Straight outta Nigeria: the future of finance in Africa’s 21st-century tech powerhouse

Abuja, Nigeria

When it comes to money, Africa’s largest economy has a pretty bad reputation (we’ve all had those scam emails — commonly known as 419's). But after a couple of recent trips to Lagos and Abuja, I’ve seen first-hand how dynamic and innovative the Nigerian payments market has become in what the Financial Times recently called the world’s first “100 per cent mobile-first market”.

Challenges and contradictions

First off it’s an amazing, crazy and overwhelming country. You’ll never forget the first time you arrive at Lagos airport: the heat, the noise, the buzz. It’s a vast market of more than 170 million people, the seventh most populous nation on earth, and a place where citizens at every level in society seem to possess an unstoppable entrepreneurial drive that you just don’t see anywhere else in the world. The country’s problems are well documented, of course: security, corruption, economic policy and the oil price collapse are all topics that feature heavily in conversation.

Get used to this view if you’re headed to Lagos

The gap between the richest and the poorest is staggering: GDP per capita is only $250 per month but Nigerians are also huge investors in super-prime London real estate. And Lagos itself isn’t exactly top of most people’s holiday must-visit lists: more than 15 million people call the vast city home and the jams are insane. I can vouch for reports that it has the worst traffic in the world — commutes of four hours each way are commonplace. If you’re planning a visit, be prepared: a sea of brake lights is likely to be one of your enduring memories.

A vast digital opportunity

But there’s also boundless opportunity here, with digital and mobile racing ahead. Nigeria is already by far the largest mobile market in Africa with more than 135 million connections, and 70 million people have access to the internet. Combine the two and the results are staggering: 80%+ of internet users are accessing the web via a smartphone connection, making Nigeria a giant “mobile-first” nearly “mobile-only” market.

The main barriers to progress at the moment are cost and speed: mobile data remains expensive, at around $4-$5 per GB, and speeds are slow. But the ongoing trend for cheaper data and faster download speeds is clear.

Of course, connectivity and speed alone are not enough — tech skills and capital matter too. While there’s still a long way to go, the tech ecosystem here is rapidly developing — it’s no surprise that Mark Zuckerberg chose Nigeria for his first trip to sub-Saharan Africa this week. Many of the companies I met, both start-ups and later-stage, are doing more and more tech development in-country and I’d 100% agree with Zuckerberg’s assertion that:

“Nigeria’s tech industry is under-appreciated across the world.”

International money flows — bigger and better

In terms of what Azimo specialises in — international money transfers — the figures are massive. The World Bank tells us that $20 billion of the $64 billion sent to Africa every year is destined for Nigeria (although some people I spoke to thought the actual figure was even higher). To back this claim up, the country is one of the most important African markets for Azimo. Unsurprisingly, our Nigerian customers love using their smartphones to send money and have the highest mobile app usage of any customer sector. The fact that the money can go from your phone to an account in Nigeria in as little as 15 seconds is a huge draw.

Costs of sending to Africa are coming down but not fast enough…

Unfortunately, unlike India which I blogged about here, average transfer costs still tend to be high — with the unwelcome result that an estimated 50% of remittances to Nigeria are conducted via the informal or unregulated sector. The World Bank-backed African Institute for Remittances (AIR) project found that the average cost of remittances to Africa from the rest of the world stands at 11% (vs. the global average of 7.6%). What’s more, nearly all of the most expensive global remittance prices are for intra-Africa, with the highest being South Africa to Botswana at nearly 20%. But again, importantly, the trend is downwards and that should continue as technology continues to simplify the value chain.

Remittances to Nigeria also hit the news in the last couple of weeks when the country’s Central Bank (CBN) enforced a new set of regulatory requirements, causing hundreds of money transfer firms, including Azimo, to suspend their services. Given that more than 80% of our remittances are sent for family support, this was a big hit for our customers and millions of others like them all over the world. With the stakes high, there was some strong rhetoric on both sides.

Visiting the Central Bank and meeting the Governor Godwin Emefiele

But when I met with the CBN Governor Godwin Emefiele in Abuja last week, it became clear that the CBN’s core requirement is simply better oversight of the much-needed hard currency landing in the country. The real target of the clampdown is the estimated $10 billion of unrecorded “informal flows” into Nigeria. As a result of that meeting, and with a new framework for reporting and regulation of local partners now in place, our service is back to normal. This is great news for the diaspora and the Nigerian economy, and the hope is that the new regulatory framework will cut down on the number of informal operators and give the country a much-needed hard currency boost.

Domestic payments rapidly developing

In-country domestic payments are also developing fast. Just as in the Indian market, domestic settlements between banks can now be done in real time via Interswitch, which is a hugely impressive business founded and led by Mitchell Elegbe and the subject of recent unicorn-level IPO, sale and investment speculation.

Instant bank settlements ? You got it…

Alternatives are NIBSS (the Nigerian Interbank Settlement System) and eTranzact. Right now, pricing on all these switches remains fairly high — nowhere near the single cents per transaction of the UK’s Faster Payments System. But I’m sure we’ll see these costs come down as volumes grow and healthy levels of competition between the payers kick in.

Card usage is also gaining traction: MasterCard, Visa and Interswitch-owned domestic scheme Verve are all present in Nigeria, with the latter surprisingly the strongest player with more than 30 million physical and virtual cards in operation. The functionality available with Verve is strong compared to what’s possible in the US or Europe. Consumers can instruct and receive cardless ATM withdrawals, or POS withdrawals at more than 100,000 retailers, and make instant payments to any other Nigerian bank account.

This growth in card use might be part of the reason that, again like India, stand-alone mobile wallets have been slow to gain traction here. With a high level of financial exclusion, rapid smartphone penetration, lower-than-average consumer and business income levels and correspondingly lower bank revenues to support costly bank branch infrastructure, the market would seem primed for a mobile money hyper-growth cycle. But unlike Kenya, where M-PESA has been a runaway success, progress is slow and no one has yet been able to fully crack the market. At the head of the mobile money pack is Paga, run by Tayo Oviosu. You can already pay for your Uber (yes, they have them in Lagos and Abuja) with Paga and user numbers are starting to track up.

Big things clearly lie ahead for Nigerian tech and payments. In the meantime, you can expect to see more and more of these innovative solutions being built into the Azimo framework in the name of increased consumer choice and convenience.

See some pictures from the trip here

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