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Africa — the market of unexplored opportunities
Although Africa is considered to be the largest unserved market that has dropped out of sight of the global financial system, there are segments in its financial services industry that is highly advanced in terms of the adoption scale and attractiveness to entrants. For instance, remittance via mobile has picked up a rapid pace in Africa, with Kenyans already using mobile money services for over eight years.
As a market, Africa has all the prerequisites to serve as a firm foundation for growth and development. Among the key data points characterizing Africa’s financial system, as outlined by the SWIFT Institute, are as follows:
- Both banks and nonbanks are allowed to provide mobile money services in 47 out of the 89 markets where mobile money is available.
- Half of almost 300 million registered accounts of mobile money globally are located in sub-Saharan Africa.
- In addition, there are 2.26 million mobile money agents in developing countries around the world, a figure that is more than the number of alternative financial access points comprising ATMs (1.38 million), commercial bank branches (524,000), post offices (501,000) and Western Union locations (500,000).
In the face of an outstanding opportunity presented in Africa, an ecosystem of FinTech startups providing services across segments has grown to transform the financial services industry in that continent for inclusive growth (with the support of dedicated accelerators and incubators). In this overview, we will be focusing on Nigeria — one of the most promising economies for entrepreneurs.
Nigeria has an opportunity to establish itself as one of the hottest FinTech hubs
Professionals emphasize significant FinTech opportunities in Nigeria that could potentially redefine the financial services landscape over the next five years.
“The fast growing young population (115 million people below the age of 35), exponential growth of mobile phone lines (estimated at 150 million as at July 2016), huge financial inclusion potential (less than 50 million people with bank accounts in a population of 170 million people, based on Bank Verification Number [BVN] data) and relatively strong talent pool (buoyed by Nigerians in diaspora) are pertinent indicators of the FinTech opportunity,” as noted by Boye Ademola, Partner, KPMG US.
Some of the important highlights on the opportunities in Nigeria’s financial services industry, as observed by industry professionals, include the following:
- Predominantly cash-driven Nigerian economy has been responding well to the FinTech opportunity. This is partly demonstrated by the exponential growth in mobile money operations from an average monthly transaction value of $5 million in 2011 to $142.8 million in 2016. The growing FinTech penetration is attributed to a surge in e-commerce and smartphone penetration.
- FinTech investment in Africa has increased significantly from $198 million in 2014 to ~$800 million in 2016, as investors are increasingly attracted to the industry’s potential to tap into Africa’s huge unserved/underserved population. Investments in Nigeria and Africa as a whole have been primarily focused on payment solutions, as other FinTech segments such as lending and wealth management, are in a relatively nascent stage.
- Smartphone penetration in Nigeria (i.e., the percentage of adults owning a smartphone) is estimated at 28%, with 76% of internet traffic routed through mobile phones.
- The payment space is one of the most attractive segments for FinTechs in Nigeria, and it has become a key source of revenue for banks and other payment service providers. As part of its Payments Systems Vision (PSV) initiative to reform the payment industry, the Federal Government of Nigeria launched the cashless Nigeria policy giving rise to several innovative payment systems propelled by changing consumer patterns, rising adoption of smartphones, increased internet penetration, and deployment of ATMs.
- A strong talent pipeline of inexpensive and easy-to-hire tech workforce is one of the driving forces behind the emergence of FinTechs in Nigeria.
- About 70% of Nigerian traders own a mobile phone. Findings also show that 74% of them are prepared to learn a new technology and that over 30% have been denied access to credit from a financial institution. Also important is that 56% of the traders survey source funds from families, friends, and unions; over 60% require funds less than N30,000.
- With the size of annual diaspora remittances to Nigeria estimated at $21 billion in 2015, this country is one area prone to disruption from digital currencies given the speed, efficiency and cost benefits of the latter. For instance, Bitcoin remittance firms charge fees in the range of 3% compared to the 7–10% commission charged by traditional players.
- While blockchain is in its early stages of adoption in Nigeria, consumers have used Bitcoin and digital currencies since the late 2000s. The Bitcoin Market Potential Index (BMPI) by the London School of Economics ranked Nigeria 7th out of 178 countries likely to adopt Bitcoin.
- According to the Global Findex report, in Nigeria, 80% of adults paid utility bills with cash, while 15% made payments directly from a financial institution account. What’s more, another 1% of users reported that they paid their utility bills both from a financial institution account and through a mobile phone — in all cases from a mobile money account.
- Over the past few years, there has been steady progress in improving financial inclusion in Nigeria. It is estimated that about 40% of Nigerians are still financially excluded as the 2020 target of the Central Bank of Nigeria (CBN) is 20%.
- As the Nigerian customer evolves, banks are leveraging new technologies to improve the banking customer experience since more and more financial transactions are now conducted via digital channels. In February 2014, the CBN through the Bankers’ Committee and in collaboration with all banks in Nigeria launched a centralized biometric identification system also known as Bank Verification Number (BVN) for the banking industry. Today, all P2P lenders depend on BVN in addition to other information for operating their lending models.
Nigeria’s FinTech Ecosystem
The future of Nigeria’s FinTech ecosystem is very bright. Listed below are the FinTech companies in Nigeria:
247Cash.ng is an online platform that facilitates credit facilities in Africa by providing loans for both informal and formal sector of the economy. The platform connects borrowers to lenders and guarantees borrowers’ prompt payback. Also, 247Cash.ng receives a commission on every successful transaction.
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