The "API-calypse" is upon us

The Rise Of African API Fintechs: Why Nigeria Leads The Way & Others Are M.I.A

By  |  December 18, 2020

About five to six years back, the term “API fintech” was one that rarely popped up in Africa’s startup ecosystem lingo.

But these days, beyond having the word in existence, the API fintech segment itself has been making tremendous progress on the African continent, and there’s probably room for more.

While the success of consumer fintech in Africa is well documented, such that some might argue that the consumer fintech space has become somewhat saturated, it appears that the speedily emerging API fintech area is the next big thing; one that is positioned to quickly become as successful, and perhaps even more.

Amongst the other events of this week, there was the announcement of the pre-seed round raise of a newly-launched Nigerian API fintech startup known as OnePipe.

It was disclosed that OnePipe raised a sum of USD 950 K from a mix of both institutional and angel investors. This sum is just a few legs from the landmark seven-figure USD 1 Mn sum.

In a simple sentence, OnePipe’s objective is to aggregate financial services, in the form of APIs, from banks and fintech into a standardised gateway for service providers to use.

It’s worth stating that OnePipe is one of a growing crop of purely API fintechs to take root in the Nigerian/African market, and also not the first to make such a “money-spinning” entry.

There is also Okra which launched in January 2020 and closed a pre-seed round of USD 1 Mn in April. Another API fintech based in Nigeria is Mono, which also launched this year and raised a USD 500 K pre-seed in August.

One interesting fact; these three startups have raised capital within short durations from the period of their launch. 

Apart from that, there are two other things these three startups have in common.

First, they are comparatively young startups, based on their period of establishment. The oldest of them, which is Okra, isn’t even up to a year old. Yet, despite being recently established, their growth so far has been remarkable.

The second thing they all have in common is that they all are Nigerian owned and based (for now at least). So, it appears that Africa’s biggest economy, Nigeria leads the continent’s API fintech space. It’s hard to pick out a purely API fintech startup in any other African nation besides Nigeria.

So, now the questions would be: Why are these companies making waves at the moment? And why is the rest of Africa seemingly missing-in-action when it comes to API fintech?

But before that, a little touch on the concept of API fintech is expedient.

Unraveling the concept of APIs and API fintech

In the technology startup context, when the word “bridge” or “connector” is being mentioned, API and likewise API fintech is one that should come to mind, as they simply stand for what these words mean.

API in full means “Application Programming Interface,” and it should be understood as a computer interface that defines interactions between multiple software intermediaries. Simply put, an API is what allows programs to talk to each other. 

There has been remarkable growth recorded for the API industry globally so far. According to a GSM Association (GSMA) report titled “Bridging Mobile Operators and Startups in Emerging markets,” it was estimated that as of 2006, fewer than 400 public APIs were available globally.

That number has increased a hundredfold, such that ten years after (that’s in 2016), there were around 15,000 APIs recorded, and it’s been stated that 40 new ones are created every week. 

Going further, one notion that needs to be cleared is that APIs do not only relate to fintechs. It’s instrumental beyond the financial industry, as there are also telecommunication APIs and alongside others.

However, APIs for the fintech industry is one of the fast-growing use cases for APIs. These APIs allow inter-communication between fintech platforms and other platforms (like banks).

One instance is the online purchases and payments made on e-commerce platforms which are a part of the goodness that has been made possible by the use of APIs.

The broader term, API fintech, on the other hand, performs the function of aggregating a host of APIs into one, thereby providing an infrastructure-based service. What API Fintechs offer is what can be labeled “fintech-as-a-service.”

They provide the infrastructure that could make literarily any company become a fintech company. Through this, innovation in the financial service industry has been accelerated.

Why Nigeria leads the way in API fintech?

The trajectory of the API fintech space in Nigeria can be likened to that of the United States of America, as significant similarities can be sighted between both. A little dive into the events between both countries, Yes?

In the United States, the API fintech space can be traced to the advent of payment facilitators or gateways.

Payment APIs like Stripe came up when the gaps in the USA’s financial infrastructure became apparent. These payment APIs emerged to fill those gaps.

Stripe’s launch in 2010 was followed by the Visa-acquired API Fintech startup, Plaid, which launched in 2013. Plaid uses fintech APIs to connect applications with users’ bank accounts.

Plaid’s objective and mission is similar to that of the African API fintech startup, Okra. More so, Okra said in an interview with Forbes that it is building the “Plaid for Africa.”

Interestingly, that’s the similar to way Paystack declared in the past that it was building the “Stripe for Africa” and literally became Stripe for Africa after Stripe acquired Paystack this year.

The Payment API and API Fintech trend of the United States seem to mirror what is playing out in Nigeria. In simple terms, the trend in Nigeria followed the same pattern which began from the advent of payment processors/APIs like Paystack and Flutterwave, and now to the three purely API fintechs that have launched this year.

One role this trend appears to have played with respect to funding for these companies in Nigeria is the new found positive sentiment on the part of investors.

Take a look at this: In January this year, Visa acquired Plaid for a whopping sum of USD 5.3 Bn. And going by pedigree, Visa’s acquisitions usually make financial sense, at that moment and in the future even. 

So somehow, the acquisition of Plaid by Visa likely has put investors on the lookout for investment in such similar companies. There might be a touch of FOMO on this one, but the API fintech segment really does seem like one to watch.

And hence, these events and trail may have played a role in helping these three Nigerian startups raise funds swiftly and within the short duration that they did. 

From another angle, another important factor that seems to have contributed to the uprising of this sector is seen in the rise of the advocacy of open banking in Nigeria.

The value proposition of open banking is the communication between API fintech and banks. In an ideal situation, open banking provides banks and fintech with customer insight and financial innovation via an API ecosystem.

In recent times, there has been a stronger collaborative effort between banks and fintechs. So, it can be said that open banking advocacy in Nigeria has contributed immensely to the progress API fintechs have made in the country so far.

The absence or dearth of such collaborations in other African countries is one of the possible factors behind the fact that API fintech has mostly found a turf in Nigeria while being ignored in other African nations.

With all that said, the API fintech space appears to be a goldmine for the fintech space in Africa. And as stated earlier, only Nigerian startups have so far been sighted to be making moves to tap into this, leaving the rest of Africa out of the equation.

One likely reason for this is the possibility of a lack of cooperation between banks and fintech organisations in other countries. When one party is resistant, there’s likely to be friction in the process. Progress can only be made in this respect provided there is a collaboration between incumbent banks and budding fintechs. 

Or, maybe this area just hasn’t been explored in other countries yet? Perhaps, that can’t be said for sure.

Who knows, it might be sooner rather than later before other African countries key into this “next big thing.”

Featured Image Courtesy: Feodora Chiosea / Getty Images

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