• Thursday, March 28, 2024
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BusinessDay

Is Fintech startup’s attraction waning?

Fintech startups

By this time last year, the Nigerian fintech landscape was buzzing with unrestrained excitement. Investors, founders and even the banking sector were excited about the next innovation growing around the corner.

In terms of funding, by the first half of 2018, space had exceeded what it made in the entire 2017 financial year. Local and foreign investors poured in nearly $16 million in the first three months of 2018 alone into startups in the tech ecosystem, 75 per cent of which was cornered by the fintech space.

Not to be outdone, the banks also stepped up their fintech offerings. For instance, the race for the coolest chatbot on WhatsApp peaked with UBA leading the way.

In 2019, however, the story has not been the same. The first quarter of the year has been by far the most promising in terms of funding and activities. Fintech startups like Carbon, Kudi.ai and TeamApt which secured significant funding from investors raised the hope of stakeholders in the segment that 2019 would likely outshine the performance of 2018.

But the second quarter of 2019 has not lived up to many people’s expectations. Apart from Carbon which announced that it had completed the acquisition of Amplify and was changing its name from Paylater in April; Paga which secured a partnership with WorldRemit in May to launch international mobile money services to its over 12 million users and Kudimoney announcing it has secured license to operate as a microfinance bank in June, there was little of more significance in that quarter. Even banks have lacked activity.

The general elections in March may have contributed to the lull and dampened the momentum of fintech founders and investors. After all, it contributed to the postponement of several technology conferences, summit and meetups in the first quarter. Prior to the election, analysts had forecasted an increase in investors’ anxieties and the possibility of moving investments away to more stable countries on the continent without election uncertainties.

Disrupt Africa’s Finnovating for Africa 2019 report has also shown that it may not be entirely a Nigerian factor. The media platform found that the share of the overall VC funding in fintech startups claimed by South Africa, Nigerian and Kenyan startups declined. It also suggests that although investments into fintech startups in the three countries are growing, the biggest developments are taking place in other markets. Countries like Uganda, Ghana and Egypt in particular “are seeing their local fintech spaces explode,” said Disrupt Africa.

“The financial services landscape in Africa is following a very unique trajectory, as compared to other geographies,” said Gabriella Mulligan, co-founder of Disrupt Africa. “Most remarkable about this trajectory is that it is being driven by entrepreneurs and their home-grown innovations.”

The attention of investors appears to be shifting to other tech startups, particularly those offering innovative services in logistics and transportation in Nigeria. Gokada and Max.ng the pioneering startup in the motorcycle ride hailing market have secured investments that have rivalled the funding fintechs secured in the first quarter of 2019. The market has also attracted new and deep- pocket investors like Opera.

Nevertheless, a deeper concern for some stakeholders is what is seen as the absence of originality in the fintech space.

David Hundeyin, a BusinessDay columnist recently stated that Nigerian startups were not “startups” in the true sense because they are note creating their own market demand.

“They are merely competing on price and visibility with a plethora of exact substitutes with a market that is smaller in both absolute and proportional terms than Kenya, South Africa, and the other two African powerhouses,” he said.

Victor Asemota, African partner, Alta Global Ventures in November 2018, had predicted mergers and acquisitions in the tech space, especially in fintech.

“This will happen more in the fintech space where there is so much replication of efforts in similar markets,” he said. As it turns out many startups are beginning to rethink their strategies and expanding to help them compete in the market that is almost nearly saturated with products that look very much like each other.

Fintech firms in Nigeria face a herculean task operating in a difficult business environment like Nigeria. In the early days, they were tagged disruptors of financial institutions, which automatically put a target on their back as banks enemies. Hence the earlier relationship between banks and fintech firms was anything but cordial. Little has changed ever since, despite most banks claiming they have a healthy collaboration with the startups.

If things should change, much of it would have to be driven by the enabling environment the Central Bank of Nigeria (CBN) provides. So far its policies have seemed to favour the banks more than the fintech firms. One of them would be to revisit the capital requirement for running a fintech business in the first place.

“How would innovation visit Fintech if that kid with a brilliant idea who just left college is required to pony up N2 billion before the CBN would allow him or her to play in the space?” asked Aloy Chife, managing partner and CEO SAANA Capital.