After a long time spent judging success and growth by the frequency of fundraising announcements, the recent slowdown in funding could cause many to question the potential for growth in Nigeria's fintech space. But there's justifiable cause for optimism among founders and investors.
While announcing its seed round in March 2023, Payday, a neobank that launched in 2021 disclosed that it had over 300,000 users, up from about 100,000 in December 2022. Moniepoint, another fintech that led Payday's seed round also disclosed in 2022 that it processed $10 billion in monthly transactions for over 400,000 businesses.
Similarly, Interswitch, a pioneer in the digital payment space announced that it processed one billion transactions in March 2023.
Today we explore some of the factors that suggest there's plenty of room for growth in the country's fintech space.
Presence of a large market
Let's begin with the one bit of information you'd find on every startup's decks, regardless of the industry — a large market.
Whether you believe the figures that put Nigeria's population at more than 200 million or not, as the country with the largest population in Africa, there would always be a large market for any business.
Of course, there's the concern about whether this large market can afford your services. However, financial transactions are so embedded in our lives that there are few efficient alternatives to not conducting a transaction.
For fintechs that deliver their solutions entirely online or through the help of a digital device, the fact that this large market also has a predominantly young population, who are often more amenable to using digital devices must be music to the ear. There's also the fact that you don't have to juggle multiple regulatory requirements to begin operations in Nigeria.
Funding to fintech startups is expected to continue
Every man on the startup street knows there's a funding slowdown. Fintech, being the largest recipient of venture capital funding has also been affected but it still receives the most funding annually. That doesn't look set to change anytime. Investors are still willing to back innovative fintech founders. The only catch is founders have to be solving actual problems. Sectors like lending, wealth management, and insurance are a few examples, while expense management startups are on the rise.
There's an existing talent pool for hiring
Nigerian startup founders have a hard time finding the right talent but the presence of an established finance ecosystem means fintech founders have it slightly easier. Startups, for example, can tap into the talent pool at commercial banks or other financial institutions to fill up certain roles. Startups in the healthtech space, on the other hand, may struggle because of the differences in working at a hospital versus a healthtech startup.
A robust ecosystem to support innovation
There's an established ecosystem of financial services providers in Nigeria, so whether you want to create a banking solution, build lending infrastructure, or make it easier for Nigerians to invest their money, there are people whose networks and experiences you could leverage.
Rising mobile and Internet penetration
Most fintech activity is dependent on customers' ability to access the Internet or use smartphones. In Nigeria, those metrics are increasing and present an opportunity for startups. For example, the number of Internet users in Nigeria is estimated at 109 million. By 2027, 48% of the country's Internet users are expected to access it using a mobile device. As buy now, pay later options grow, this number should also grow with it.
Growing eCommerce activity
Despite the profitability struggles of eCommerce companies like Jumia, there is an increasing appetite for online purchases. This could be as simple as buying a pair of shoes from an Instagram vendor or getting a smartphone from a buy now, pay later provider, more Nigerians are comfortable with getting products online compared to five years ago.Fintech startups provide some of the infrastructure for these startups to run. Whether it's a payment or lending infrastructure, fintech startups help eCommerce to thrive and with experts predicting online shoppers to reach 122 million by 2025, there's a huge opportunity for fintech startups to latch onto.