What if you could predict the future of Nigerian fintech in 2023?
According to data research firm Briter Bridges, African fintechs raised over $2 billion, 38% of the $5.4 billion African startups raised in 2022. This figure also includes undisclosed deals that Briter is aware of.
Although fintech still secured the lion’s share of funding, it was much lower than the $3 billion (62% of total funding for the year) raised in the Great Boom of 2021.
“Nobody knew what 2022 was going to be like, did they? Which literally just threw out a lot of the predictions we made. Well, you know, it was for fun at first. Educated guesses,” says Adedeji Olowe, CEO of Lendsqr and Trustee of Open Banking Nigeria.
Keeping up with what seems to be an annual tradition, we brought in Olowe to look back at Nigeria’s fintech space in 2022 and look into the future.
How was the FinTech room fair in 2022? Was MTN late to the mobile money game? What was the next play from big tech companies like Facebook and Google, and of course, is there room for more players to come in? Olowe helps us look back at 2022 and points out certain things we can expect in the new year.
The article below has been edited for brevity and conciseness. It also adds more recent information than was in the video, which was recorded in 2022. Happy reading.
Nigeria experienced a foreign exchange crisis in 2022 and Nigerians could barely pay for international transactions with their bank accounts. Why did the CBN create so many restrictions?
I guess I should ask what you think is the reason why central banks in developing countries always have a very strong cap on their currency.
So it is a global currency. We all use US dollars ($), right? Each country always has an account that they use to trade with other countries. So just think in the same way that all banks have an account at the central bank. It’s actually a global central bank, isn’t it?
I think it’s called the Bank of International Settlements. Now when you want to import something into the country. The person buying from you, regardless of his own currency, will probably take US dollars from you because that is the only currency he knows and he can change any other country as well.
Now the amount you have as a country is a function of what you have exported and sold.
What most developing countries have in common is that they do not generate enough things to sell. They import almost everything.
When you import more than you produce, you will start to have very few dollars to go around. What do you do when something is small? You ration it.
So it is the rationing that causes the problem. If Nigeria starts producing more than it exports right now, there will be more dollars available for everyone.
It’s not a technology problem, it’s a macroeconomic problem. That’s what most people in crypto don’t understand when they say that crypto will solve the problem. It’s not going to solve the problem. If we don’t create value, we have absolutely no way out of the rut.
Now we don’t have to do agriculture. For example, we can look at India, which believed that writing software for people was not enough. They went on to build global companies like PayTM, Freshworks and Zoho that create value for them.
Cool, so Africa didn’t stamp a unicorn in 2022. What are your thoughts on that?
Unfortunately, no one saw winter coming. What caused it is a combination of factors such as Russia’s invasion of Ukraine. Also, if you remember well, the US government released trillions of dollars in relief funds during the COVID-19 pandemic.
More Americans and people globally found themselves with a lot of money. They invested, technology companies built for people to work remotely, and there was so much money. So valuations went through the roof. We felt it would fall down after a while, but no one imagined it was going to be like a really bad car wreck. Globally, unicorns are dying everywhere.
Despite all the craziness, the one company that comes close to being a unicorn in Nigeria, even if there is no formal valuation to that effect, may be TeamApt (now Moniepoint). They have grown significantly; if this winter wasn’t there, they’d probably be kissing unicorns by now.
Prediction: Moniepoint moves from a microfinance bank to become a commercial bank. read more
Interesting. So when do you think winter will end?
I can’t say exactly when this winter will end, but if you look at history, I would say around 12 to 18 months. What I see is that more startups will die because they don’t have the discipline and they don’t have a good product to start with.
The growth most of them had was just setting money on fire. But outside of that, there are many who also solve real problems. Many companies are robust. Many companies are disciplined. When these companies emerge, we will see growth return again.
By the end of 2023, I think things will return to form, but in the worst case it will not go beyond 2024.
