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What have been some of the digital developments in the most populated country in the Middle East and Africa’s (MEA) ecosystem – Nigeria?
As highlighted in my previous The Fintech Times Fintech: Middle East and Africa 2021 Report, Nigeria has over 200 million inhabitants, with over 20 million people living in Lagos alone. This has made the country a regional hub in the African continent, in addition to innovations and developments that are taking place as well. However, it is not without its flaws as it is estimated that 40 per cent of the population is financially excluded. Where
Lagos is home to some of the African continent’s largest banks and financial institutions – including First Bank of Nigeria (FBN), Access Bank, Ecobank and First City Monument Bank (FCMB).
Many startup incubators are also concentrated in Lagos. According to data from Startupblink, Nigeria was ranked 63rd out of 100 countries worldwide for tech. In Africa, Nigeria is considered to the third-best country for tech behind South Africa and Kenya.
In the 2021 Fintech Times report, with respect to fintech, Nigeria’s fintech landscape consists of 210 to 250 fintech companies, key stakeholders (banks, telecom companies and the government), enablers and funding partners (i.e universities and research institutions, investors, incubators, technology and consumers). According to Frost and Sullivan, Nigeria’s fintech revenue is expected to reach $543.3million this year, a growth from $153.1million in 2017.
Nigeria’s sheer size, coupled with its relatively strong financial and tech ecosystem, presents opportunities for the West African nation. Nigeria has plenty of opportunity to grow is in insurance, which like much of Africa as a whole, has a very low penetration rate with Nigeria specifically at a mere 0.4 per cent.
From another source, a 2021 EFinA report showed that less than 30 per cent of adult Nigerians have or used financial services from non-banking institutions. In addition, 97 of Nigerians do not have health insurance, investments/wealth management and cross border payments.
In terms of demographics, besides having the largest population in the MEA region, half of Nigeria’s population is under 19 years of age, and over 65 per cent are under 35 years old. According to Hootsuite, there are over 187 million mobile connections (90 per cent of its population); 10 to 20 per cent to the population have smartphones while the rest are using traditional mobile phones. Half the population has access to internet as well. Theses figures, although not high as the developed world are better than other fellow African neighbours. Nonetheless, there is further room for solutions like fintech to grow in this large market.
To note, while the National Financial Inclusion Strategy (NFIS) of Nigeria had a target of 70 per cent financial inclusion by 2020 was not met, efforts until today are being done to achieve that figure.
It should be noted of the success of Nigeria’s fintech ecosystem thus far. First, Nigeria and in particular South Africa, Kenya and Egypt, are often considered to be the major regional fintech hubs and players in the African continent. This titled is earned with the metric of fintech startup funding, whereby out of the $4 billion raised in Africa, Nigeria took the most of that slice at $1.37 billion (South Africa took $838 million, Egypt at $588 million and Kenya at $375 million).
Minus a handful of countries of MEA, Nigeria has produced fintech unicorns and also has contributed to the export of its know-how as well. In terms of fintech unicorns, Nigeria is home to most of the seven (five) in the African continent; in MEA it is the second highest after Israel. Nigeria’s first fintech unicorns were Interswitch and Jumia, with Flutterwave, Opay and Andela joining the club more recently.
One of the biggest headlines in the MEA region last year came from Nigeria, where in October last year it introduced a digital central digital bank currency (CDBC) called the e-Naira.
Another headline, in a similar sphere to the CDBC announcement, was made earlier in 2021 when the Central Bank of Nigeria (CBN) ordered all banks from stopping transacting in and with entities dealing in cryptocurrency. The CBN also directed banks to close accounts of persons or entities that are involved in cryptocurrency transactions. Reports highlighted that this was done for security and money-laundering clampdowns.
Despite this, cryptocurrencies are really popular in Nigeria. Many point out the 2016 economic recession in the country could have caused Nigerians to flock to digital currencies such as Bitcoin to protect their savings and assets. This was triggered due to the declining price of oil – which makes up the majority of Nigeria’s gross domestic product (GDP). This change in behaviour propelled Nigeria to have the largest crypto market in Africa by 2019 and one of the largest userbases in the world.
Cryptocurrencies have remained popular despite the CBN’s actions. A report published by KuCoin in April showed that at least 33.4 milion Nigerians between aged 18 to 60 had invested in digital assets in the past six months.
Similar to the rest of MEA, payments is by far the largest subsector – receiving the most interest from investors and regulators. Tellimer highlighted that payments command a 28 per cent lead in the fintech subsectors, followed in second place by lending at 25 per cent, third place is software solutions at 15 per cent, fourth place, wealthtech at 11 per cent; blockchain in fifth place at nine per cent; sixth place, insurtech at four per cent, and finally, financial management in seventh place at three per cent.
With regards to mobile money, according to Global System for Mobile Communications’ (GSMA) 2018 findings, the CBN introduced a new type of banking license: that of payment service banks (PSBs). This aimed to leverage the strengths of businesses, such as that of mobile network operators, while maintaining a bank-led rather than a telecoms-led banking model. Unlike in East Africa, where mobile money is extremely popular, Nigeria’s population is currently not sold on the concept, however, it still has the potential to grow this market.
Another potential solution which could play a strong role in the future of Nigeria’s financial ecosystem is buy now pay later (BNPL), as only three per cent of Nigerians own a credit card; in a ranking of 137 countries, Nigeria was 124th on this list. BNPL can help close this gap in inclusion. Usage of BNPL last year was estimated at $325million in Nigeria; it is projected to hit $1.195billion by 2028. Local players like Credpal can further bring BNPL opportunities not just to Nigeria but beyond.
Last year, the Nigeria Startup Bill project kicked off, which aimed to “harmonise all pieces of legislation governing start-ups and contributing to the creation of an enabling environment for growth, attraction and protection of investment in tech start-ups.”
In addition to the CBN, key players in the fintech ecosystem include Securities and Exchange Commission of Nigeria, National Insurance Commission (NAICOM), Fintech Association of Nigeria, Nigerian Insurers Association – to name a few.
The largest country in the African continent by population, Nigeria presents a future whereby it can bring financial inclusion to its population, with the ability to help its fellow neighbours too.