The Financial services and Information technology (FinTech) sector in Nigeria has experienced a meteoric rise in the eight years to 2018, leading to an inflow of at least $204m into it, according to a recent report on the local sector.
This came on the back of more companies leveraging technology to change the way the nation’s financial industry operates.
According to a market insight report by Asoko Insight, Africa’s comprehensive corporate information platform that provides market mapping solutions to investment firms, banks, corporates and governments, a total of $204.3 million worth of FinTech investments was secured in disclosed deals between 2010 and 2018 by 16 companies. Eight of these firms tapped investors on multiple occasions to fund growth, according the report.
The report attributed this to the growth of the local FinTech industry which has been supported by the increased use of smartphones, which has changed consumer behaviour, making convenience and accessibility a priority.
“Over the recent years, Nigeria witnessed increased deal activity with 11 deals worth $113.99 million in 2018 compared to one valued at $700,000 in 2010. The wide acceptance of FinTech and the solutions it provides continues to make the sector attractive to investors,” the report stated.
Investments in FinTech recorded $700,000 in 2010, $10.5 million in 2011, $9 million in 2012, $2 million in 2013, $7.2 million in 2014, $45 million in 2015, $2.3 million in 2016, $13.7 million in 2017, $113.9 million in 2018 and in the first quarter of 2019, $ 6.5 million was recorded.
From 2014-2018, Cellulant, Africa’s top FinTech company in the payments and transfers category, had the highest amount of $53million raised, Cowrywise , a FinTech company that democratises access to premium financial services by making these services available to the mass market had lowest of $170,000 in just 2018 alone.
Nigeria has the largest mobile market in Africa with over 172 million mobile subscribers in 2018, accounting to a penetration rate of 87 percent of its population and represented a 6.4 percent growth increase, compared to 162 million subscribers in 2017, according to a report released by Jumia, Africa’s online retailer.
Also from Jumia, at end of 2018, there were over 36 million smartphone users, representing a penetration of 18.37 percent year-on-year. The availability of lower-price point phones still remains the major driver of smartphone penetration.
Internet connectivity and the availability of affordable smartphones continue to drive an increasing uptake of social media networks. The number of active social media users rose from 17 million in 2017 to 24 million at the end of 2018. This represents a 12 percent penetration of the country’s population.
“I think mainly, more light is being shined on Africa, especially in Nigeria because of our population. FinTech is growing fast because of the population. For example, the number of transactions that happen in Nigeria will be higher than the ones in Kenya or other neighbouring countries. So our high population is a major contributing factor. It is not really about the ease of doing business in Nigeria,” Sydney Aigbogun, chief executive officer of Cashbox, a Nigerian-based digital savings firm, said to BusinessDay on phone.
“When you have a large population to play around with, it gives you more money and investors want their returns quick. And also there are more mobile phone users and more people have access to cheap data because if they don’t have this, FinTech will become useless and the telecommunication sector has become better too,” Aigbogun further said.
A survey by Alliance for Affordable Internet (A4AI), a global coalition of private sector, public sector, and not-for-profit organizations which analysed 60 Low and Middle income countries (LMIC) in the world stated that at the end of 2017, only four African countries (Tunisia, Nigeria, Mauritius, and Egypt) had continuous improvements in affordable mobile broadband plans (i.e, 1GB plans available for less than 2 percent of average monthly income)
The Telecommunications and Information Services subsector under the Information and Communication (ICT) sector grew by 11.3 percent in 2018 from -2.04 in 2017 and in terms of contribution to real GDP, the sub-sector accounted for 9.5 percent of total real GDP in 2018, a National Bureau of Statistics (NBS) report shows.
Ayodeji Ebo, MD, Afrinvest Securities Limited said that the main attraction of the FinTech space is the large youth and unbanked population in Nigeria and that investors are banking on this to push their innovations.
“Also, the technological gap in Nigeria, especially in the services sector is also a major attraction. We expect the firms to continue to leverage on the telecommunications infrastructure to drive their businesses,” Ebo added.
According to the Asoko report, to date, acquisitions have not played a significant role in the growth of Nigeria’s FinTech market, though several have taken place. Two of these were domestic deals, while a third took the form of inbound investment; all have an eye on offering pan-African services. In 2014, South African cloud service provider Business Connexion, acquired a 30 percent stake in e-payments platform AppZone for an undisclosed amount.
Next, in 2016, Interswitch, which offers payment platforms across Africa, bought out Vanso, a leader in mobile banking applications, for $50 million. At the time, Interswitch was planning for an initial public offering in Lagos and London. This was subsequently delayed due to macroeconomic conditions, and is now expected before the end of 2019. In the meantime, Interswitch sold an undisclosed minority stake to US-based TA Associates in a 2017 private equity round.
Finally, it was announced in late-March that OneFi, the online lending company behind the Paylater platform, had acquired e-payments firm Amplify for an undisclosed amount. The deal enables OneFi to offer a wider range of financial services to its growing customer base.
“The sector is still in its early stage of growth and development. And at the time where other countries were experiencing growth in the FinTech space, Nigeria lagged behind. So what we are seeing is the aftermath, in which case Nigeria is now making giant steps in the areas of financial inclusion which have been supportive of the development in that space,” Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers said.
“There is an improved level of confidence and appetite for investment in FinTech firms by a large number of private equity firms which has been supported by the Central Bank of Nigeria (CBN) aggressive efforts towards improving financial inclusion and ensuring the unbanked and banked population are also getting into the financial ecosystem,” Ologunro added.
Bunmi Bailey
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