Is There Such A Thing As “Too Much Fintech”? – The View From A Been-There-Done-That Founder

Much Ado About Fintech!

The last couple of weeks have been nothing short of insane for Nigerian fintech, with the sector clawing in almost USD 400 Mn in investments during a particularly crazy one-week period.

That surreal one-week period began with payment giants, Visa, forking out USD 200 Mn for a stake in Nigeria’s IPO-bound fintech company, Interswitch — Africa’s first homegrown billion-dollar fintech company.

In the next few days that followed, word got out that Transsion — the Chinese company behind the best-selling smartphone brands in Africa — among other “Chinese” investors, had led a USD 40 Mn round in PalmPay. 

PalmPay is a newly-minted fintech company that is looking to fill the void left by the traditional Nigerian banks and serve the 60 million Nigerians adults who are said to be unbanked or underbanked. The startup appears to be on a mission to build a super app housing different digital services such as logistics, ride-hailing, and payments.

Indeed, if the year 2019 is to be remembered for anything in Nigerian tech startup circles, it would be remembered as the year the Chinese consolidated on their position as the biggest foreign players in Africa by going all out for the financial services space in Africa’s largest market. And perhaps no other example encapsulates this fact as much as the OPay story. 

OPay’s fellow Chinese-backed company and newest competitor, PalmPay, may have temporarily stolen the limelight with the announcement of its USD 40 Mn round, its heavyweight backers, and the news that some 20 million Tecno, Infinix, and Itel smartphones, destined for Africa in 2020, will come with the PalmPay app preinstalled.

But when OPay hit back with the announcement of a USD 120 Mn round involving the likes of Sequoia Capital China and SoftBank Ventures Asia, following a prior USD 50 Mn raise, as well as its intention to expand into Kenya, Ghana, and South Africa in the coming months, it became clear that the already thickened plot had congealed.

In the last six months, through a combination of insanely-subsidised services and aggressive marketing — facilitated in no small part by the deep pockets of its backers — OPay has covered quite some ground in its mission of building a super app; one that would be a one-stop-shop for “everything”, while continuing to pursue simultaneous growth across several verticals including transport, food delivery, investments, payments, and classifieds.

And then there’s Jumia Pay; the in-house payments solution of the largest e-commerce player in Africa that is being talked up by the company as a PayPal-inspired spin-off which might trigger a scaleback on the company’s struggling e-commerce business in favour of a fintech play.

In Jumia’s Q3 2019 financials, the impressive numbers done by Jumia Pay was a highlight in an otherwise subdued showing and the company’s co-CEO, Sacha Poignonnec, did hint at transforming Jumia Pay into more than just an in-house payments solution and going all out for African fintech which seems to be ripe for the taking.

As a matter of fact, Jumia recently suspended its e-commerce business in Cameroon in a move that looks like the first in a series of e-commerce scalebacks in readiness for a big fintech play.

Is There Any Such Thing As “Too Much Fintech”?

So as it stands, everyone wants a slice of African fintech — everyone from global fintech giants to Silicon Valley VCs to e-commerce giants that need a new lease of life and aggressive Chinese investors who know how and when to go for the jugular. 

And it appears many of them want to make Nigeria the epicentre of a likely pan-African fintech revolution.

As Omobolaji Johnson, Nigeria’s former ICT minister and now a partner at VC firm, TLcom Capital, puts it: “When it comes to payments, the Nigerian market is probably big enough [to sustain a business]. And it’s much easier to start here and expand to other parts of the continent than the other way around.”

However, with so many “big” players trying to get hold of the same ball, could it be possible that things might get ugly? Is it possible that the fintech space is becoming an overcrowded one where startup attrition and failure will come into play? 

Not too be a prophet of doom but such fears aren’t exactly illegitimate. However, Olugbenga “GB” Agboola, co-founder and CEO of Flutterwave — one of Africa’s most-valuable fintech startups — is convinced that there are mostly better days ahead.

“I don’t think Nigerian fintech is overcrowded. There are like 20 banks in Nigeria and yet there is a massive delta between the banked and the unbanked. The market is there and the more people solving it from their niche vantage point, the better,” GB told WeeTracker in an emailed response.

Referring to this data, there were no less than 56 fintech companies enabling financial inclusion in Nigeria as of 2017. And that number is likely to have risen to anywhere around 100 by now.

For a country where half the adult population (approximately 60 million people) are still unbanked, and a paltry 20 traditional banks continue to be overwhelmed by the task of bringing financial services to the unbanked and underbanked, it’s easy to see why fintechs are stepping in with mobile money wallets, payment solutions, agent networks, investments, and digital loans. And it’s also easy to recognise why there is enough room for everyone.

But Why All The Fuss About Fintech?

Every year for the last 3 years, no other tech sector has attracted more funding in Africa than fintech. And for good reasons too.

Indeed, the flurry of funding activity witnessed in African fintech in the last few weeks is in keeping with a trend that has become evident over the last 18 months.

The last one-and-half year has seen Nigeria’s Paystack get backing from global payment giants, Visa and Stripe, as well as Flutterwave drawing participation from Mastercard in its Series-A extension round. Mastercard is also involved with the earlier-mentioned Jumia Pay.

And then there’s the company Jumia Pay wants to imitate, PayPal, which backed emerging markets lender, Tala. Plus Interswitch’s most-recent backer, Visa, co-leading a massive USD 170 Mn Series-C round in another digital lender, Branch. All of these have happened in less than 2 years.

This trend points to increased interest and confidence in African fintech; a sector that has found a great anchor in Kenya’s M-Pesa mobile money service which has driven financial inclusion to 83 percent in Kenya (from 27 percent) since launching in 2007.

And beyond Kenya, there is evidence of the impact of financial technology across West Africa where the reach of the mobile money sector is 13 times wider than local banks.

For a continent where an estimated 66 percent of the adult population is unbanked, the nascent fintech industry has a huge opportunity to drive financial inclusion outside of traditional banking mediums.

This is why it appears investors are betting on the sector with mindless abandon. While it could be argued that there are now many fintech platforms basically offering the same thing, in Nigeria for instance, a great potential for success lies in the sheer number of people that are underserved and even those who are yet to be served.

Africa’s Lingering Socio-Economic Problems Are A Stumbling Block But No Deterrent

Fundamentally, fintechs thrive on the very idea of people having money. And sadly, there are way too many people on the African continent with very little money or no money at all.

The World Bank says some 413 million people in Africa live on less than USD 1.90 a day and a staggering 85 percent of Africans live on less than USD 5.50 per day. For such people, fintech services won’t be of much use — not even quick loans, which would require repayment with interest from income prospects that are pretty much non-existent.

Nevertheless, fintech players are starting from the path of least resistance while appearing to be betting on Africa’s growing youth population, as well as the rising mobile phone/internet penetration on the continent.

As GB told WeeTracker: “Fintechs have to start from somewhere to provide services. Nigeria feels like where China was 10-15 years ago and we have seen how the likes of Alipay started from the path of least resistance and evolved at the economic maturity of the country.”

Africa is projected to be home to half of the world’s working population over the next 35 years and this could mean more working-class people with jobs (hopefully), and more money in people’s pockets.

With the potential of increased spending power over the long-term, emerging fintechs may just be playing the long game as they vie for the reward of grabbing the best slices of the market share in the early days.