How to Think About Fintech in Nigeria
Side note: This article was written in July 2021 and first published in my 30 Days of Growth newsletter — you can subscribe to the newsletter here and get the eBook here. It also became the first chapter of my book, The Growth Handbook — Scaling Fintech in Nigeria. Please forgive any inaccurate data or things that might have changed.
How to think about Fintech in Nigeria
There are many hot takes on the Internet about the financial technology sector in Nigeria. In this article, I will do my best to explain what’s been happening and what’s currently happening in fintech in Nigeria, and I hope I never hear about too many fintechs again. I’ll draw some data from verified sources and share some narratives to help people understand this better.
These are my opinions and not the opinions of my employer.
1. Rails
Nigeria and the rest of the world are moving increasingly digital. We pay for goods and services online, but we’re also getting paid online. The current financial technology systems are the platforms on which entrepreneurs will create the digital economy. You can’t have a thriving digital economy if people cannot move money digitally from person A to person B or from corporation A to corporation B.
2. Globalisation
The last decade has seen a massive increase in globalisation due to the Internet. Because more people interact with their local economies and other countries’ economies, there have to be many different ways to move money. Whether you’re thinking of remittances(immigrant workers sending money back home to their parents) or Nigerian writers getting paid for ebooks they sell to customers in England, people need to get paid somehow. Today’s systems for moving money shut out Nigerians and many Africans. I will give three examples of this block:
- My bank card has a monthly international expense limit of $100. This limit includes online purchases, ATM withdrawal and POS payments.
- If I sell an ebook on Gumroad or Amazon, I cannot get paid.
- Nigerians cannot receive money on PayPal — PayPal has 300 million customers worldwide.
3. Africanisation
Intra-African trade should be increasing. Not just because it’s a great idea, but who better to buy and sell from than our neighbours in the Benin Republic and Cameroon? Historically this process has been a hassle. My colleague recently visited Senegal(an ECOWAS member country), ran out of cash and couldn’t withdraw money from any ATMs in that country. These experiences are not acceptable at all. There are things that people outside shouldn’t hear.
As a university student in Ghana, I had to write my Nigerian bank a letter to withdraw and make transactions while in Ghana. There were also several expense limits on my card and banking apps. To pay my school fees, I would take a 45-minute bus drive to the city centre, withdraw cedis, change it to dollars, take another 45-minute trip back to school and then pay part of the fees. I would have to do this three times to pay my total school fees. These trips are different from all the trips I would take to get cash for living expenses. I did this for over three years.
There’s a huge opportunity here for crypto & blockchain to help fix this issue. Nigerians have been trading with Ghana for as long as I can remember; there should be a direct Naira-Cedis exchange that’s efficient, cheap and scalable.
4. Unbanked & Underbanked
The definition of unbanked and underbanked depends on who you ask and who’s telling the story. Are people unbanked because they don’t have any accounts to keep the money? Are people underbanked because they lack other financial services like credit & wealth advisory from deposit and withdrawal services? Are people not opening bank accounts because they’re poor? These terms depend on who you ask, but I’ll try to contrast here.
I did my NYSC camp(compulsory youth service in Nigeria) in South-Eastern Nigeria, where there was no power for 10 years. The closest bank branch was 3 hours away by bad roads. While in camp, the only way to get cash was from the ATM, which only ever worked once or mobile agents who had POS machines would accept bank cards or confirm transfers parents, charge a ridiculous fee and give/get cash.
If you live in Lagos, Port Harcourt, Abeokuta or Ibadan, this is probably not your daily experience. Most Nigerians don’t live in cities with banks, and thus ATMs are scattered all over.
Here’s a good visual from Stears and EFinA to explain what’s happening in Nigeria. People don’t have access to financial services.
5. Changing behaviours
Nigeria and much of Africa are becoming more digital-savvy. Regardless of what’s happening on the continent, more people come online annually, and they crave to be served. Every year, I sign reference forms for people who want to open bank accounts. In this big age, Nigerian banks ask people to fill out forms and ask them to be ‘recommended’ by their friends to open bank accounts. I know bankers are going to read this article and make some excuses. The mandate you’re operating on is a mandate invented in the 1800s when people needed their friends or family to recommend them in good faith to a banker. Also, this existed because they wanted to collect credit; you don’t necessarily give credit.
6. Non-consumption
Another thing to think about is non-consumption. Financial institutions in Nigeria(and much of the world) have ignored people who don’t have tens of millions of whatever currency. As a student at university, I was working and earning hundreds of thousands of Naira per month; my bank never sold me any investment services. I started working in 2012 and didn’t start saving or investing until 2016 when Piggyvest and Cowrywise launched.
The counter-argument here is that you’re more likely to save & invest if you’re rich. This argument is valid but only partially true because the big banks and asset managers also ignore our peers who out-earn us globally. Somebody must build savings and wealth products for the young person in Unilag who wants to save N5000 a month and for the young trainee in Big4 who doesn’t have the time to walk into an office, fill a form and wait 2 hours and another four days to confirm money market investments.
Savings and Investments are just one example of non-consumption. There are many others. I’ve had my bank account for seven years, and my bank only started to offer me loans in 2020 due to central bank regulations. I tried to take a loan just last week and met all types of errors and excuses. Again, bankers people don’t want excuses; they want services. Somebody must build for them. This service gap is why thousands of loan apps operate in Nigeria today.
