions. The number of member companies of the fintech Association of Nigeria has almost quadrupled between 2018 and 2020 (from 56 to 209) suggesting an exponential growth in the sector that will not stop anytime soon.
According to the FinTech Association of Nigeria, the sector will attract over USD400 million worth of funding in 2021 after an altogether successful 2020, in which a record number of people installed fintech apps on their handset devices. The prediction for a total investment of USD400 million is not too optimistic, either. Flutterwave, a provider of fintech infrastructures, for example, recently secured USD100 million in the form of investment, while Paystack, a mobile payment solution, was acquired by the Irish-American fintech giant, Stripe, for well over USD200 million.
Plenty of fintech solutions launched in Nigeria can conduct transactions not only in traditional currencies such as the nation’s own naira, but also in digital currencies and cryptocurrencies. This has put Nigeria among the top five countries in the world that rely on cryptocurrencies. It is estimated that up to USD500 million worth of digital currencies change hands in Nigeria each year, and the figure is expected to grow further in 2021.
To oversee the emerging cryptocurrency sector, the government, the National Assembly, and various law enforcement bodies in the country have taken an interest in the matter to ensure that fintech solutions dealing in digital currencies will not be abused by the dishonest and opportunistic businesses with a questionable background. While pointing this out during an interview with Punch, Ade Bajomo, president of the association, also confirmed that it is “working on establishing a fintech roadmap for Nigeria to position the nation as an international finance center by 2030.”
Paga is currently considered to be the country’s leading mobile payment solution with well over 17 million active unique users. According to Paga, the company has facilitated the turnover of some USD2.3 billion in 2020, up from under USD1.9 billion during the three previous years.
Evidently, several positive things are simultaneously happening in the Nigerian economy: financial inclusion is growing rapidly thanks to the ubiquity of smartphones and other mobile devices, many Nigerian start-ups are turning into unicorns and making a name for themselves across the continent, the actions of fintech companies are becoming increasingly more scrutinized by regulatory bodies to ensure safety, but—above all—more money is changing hands between the citizens thanks to the availability of fintech solutions, which will inevitably boost the GDP of Nigeria, solidifying its status as Africa’s largest economy.