Prediction: At the end of the year, only a few large and more powerful fintech players will remain.
You talked about crypto earlier. What do you think about crypto, especially in relation to Nigeria’s currency crisis?
I can’t see the value proposition. Everything is so speculative that you don’t solve your own problems. Sometimes people call me one of these dinosaurs, and there’s a possibility that I haven’t seen the big picture. But from my own point of view it’s more like a Ponzi scheme, but I don’t want to draw any conclusion and say: “Crypto is dead!”.
So many good technologies sometimes start in very shady ways and then they kind of evolve. As they mature, they become more relevant, they begin to solve real problems and are adopted by everyone.
You suggested WhatsApp Pay to come, but it hasn’t worked so far. Will big tech players still look at Africa? How do you see this unfolding?
I think even the giants are in retreat right now. So you have layoffs everywhere with companies like Meta, Twitter, Microsoft and even Amazon.
However, I think these guys will look around and say let’s go to Africa. All these companies are looking for growth, and their dollar goes a long way now in Africa than it has in recent years. I still strongly believe that a global player will come to play.
Speaking of global players, we didn’t see any global payment acquisitions in 2022. i.e. Mastercard or Visa buying eTranzact and Interswitch
I think I should be banned from making acquisition predictions. Of course, it still makes financial sense to me, but there’s more to these things than what I’ve said so far. But I still think it could happen. Especially a foreign player coming in.
As I said, there is a lot of pressure on foreign companies to grow. Netflix is down 75% this year. Facebook has been down this year. If these players find any room to grow, they will grab it with all their might.
MTN and other telcos launched PSB in 2022. Were they too late?
No, I don’t think so, I don’t think so. The size of the market, which we haven’t touched yet, is so big. We have players, but the potential is still very massive. We are talking about 200 million people. We are talking about getting everyone to do their transactions online.
As a minimum, we have 100 times more possibilities. MTN may not be the one to ultimately dominate the space, but this space is still very, very big.
Prediction: MTN PSB overtakes Moniepoint to become the largest super agent
Speaking of online transactions, what about the realizations of free transfers?
I know it sounds very silly to ask the CBN to regulate prices when it is actually supposed to be a corporate decision. But there is a bigger picture to these things. I’ve been on that campaign for a while. I have written to CBN before, it only makes sense that it is free.
How has NIN fared in the financial area?
The NIN number is almost there, but it is far from dethroning the Bank Verification Number (BVN). Now your NIN is required for literally everything you do. Your passport and company registration.
The number one problem that NIN has had is that it is expensive to use in the financial realm. Operators charge between 50 and 70 naira to let you access the data which is too unreasonable.
Another problem is that NIN doesn’t really connect to anything. When I have it, I can see that this is your face and I know it’s you. But there are no consequences. If I have the NIN, I can still give you fake accounts. This is where BVN is still superior.
Verification is especially important for lenders. How did it go with the loan place in 2022?
The lending area is growing. Banks are actually getting more and more into it. FCMB is big, Access bank is big, and Sterling is getting very big. But then it has not grown to the level it should. It has not reached critical mass.
One of the biggest challenges, which Lendsqr is trying to solve, is that there must be consequences for default. There must be enough data for lenders to make the right decisions and be sure they will get their money back.
One thing that makes this data sharing possible is Open Banking. How are we doing on that front?
It hasn’t gone so well. We worked with the CBN in 2021 to create a framework and they released the exposure draft in 2022. But nothing else has happened since then.
I don’t work at CBN and they have their own formula for doing things but sometimes all you have to do is just wait, relax and see what happens.
What else do you predict for 2023?
- CBN is losing the cashless war. Again.
- Telecom companies are losing the USSD war. Again
- Top superagent networks crack cardless transactions
- The new debit card scheme is failing
- FCCPC lending regulation loses relevance
- Startup investments recover because nothing lasts forever, not even bad news
- CBDCs including eNaira are laid to rest
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