To whom much is given, much more is expected. So goes a popular saying. And this saying may soon begin to apply to the Nigerian fintech space more than any other sector.
Even before this year, fintech has been the most funded startup segment in Africa every year since 2016. The year 2019, in fact, only stunned those who thought the space had become crowded by offering yet more evidence that investors are more bullish than ever on African fintech.
With the sector clawing in almost USD 400 Mn in investments during a particularly crazy one-week period, it looks like the fintech frenzy is only just getting started.
And Nigeria appears to be right in the middle of an onslaught by Chinese investors who seem to be going up against one another for a share of the pie in Africa’s largest fintech market. And a largely-untapped one at that.
With the aggressive influx of copious amounts Chinese capital in the form of OPay and PalmPay, as well as the making of a fintech unicorn in Interswitch, plus the potential arrival of another behemoth in the form of Jumia Pay, Nigeria’s homegrown fintechs are fighting for their lives and it could all come down to what happens in 2020.
Here are 3 predictions that are likely to define Nigerian fintech in 2020;
The year 2020 is likely to go down in history as one that would bring up some mouth-watering mergers and acquisitions in the fintech space.
With the deluge of foreign capital and an unfavourable policy environment, Nigeria’s homegrown fintechs are facing the sternest competition yet and survival may depend on joining ranks.
Fintechs in Nigeria mainly cut their teeth in payments, mobile money, savings/investment, and lending.
With deep-pocketed, super-app companies like OPay already showing glimpses of an aggressive commitment to dominating the payments space and fellow Chinese-backed company, PalmPay, gearing up for the same, 2020 may yet get tougher for local payments startups that can’t match up.
Also, as the Central Bank of Nigeria (CBN) is hell-bent on forcing traditional commercial banks to step up their lending efforts by cranking up the loans-to-deposit (LDR) ratio to as high as 70 percent potentially, lending startups are sure to be pressed for space as bigger commercial banks try to ‘out-lend’ one another.
Additionally, with treasury bills falling to its lowest in 3 years and currently hovering in the single digits following CBN’s OMO ban on domestic non-bank investors, savings/investment fintechs would be hardpressed to maintain and sustain their current savings rates.
All these point to a grim outlook for local fintechs in 2020 and M&A’s are likely to come into play in the fight for survival.
Savings and Investment apps like Cowrywise, PiggyVest, and Carbon have become quite popular in Nigeria and it is no secret that these fintech firms have long relied on treasury bill rates and other low-risk investments to generate revenue.
Options other than treasury bills include agriculture, mutual funds, transport, and consumer loans. Treasury rates, unlike other rates, are paid upfront and investors are paid on maturity and do not rollover.
These savings/investment fintechs are known to typically promise returns of 10 percent and above returns per annum to their users as part of strategies to attract new customers and ensure loyalty to the brand.
But with treasury bills suffering a significant dip, those fintechs may have to look for other low-risk investments that can match promised returns while the companies remain profitable.
Or, in order to boost revenue in an ailing investment space, they may just do something else which many have long believed to be the end game of Nigerian savings/investment fintechs — become digital banks. And the omens say 2020 might be the year that happens.
The love-hate relationship between Nigerians and traditional commercial banks is well-documented and this has encouraged the coming into existence of digital banks who cheekily refer to themselves as the “bank of the free.”
In fact, it appears the word “freedom” is part of the official marketing lingo of digital banks in Nigeria. These are licensed banks like Kuda, ALAT, and Rubies which promise ease of banking and zero bank charges while promising to solve the problems people have with traditional Nigerian banks.
These banks have no physical locations (an advantage for the bank given that operating costs are significantly lower yet something that may be cause for concern for the average Nigerian). They also employ significantly less staff compared to traditional banks.
They are able to offer chargeless banking because of the very fact that they don’t have to spend so much on operating expenses. They also pride themselves on having the best technologies for apps and USSD, while offering swift responses to customer complaints.
These digital banks make money by using collective deposits to make risk-free investments backed by the government. They also earn from service fees sellers (aka merchants) pay to the bank when users pay with their card. Interest from loans given is another possible revenue vehicle.
This promise of convenience and ease-of-banking is starting to garner attention and it is on record that some of these digital banks go as far as delivering ATM cards to the doorstep of customers — something unheard of in Nigeria before now.
Well, digital banks are starting to catch on in Nigeria and 2020 could yet see millions of customers abandon their fussy, clumsy traditional banks for cooler, quicker digital banks.
Featured Image Courtesy: PYMNTS