Why Nigeria’s fintech sector still has room for growth
After a long time spent judging success and growth by the frequency of fundraising announcements, the recent slowdown in funding may have many questioning the potential for growth in Nigeria’s fintech space. But there is justified reason for optimism among entrepreneurs and investors.
While announcing its seed round in March 2023, Payday, a neobank launched in 2021, revealed that it had over 300,000 users, up from around 100,000 in December 2022. Moniepoint, another fintech that led Payday’s seed round, also revealed that it processed $20,210. billion in monthly transactions for over 400,000 businesses.
Similarly, Interswitch, a pioneer in the digital payments space announced that it processed one billion transactions by March 2023.
Today we explore some of the factors that indicate that there is plenty of room for growth in the country’s fintech area.
Presence of a large market
Let’s start with the one piece of information you’ll find on every startup’s decks, regardless of industry – a big market.
Whether you believe the numbers that put Nigeria’s population at more than 200 million or not, as the country with the largest population in Africa, there will always be a huge market for any business.
Of course, there is concern about whether this large market can afford your services. However, financial transactions are so embedded in our lives that there are few effective alternatives to not completing a transaction.
For fintechs that deliver their solutions entirely online or using a digital device, the fact that this large market also has a predominantly young population, which is often more receptive to using digital devices, must be music to the ears. There is also the fact that you do not have to juggle multiple regulatory requirements to start operations in Nigeria.
Financing to fintech startups is expected to continue
Every man on startup street knows that there is a downturn in funding. Fintech, which is the largest recipient of venture capital funding, has also been affected, but it still receives the most funding annually. That doesn’t look set to change anytime soon. Investors are still willing to support innovative fintech entrepreneurs. The only catch is that the founders have to solve actual problems. Sectors such as lending, asset management and insurance are some examples, while the start-up of cost management is on the rise.
It is an existing one talent pool for employment
Nigerian startup founders have a hard time finding the right talent, but the presence of an established financial ecosystem means fintech entrepreneurs have it a little easier. Startups can, for example, use the talent pool of commercial banks or other financial institutions to fill certain roles. Startups in the health tech space, on the other hand, can struggle because of the differences in working in a hospital versus a health tech startup.
A robust one ecosystem to support innovation
There is an established ecosystem of financial services providers in Nigeria, so whether you want to create a banking solution, build a lending infrastructure or make it easier for Nigerians to invest their money, there are people whose networks and experiences you can benefit from.
Increasing mobile and internet penetration
Most fintech activity relies on customers’ ability to access the Internet or use smartphones. In Nigeria, these metrics increase and provide an opportunity for startups. For example, the number of Internet users in Nigeria is estimated at 109 million. By 2027, 48% of the country’s internet users are expected to access it using a mobile device. As buy now pay later options grow, this number should grow with it.
Increasing e-commerce activity
Despite the profitability struggles of e-commerce companies like Jumia, there is a growing appetite for online shopping. This could be as simple as buying a pair of shoes from an Instagram vendor or getting a smartphone from a buy-now-pay-later vendor, more Nigerians are comfortable getting products online compared to five years ago. Fintech startups provide some of the infrastructure for these startups to run. Whether it’s a payment or lending infrastructure, fintech startups are helping e-commerce thrive, and with experts predicting that online customers will reach 122 million by 2025, there’s a huge opportunity for fintech startups to latch onto.
