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  Nigerian FinTechs are leading the rest of the country’s tech ecosystem in terms of funding raised from investors. They have done this for years; 2021 was no different. They also dominate the pack with respect to investments in African FinTechs.
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Data from Intelligence by Techpoint suggests that Nigerian financial technology startups raised almost $800 million between January and September 2021, a huge chunk of the nearly $3 billion gathered by African FinTechs within the year. They attracted funding worth $321 million in the first half alone. There’s also evidence that they’re gaining investor confidence. The sums they scooped in the past year was higher than what they managed in the previous three years combined.  Here, we’ll have a look at why the businesses and startups in this space have achieved as much as they have. But first, let’s see what some of these numbers say about the growth of the industry in Nigeria.

An Impressive Run

We’ve already hinted at the steady rise in the amounts of money poured into Nigerian FinTech by investors. In 2018, Nigerian startups in the space raised $178 million; by 2019, that sum had climbed to $377 million.  Most of this funding has come from foreign sources. In 2018, about 87% of investments in Nigerian FinTechs was drawn from foreign investors. The following year, it was 94.8%. VCs from North America were some of the dominant contributors. However, there are signs of a growing interest from local investors in the industry. The portion of investments coming in from sources outside of Nigeria fell to about 71.2% in 2020. In the first quarter of 2021, just over 70% of funding for financial technology startups came from foreign investors. Interestingly, some of the more active local investors were startup founders themselves.  Although investors have shown interest in other startup niches, FinTech remains their foremost concern. As of 2020, they took 44% of total startup funding deals in Nigeria. This is likely to remain the status quo for a long while yet.

Why Are Investors Attracted To Nigerian FinTechs?

Investors, whether they are local or foreign, are driven by one motive, above others: profit. This is exactly the case with their interest in Nigeria’s FinTech space. They believe that there’s a lot of profit to be made here. Some of the available industry data seem to confirm this. According to a survey carried out by Ernst & Young in partnership with the FinTech Association of Nigeria (FintechNGR), about 57% of FinTechs in Nigeria reported annual revenues exceeding $5 million. Also, about 76% of post-revenue startups were profitable. It’s been projected that revenues generated by FinTechs in Nigeria would hit $543 million this year. Profits are expected to increase significantly as well.  However, investors are looking beyond these numbers to the problems that Nigerian FinTech startups are solving. It’s the nature of those challenges that indicate whether there are real opportunities to exploit and profit from. The challenges– especially those having to do with financial inclusion — are huge. A 2020 survey by EFInA (Enhancing Financial Innovation and Access) suggests that less than half of Nigeria’s 106 million adults have a bank account. Only 3% of this population is able to access loans, and an even smaller portion has any form of insurance.
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These sorts of problems can be solved by leveraging already existing technologies. Businesses that venture to solve them this way could make a lot of money in doing so. Investors want a share of this. That’s why they’re backing FinTechs.

Roadblocks And Opportunities

Despite the wins recorded so far, Nigeria’s financial technology companies continue to face obstacles that prevent them from doing even more. One such problem is the absence of data that they’ll need to plan their movements into the markets they target. There could be opportunities in solving this problem as well, but such solutions are generally still in their early days. There’s also the trouble with inconsistent regulations. In recent times, financial regulators have instituted and executed various rules that have disrupted the flow of many a startup’s operations. Here, too, lies a chance to reap great gains: RegTechs may play a big role in simplifying the relationship between FinTechs and public regulators. In one of its reports on Nigerian FinTech, McKinsey and Company outline other ways that that startups in the space could unlock economic benefits– including digitizing more financial services. The report notes the need to provide payments integration on social media channels and develop more solutions for the e-commerce industry. The FinTech industry in Nigeria still has a lot of room for improvement. But its current growth trajectory is positive. The signs are that it’ll draw in even more investments in the coming years, and deploy those to surmount the obstacles it faces.
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This article was first published on 17th February 2022


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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