Fintech startups are helping more Nigerians invest in the US stock market
The saying that investment in knowledge gives the best interest is correct, depending on your view of investment and what knowledge is. Let us not be tempted to box knowledge into the four walls of a classroom. For this article we will take Merriam-Webster’s definition of knowledge as an acquaintance with or understanding of science, art or technique. On the other hand, it defines investment as the outlay of money, usually for income or profit (interest).
People who invest money do so in the hope of having an interest based on their knowledge of how the company is performing. So a person can decide to pump in funds or play it safe with money while investing in a business, depending on how many risks they can take. You might call it a gamble, but successful investing is about managing risk, not avoiding it. The higher the investment, the higher the risk of losing everything or the chances of getting a big return.
One of the best places to invest is the stock market – where shares of public companies in a country are traded daily on official market days. Such shares are open to both local and foreign investors. In Nigeria, investors buy shares in the capital market through a brokerage house or an asset management company (AMC). An AMC (also referred to as a money manager) invests a pool of capital on behalf of clients, usually to finance various investments in various asset classes through a brokerage account. They also help clients invest in foreign stock markets.
When you use a traditional AMC to invest locally or internationally, the process is usually tedious. It will require some paperwork and physical presence (sometimes). It has discouraged people from following through with investing in the stock markets. Hence, the need to grow wealth has forced people who lack patience for AMCs to set up businesses they could not run or invest in companies they could not track.
But technology is changing the narrative as fintech startups offer flexible investment solutions with a click. Some of the fintech startups are enabling more Nigerians to own dollar investments in US real estate, stocks and Eurobonds via their smartphones. Their rise has reduced the long tedious processes people once went through with asset management companies.
Although some of these traditional asset managers like Cardinalstone (CS Alpha app) and Meristem Capital Ltd (MeriTrade app) now have mobile apps. Some of these apps are still not as flexible as fintech investment apps. The last time I tried investing through one of the AMC apps, it felt stiff. Needless to say I left after 30 minutes of wasted effort. But with the fintech apps, within 5 minutes, I was done registering and still had time to go for a ride.
These fintech startups are now making it easy for people to invest in foreign companies, especially in the US stock market. It’s pretty easy for people to get started. Steps like: creating an account, choosing account type and completing verifications are all people need to do. These apps easily convert local currency to US dollars through built-in wallets. People can also start investing for as little as $5. Best of all, people can see the performance of their investments in real time and can decide to withdraw an investment whenever they want. These offers entice people to start investing in the US stock markets.
Recently, Bamboo, a Nigerian-based fintech company that allows people to invest in US exchanges, more than doubled its users from 200,000 to over 500,000 between 2021 and 2022. The fintech raised $15 million in January during a pre-seed round and expanded to Ghana in September. While people find it a chore to invest through traditional asset managers, more are now trusting fintech with investments. This means that the adoption rate is gradually increasing.
Nigeria has over 200 active fintech startups and the largest fintech ecosystem in Africa. While some serve as payment gateways and loan and banking apps, some help with dollar investments. Those using these investment apps to trade the US stock market may have better returns as the naira continues to crash against the dollar. While making gains and contributing to the US economy, the Nigerian stock market would lose investors to foreign stock markets as the dwindling naira discourages participation.