McKinsey & Company says favourable regulatory policies and Financial Inclusion drive of the Central Bank of Nigeria (CBN) is promoting the boom in financial technology, Fintechs, in the country.
In its newly released report titled, ‘Harnessing Nigeria’s FinTech potential: How stakeholders could position the FinTech sector for growth now and beyond the crisis’, it states that more needs to be done to exploit a vast untapped market.
According to the report, Nigeria is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio.
Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
It says the factors driving growth in each of these segments vary. “Payment-focused solutions have surged over the past two years, spurred, in part, by the central bank’s financial inclusion drive and favorable regulatory policies, including revised Know your Customer (KYC) requirements for lower-tier accounts and incentives to accelerate development of agent networks across the country.
“Paga, OPay, Cellulant, and Interswitch’s QuickTeller compete with mobile banking applications and bank unstructured supplementary service data (USSD) channels for send-and-receive transactions and bill payments.”
Growing Lending
According to McKinsey & Co, fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily and utilize smartphones as a distribution channel. For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms to provide instant, unsecured, short-term loans to individuals.
“A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Banking fintech solutions have been fast followers here with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.
“Addressing SMEs’ needs for frictionless and cost-effective payments has also seen this segment become something of a growth area for fintech; SME payments have grown at 28 percent compound annual growth rate over the last three years.
The report says fintech activity is also expanding into the savings and investments segment. “For example, CowryWise and PiggyVest target millennials and young professionals, offering them an easy-to-use application that provides them with higher interest rates on their savings relative to a traditional bank account (10 to 13 percent versus 4 to 6 percent).”
It says of recent, the Nigerian Fintech market has seen an influx of asset management fintechs such as RiseVest, Chaka, and Bamboo, offering users an opportunity to invest in international stock markets from their local currency account through their app.
Customer Adoption
Customer adoption of fintech is primarily being driven by access and convenience, and trust is critical. The switch to fintech is not an automatic step for many, majority of banked customers, 67 percent, still say that they trust their bank more than fintech.
However, trust in fintechs is growing, particularly among lower-income segments, with 51 percent of youth and mass-market customers saying they trust fintech about the same as they trust banks. SME owners also say that they increasingly trust fintech because of its speed in settlements
Regional Growths
Meanwhile, fintech adoption is highest in Lagos and among middle-class and affluent customers driven by the fact that most people in the city and in those segments have higher educational levels, access to more reliable digital infrastructure, and stronger economic power.
However, fintech uptake is also growing fast in the south—with individuals using USSD, agents and cards at entry level; 38 percent of mass-market and youth fintech users in this region use savings products. Meanwhile in the north, fintech uptake is still nascent, although increasing OPay applications and the roll out of agent banking locations could signal that things are shifting.
Fintechs, an Untapped Market
Despite the increased activity in the fintech sector in Nigeria and the positive multiplier effect in the economy, the McKinsey Report says there is significant potential for further growth.
Fintech accounted for only around 1.25 percent of retail banking revenues in 2019. And while fintech investments in Nigeria grew to approximately $460 million in 2019, the majority of which was from external investors, this was only a small fraction of the $36 billion invested in fintech globally.
The full report can be viewed here: latest report
