Trends Shaping the Future of Fintech in Nigeria: What Investors Need to Know

Nigeria’s fintech industry is proliferating due to several factors, including a young population, rising smartphone usage, and a regulatory push to expand financial inclusion and encourage cashless transactions.

In this article, we will discuss the significant developments shaping the future of fintech in Nigeria. We’ll also provide valuable insights for investors interested in exploring this growing market.

Growing Digital Adoption: The Catalyst for Fintech Growth

1.1. The Smartphone Revolution

One of the primary drivers of fintech adoption in Nigeria is the widespread availability and affordability of smartphones. As these devices become increasingly prevalent, more people can access mobile apps and tools that enable them to take advantage of fintech services.

This builds on the foundations laid by the highly successful M-Pesa service for money transfers that started in Kenya on analogue phones.

1.2. The COVID-19 Pandemic: An Unexpected Boon

The COVID-19 pandemic has accelerated the adoption of digital technologies, compelling consumers to integrate digital tools into their lifestyles, such as digital payments, investment tech, and online-only insurance. 

This trend extends to micro, small, and medium-sized enterprises (MSMEs), increasingly leveraging fintech services to cater to their unique needs.

India’s digital economy, for instance, is expected to witness exponential growth to $800 billion by 2030, thanks to digital public infrastructure, the development of UPI, and the pandemic.

Diversification of Fintech Services: Beyond Payments and Transfers

2.1. The Rise of Neobanks

In the fintech industry, Neobanks are becoming increasingly popular for providing personalised products and services that cater to the specific requirements of their customers.

The Indian fintech market has been experiencing a steady increase in the number of neobanking startups, which has caught the attention of global investors.

2.2. Ecosystem Banking: Unlocking Value in Integrated Services

Ecosystem banking is helping banks enhance customer experiences and generate long-term value. Banks can streamline their operations and improve customer satisfaction by offering a single solution to customers who previously had to navigate complex and disjointed processes across multiple applications.

2.3. InsurTech: Innovating in Product and Distribution

The insurtech space in India has grown considerably over the past few years, with funding growth enabled by innovative business models. This trend is expected to extend to Nigeria as the market matures, driving further development in wealthtech and insurtech.

Lending: Filling the Credit Gap

3.1. The Untapped Market

Fintech lending is a rapidly growing sector with vast market potential in Nigeria. However, the current credit penetration is only 3%, highlighting a significant opportunity for FinTech to meet the unfulfilled demand.

3.2. Alternative Credit Scoring

Fintech companies use AI and machine learning to evaluate creditworthiness, allowing them to enter higher-risk lending markets that traditional banks typically avoid.

This innovation is helping bridge the credit access gap for Nigerian consumers and businesses.

Alternative Investment Platforms: Capitalising on Market Opportunities

4.1. Equity Market Growth

Over the past two years, there has been a significant increase in the number of Demat accounts in India, further accelerated by the pandemic.

As Nigeria’s fintech market develops, alternative investment platforms are predicted to take advantage of similar opportunities, providing consumers with new options for managing and increasing their wealth.

4.2. Expanding Investment Options

Alternative investment platforms are enabling investors in Nigeria to diversify their portfolios beyond traditional assets such as real estate and fixed deposits. As the market evolves, investors can expect to see more innovation in this space, providing them with a broader range of investment options.

Regulatory and Compliance Challenges

5.1. Balancing Innovation and Risk

As fintech continues to reshape the financial services landscape in Nigeria, policymakers face the challenge of fostering innovation and competition while managing the associated risks. This balancing act requires a proactive approach to regulation and oversight, ensuring the financial system remains safe, efficient, and inclusive.

5.2. Cross-Border Coordination

Given the supranational nature of fintech, solid cross-border coordination and information sharing are crucial for effective regulation. Policymakers and regulators should work together to develop best practices and harmonised regulatory frameworks that promote a thriving fintech ecosystem.

Infrastructure Modernisation: Enabling Competition and Contestability

6.1. Open Banking and APIs

Modernising and opening financial infrastructures are essential for fostering competition and contestability in Nigeria’s fintech sector. In addition, open banking initiatives and adopting APIs (application programming interfaces) can help enable seamless integration between financial services providers, paving the way for innovative new products and services.

6.2. Digital Public Infrastructure

The development of digital public infrastructure, such as Nigeria’s National Identification Number (NIN), can help streamline processes and improve access to financial services. In addition, by providing a robust framework for identity verification and authentication, digital public infrastructure can support the growth of Nigeria’s fintech ecosystem.

Financial Inclusion: Bridging the Divide

7.1. The Unbanked and Underserved

Nigeria’s fintech sector offers significant opportunities to address the needs of unbanked and underserved consumers, particularly within the SME, mass-market, and affluent segments. By developing innovative products and services tailored to these segments, fintech companies can help bridge the financial inclusion gap in Nigeria.

7.2. Gender Inclusion

Fintech also has the potential to promote gender inclusion in Nigeria’s financial services landscape. By addressing women’s unique financial needs and offering tailored products and services, fintech companies can contribute to closing the gender gap in access to financial services.

Cybersecurity: Protecting Consumers and Businesses

8.1. The Growing Threat

As Nigeria’s fintech ecosystem expands, so do the risks associated with cybercrime. Therefore, protecting consumers and businesses from cyber threats is a critical challenge that must be addressed to ensure the continued growth and stability of the fintech sector.

8.2. Collaboration and Information Sharing

Collaboration between fintech companies, regulators, and other stakeholders is crucial for developing effective cybersecurity strategies. In addition, the fintech community can work together to identify and mitigate potential risks by sharing information and best practices.

Talent Development: Building a Skilled Workforce

9.1. The Human Factor

As Nigeria’s fintech sector grows, attracting and retaining skilled talent will drive innovation and competitiveness. Developing a strong talent pipeline through education, training, and collaboration with academia can help ensure Nigeria’s fintech ecosystem remains at the cutting edge of global developments.

9.2. Fostering a Culture of Innovation

Creating a culture of innovation in Nigeria’s fintech sector will be crucial for attracting and retaining top talent. By cultivating an environment that encourages experimentation, learning, and collaboration, fintech companies can drive innovation and maintain a competitive edge in the global market.

Investor Outlook: Opportunities and Risks

10.1. The Investment Landscape

Nigeria’s fintech sector offers significant opportunities for investors, with the market poised for rapid growth and expansion. Between 2014 and 2019, Nigeria’s fintech scene raised more than 122 million of the $491.6 million raised by African tech startups in 2019 alone.

10.2. Navigating Risks and Challenges

While the potential rewards are significant, investors must also be mindful of the risks and challenges associated with investing in Nigeria’s fintech sector. These include regulatory uncertainty, cybersecurity risks, and market dynamics that could impact the growth and profitability of fintech companies.

By staying informed about the latest trends and developments shaping Nigeria’s fintech landscape, investors can make informed decisions and capitalise on the vast opportunities this dynamic market offers.