• Tuesday, March 19, 2024
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Local investors missing out in Fintech investments as foreign players take positions

Investors say why Nigeria’s fintechs attract funds despite harsh environment

While Nigeria’s Fintech industry has been the sector of choice for foreign investments, local investors seem to be reluctant in taking a position in the young but underpenetrated industry.

Experts in the financial services industry are optimistic that the Fintech space has huge growth potential especially as Nigeria’s central bank recently opened the gates for mobile money -a sector pioneered in east Africa by Kenya’s Safaricom.

“We are seeing investment in the Fintech space but hasn’t been driven by local investors, even though there’s a lot of local capital in the ecosystem, they are not yet patronizing this opportunity and they are really missing out,” Lexi Novitske, managing partner, Acuity Ventures said.

Nigerian Fintech industry attracted $360 million in one week in November 2019, and according to industry sources, it was a sign of how seriously venture capital firms are taking the opportunity to build financial networks across the country and continent.

Before the end of last year, Visa announced a $200m investment in Lagos-based Interswitch and PalmPay, newly launched financial services company said it had raised $40m in a round led by China’s Transsion.

These investments were followed by OPay, the Africa-focused, Chinese-backed payments company founded by Opera, as it announced that it raised $120m from a group of investors including Sequoia Capital China and SoftBank Ventures Asia, following a $50m fundraising in June.

“This is probably the largest ecosystem that is underpenetrated globally and I think global capital is recognizing that and its attracting investment in a big way. I think there is a lot of opportunities for local investors to invest in that space,” Novitske stated.

Fueled by the increase in smartphones usage in Africa’s most populous nation, financial technology has not only influenced the way businesses to operate but it has massively changed the behaviour of consumers.

A lot of Nigerians now pay for goods online or make a bank transfer via mobile app, and are now getting used to handling financial affairs as easily and conveniently as they do their email or Facebook page, this compares to when they would have to go to the four walls of a bank to execute transactions.

With an unbanked population of almost 40million people, mobile money led financial inclusion has been recommended by experts as the way to go in achieving the Central Bank’s target to 80 percent inclusion rate by 2020.
Telecommunication operators’ push to offer mobile money services in Nigeria received the official nod of the regulator, the Central Bank with the issuance of guidelines for players to apply for the licence.

“I think what we are seeing right now is certainly a huge interest from large institutional investors, large development financial institutions who want to put their money into Fintech,” Novitske said.

According to her, the fact that overpriced opportunities in developed markets are becoming less attractive for investment is making capital to look elsewhere for investment in emerging markets like Nigeria.

Last year, startups operating in Africa received a total of $1.3 billion in startup funding. Going by to Weetracker’s data, it’s the first time annual Africa-focused startup funding has crossed the $1 billion mark.
Analysis of the data revealed that the sizes of funding rounds also got bigger in 2019 as 26 deals (equaling 6% of the deals total), accounted for 83percent of total funding raised in 2019.

Nigeria was ranked the top startup investment destination in 2019, thanks to its attractive Fintech industry with raised most of the funds, an annual funding report by WeeTracker shows.

Africa’s largest economy was ranked top both for the number of deals done and for their value as startup investment received grew nearly fivefold compared to 2018.

Nigeria accounted for 49.5 percent share of African venture capital in 2019, by country. This was followed by Kenya’s 32 percent and Egypt’s 5.9 percent.

“Technology-driven businesses is quite an exciting investment space for private equity right now,” Rotimi Oyekanmi, Partner, APIS Partners said.

Industry experts believe there is still a huge opportunity for local investors to tap from Fintech industry even though it has gotten the attention and investment from a lot of international players.

“The technology-driven financial services sector is dominating startup funding yet again thanks to sustained interest from global payments giants backing African Fintech companies,” WeeTracker said.
Nigeria and Kenya were the continent’s top startup investment destinations, jointly accounting for 81.5 percent of investment received in 2019.

Egypt also recorded strong growth with investment more than doubling in the last year, largely thanks to the funding raised by Swvl, the bus hailing company, which raised $4 million in June and has also expanded across and beyond the continent.

In contrast, South Africa, typically a top startup investment destination, recorded decline in 2019 with both the number and value of deals dipping.

While industry stakeholders believe that Nigeria has huge potentials for private equity investment especially directed to Fintech industry, the high-risk environment from policy uncertainty and infrastructure gap remains drag for the country which requires according to McKinsey $31 billion annually to bridge infrastructure deficit.

“It has gotten to a point where investors would prefer to look elsewhere, settle for the low returns but with less risk,” Bayo Odubeko from Norton Rose Fulbright said.