The growth levers for Nigeria’s fintech ecosystem

…A summary of KPMG’s FinTech report.

 

The digital revolution in Africa offers tremendous opportunities for the rest of the developed world looking to expand their tech frontiers and create value in the global financial services industry. In that regard, the millions of Africans and by extension Nigerians who are yet to access financial services presents represent a goldmine for serious investors around the world.

The report titled ‘FinTech in Nigeria: Understanding the value proposition’ was released in November 2016 at the KPMG FinTech Summit which held in Lagos. The goal of the report is to throw light on the entire FinTech industry and how it has – and has continued, to revolutionize the financial services industry.

Nigeria’s ecosystem has evolved into a platform in which start-ups can create, innovate and potentially grow into mega billion dollar businesses. FinTech growth in Nigeria is seen, according to the report, by the remarkable growth in mobile money operations from an average monthly transaction value of $5 million in 2011 to $142 million in 2016. The growth was attributed to a surge in e-commerce, and smartphone penetration. Although the growth lags far behind global trends, there is much to look forward to with regards to a strong talent pipeline.

The role of the government in the growth experienced so far has been at best perfunctorily with scattered policy statements. In terms of regulation, the Central Bank of Nigeria (CBN) is however an exception with regard to formulating guidelines in its bid to encourage its cashless policy. The CBN has so far developed regulations that govern payments, promote e-commerce, and specify requirements for players in mobile payments and international remittances.

The report noted that opportunities to develop regulatory environment still exist in areas such as crowdfunding, blockchain, ensuring growth of FinTech start-ups and FinTech investments and so on.

The FinTech industry in Nigeria has seen the most major deals that came into Africa. The $110 million investment from Helios Investment Partners LLP and Adlevo Capital Managers LLC into Interswitch Nigeria Limited in 2010 remains the top deal as at the end of 2016.

Nigeria has seen increasing deal activity over the last few years, with about 14 deals reported as at September 2016 compared to just 2 deals in 2010. Two majors – growing availability and adoption of innovative FinTech solutions, are the major drivers. Start-ups in Nigeria are increasingly accounting for a significant portion of FinTech investments, accounting 30 percent of the total funding raised by African tech businesses in 2015. Early stage investors have been venture capitalists and angel investors while the banks are now majorly occupying the position of consumers.

The industry, according to the report, will require significant support from technology vendors which are involved in developing financial technology propositions that are focused on funding and incubation, and collaboration.

The financial services industry made of the traditional banks are making efforts to leverage the FinTech revolution with four-pronged strategy that includes investment drives, partnership with start-ups, market drives and collaboration drives.

In order to sustain the growth in the ecosystem, KPMG is proposing to formulate an approach towards planning the growth strategy for the Nigerian FinTech landscape, derived from the learnings of a dynamic run-time analysis of mature FinTech markets. Three stages are required for the approach like a mature-market tracking, market driven prioritisation and focus-market adjustment.

In addition, a successful FinTech hub should posses certain characteristics that include an entrepreneurial and innovative mindset, government programmes and incentives; technology readiness; regulatory support; business support; and funding.

“Building a strong FinTech ecosystem where startup firms engage in external partnerships with financial institutions, universities, research institutions, technology experts and government institutions is expected to facilitate growth and innovation in the FinTech sector,” Boye Ademola, partner and head, FS Tech KPMG in Nigeria wrote.