Investors injected $1.4 million into companies in Nigeria’s Fintech industry in April, a sign that venture capital firms see the opportunity that can be tapped from the disruption created by the coronavirus pandemic.
During and post-COVID-19 crisis industry experts expect digital-only to become the new industry norm in financial services as financial institutions are expected to also look up to tech companies rather than in-house solutions to accelerate digital transformation.
“The market will witness a shift to digital-only triggers a “Big Pocket” battle between incumbents and challengers to win the (newly) online customer,” Finch Capital, an early-stage venture capital, firm said in a report.
In its first investment in Fintech industry, TLCom Capital, a venture capital investment firm injected $1 million into Nigerian Fintech startup, Okra, an API which allows users to retrieve real-time financial information from a bank account to any web or mobile app.
While Okra attracted the pre-seed investment three months after it was launched, TLCom Capital said it believes Okra’s technology will provide a platform for more African Fintech solutions.
“We are always looking for startups with the potential for high value-generation and Okra’s technology provides the foundation for new fintech solutions in Africa for years to come,” Andreata Muforo, a partner at TLCom, said.
In April 2020, the same month Okra attracted its pre-seed interment, Bundle, an Africa-focused social payments app for cash and crypto raised $450,000 pre-seed from Binance. This made Nigeria’s Fintech industry the only sector to have attracted more than one investment since the first COVID-19 infection was imported into the country in February.
“We built Bundle as a mobile wallet that supports cash and crypto, and makes using crypto feel like just another digital financial transaction done on a mobile app like Venmo,” Bundle Founder, Yele Bademosi said.
Before the pandemic Nigerian Fintech startups, Flutterwave and Aella Credit raised a combined $45 million. While Aella Credit raised a $10 million debt financing round to help it launch new products and expand into additional markets Flutterwave raised a $35 million Series B round and announced a partnership with Worldpay FIS for payments in Africa.
Meanwhile, industry experts have said there is a high expectation that the world will forever be changed by the pandemic, and it could mean more opportunities for entrepreneurs with ideas for tools and services that can help people adapt to new trends.
Fintech industry in Nigeria, a country where more than 40 million people do not have a bank account, is one of such sectors expected to leverage the pandemic to spur growth.
“In the history of startups, some of the best companies were created during or after periods of serious economic downturn. We hope our story can be similar,” Bademosi told BusinessDay.
History shows that indeed some of the world’s biggest companies of today were established during the recession. Ken Lin, an American tech entrepreneur founded personal finance company, Credit Karma, a tech company that serves as an online credit score monitoring service in the middle of the 2008 recession.
The popular encrypted messaging app, WhatsApp, was created by Yahoo veterans Jan Koum and Brian Acton in 2009 as a way for people around the world to message each other quickly.
The app first gained its popularity and success in countries like the US where there was no access to the same cell network capabilities because it can operate on Wi-Fi.
On the effect Covid-19 pandemic will have on the global Fintech industry, analysts said struggling Fintech firms may be forced to seek collaboration, investment, or acquisition by traditional financial institutions, PE funds, or even non-financial strategic buyers due to COVID-19 impact on funding sources.
Online alternative lending, digital wealth management, and consumer banking are sectors industry experts expect to see M&A deals.
“The next segment to feel the pain and suffer declining investor interest would be early-stage companies (Series A and prior) that have yet to fully validate their business models,” Rosenblatt Securities is a research and investment banking boutique said. Adding that series B-D companies would fare better than their less-mature peers and could trade at par or even at a reasonable premium if they can demonstrate healthy growth, or have unique IP and resilient business models.
According to a Finch Capital report, the Fintech market can expect crisis mode until Q3 2020, followed by a 12 – 18-month recovery.
“Post-crisis, disruptive winners will “take all”, as we expect surging demand from financial services for technology to master digital-only interaction, enabled by AI and big-data analytics,” Radboud Vlaar, Managing Partner at Finch Capital said.
Meanwhile, Nigeria’s Fintech industry attracted the second-highest investment in 2019, closely behind Kenya.
According to 2019 African Tech Startups Funding Report, out of the 311 companies that secured $491.6 million worth of investment in 2019 Nigeria got 24.8percent.
With $122 million in funding, Nigeria emerged as the continent’s best investment hub after Kenya which attracted $149 million in 2019.