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7. Creating Wealth
The examples above lead us to the wealth part of this article. Nigerians do not know how to create wealth. This lack of knowledge is not just because the educational system is flawed or the roads aren’t good. Even the government has no idea how to get Nigerians more prosperous.
The opportunity that RiseVest, Chaka, Trove, Bamboo, Cowrywise, Piggyvest(and all the 100 ugly apps from traditional asset managers) are capturing is the opportunity for a new generation of Nigerians to understand how to create wealth. Teaching people how to earn more, manage debt, create wealth and build sustainable savings and investment habits.
I understand that one’s current sociopolitical environment hinders wealth opportunity. The point is that there’s a good number of well-earning Nigerians who don’t want to go queue at Stanbic, fill out forms and wait days for confirmation because they want to open a mutual fund account. There are also a lot of Nigerians who don’t want to invest in Naira-denominated assets because these are well-known bad vibes.
There’s even a much larger opportunity here to teach Nigerians how to create wealth and wealth systems — as MoneyAfrica does. I’m not sure if teaching more economics in schools will solve this problem, but we can tell that Nigerians don’t know how to create wealth. Many restrictive policies people loudly supported between 2015 and 2019 are starting to show work. The result is poverty.
8. Memetics
Human beings are very memetic.
Because of these opportunities in the Nigerian financial sector, hundreds of people will build even more companies in their attempt to solve problems. Everyone thinks their money transfer service is the best. Everyone thinks their philosophy on wealth creation is the best. The regulators of this space have also done a lot(shoutout to CBN, I dey loyal o) to encourage technology-led innovation. The real question isn’t why. It’s why not? The way things get done today is not acceptable at all. The systems are very abnormal and weird if you ask me.
9. Cost
The cost of distributing software in a financial system driven by technology approaches 0. This idea is the core thesis of the technology(software) sector globally, which is why software-based companies thrive. It costs nothing to move POS software from one POS machine to another or from an app on one person’s phone to another. Many people who ‘analyse’ fintech don’t get it. Fintech businesses are capital-efficient, and the returns are great for shareholders.
GTBank returned a profit after tax of N201 billion in 2020 — most of it from digital services. GT is one of the few Nigerian banks that have grown and led technology innovation for financial services. People invest money in companies for returns, not morals. Retail and institutional investors bought Pfizer and Moderna stock last year because they wanted to cash in on returns from COVID vaccines, not because they wanted to fund healthcare research.
I would argue that Fintech companies don’t get enough funding. Of the $439m raised by Nigerian fintech companies in 2020, Just 2 companies are responsible for over half of that volume. Compared to the healthcare and education sectors(people often ask why they’re not getting as much funding), these sectors in Nigeria have proven that expenses can be as low as possible while providing excellent ROI.
2021 reports show that more money is coming to health-tech and edtech. Because these sectors tend to be asset-heavy, they’ll eventually raise more debt than equity funding.
10. Expertise
On the expertise side of things, more experts in the Nigerian financial space live in Nigeria than the experts in the Nigerian healthcare space who live in Nigeria. People are simply building things where they have the expertise and technical know-how. Many Nigerian fintech founders are products of the financial services sector — examples that come to mind are Wallets, Flutterwave, Paystack, TeamApt and Carbon.
We can’t ignore the massive exodus of Nigerian healthcare professionals — doctors, nurses, radiologists, microbiologists, lab technicians, the whole stack. So who’s responsible for building healthcare solutions? Is it me that studied IT? There are not enough healthcare startups for investors to fund, and the regulatory terrain is even more difficult where they exist. Think moving money is hard? How about things that affect people’s actual bodies?
10 million Nigerian children are out of school today on the education side. This number grew by 3 million in just 2020 alone. You can’t throw money at this type of problem caused by insecurity. There are other systemic problems in this sector — low government funding and poor teacher quality are just some of them. It’s been difficult for the education sector to attract the most competent & innovative people because man must chop. As a result, a large number of the startups in this space have founders who are passionate about education — most of them don’t have backgrounds working in the sector. Even in the traditional education sector, people don’t care enough to solve their problems.
11. Different games
Different people play different games like any other sector, and everyone thinks their approach is the right. Some people are chasing high valuations to cash out; others are building critical infrastructure Nigerians need. It’s good to be cautious when claims and numbers look crazy, but it’s even worse when people aren’t building to solve problems.
12. Bank replacements
I think much of the pushback comes out of fear, and there’s no need for it. Fintechs are not necessarily going to replace banks or traditional financial services. If your banking app opens with an ugly video, though, hmmm. Maybe you should be afraid.
There’s also nothing wrong with fintechs today replacing banks or other financial institutions. There’s always room for new and bigger companies. 3 of the top 5 Nigerian banks today were created or formed in the last 30 years.
13. Every day is Day One
It’s been barely 10 years since this new wave of technology started in Nigeria. Every day is a new day. Everything is still fresh. Let’s get to work.
This article was written in July 2021 and first published in my 30 Days of Growth newsletter — you can subscribe to the newsletter here and get the eBook here.It also became the first chapter of my book, The Growth Handbook — Scaling Fintech in Nigeria. Please forgive any inaccurate data or things that might have changed.
