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Fintech Evolution in Nigeria: Achieving Double Bottom Line Impact Through Innovation
and Entrepreneurship.
Adebayo B. Moito
______________________________________________________________________________
Abstract
Financial Technology (FinTech) describes the use of technology to simplify and automate the
utilization and delivery of financial services. FinTech helps both businesses and their customers
facilitate, manage and expand their financial interactions through internet-enabled software and
devices.
Nigeria is Africa's most populous country and has the largest GDP on the continent. It is also
home to a vibrant and thriving Fintech ecosystem and is a leader on the continent with many
startups and digital offerings from mainstream banks. With most of the companies initially
focused on payments processing, Fintech revenues are forecast to reach an estimated US$543m
by 2022, driven by increasing smartphone penetration and its unbanked population.1
Introduction
The opportunity for Fintech in Nigeria.
A survey conducted in 2008 by EFInA (Enhancing Financial Innovation and Access) in Nigeria
revealed
1. Only 21% of the adult population had a bank account, equivalent to 18 million people.
2. 74% of the adult population had never been banked, equivalent to approximately 64
million people.
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3. 5% of the adult population (about 4 million people) were previously banked; in other
words, they have left the banking system.
The definition of "Banked Population" employed by the survey referred to Nigerians currently
have access to or using formal deposit-taking institutions (i.e., deposit money banks) in addition
to any of these products: ATM/Debit card, credit card, savings account, current account, fixed
deposit account, mortgage, overdraft, loan, Islamic loan, or Islamic financing investment.2 The
survey concluded that of the population of 150,269,632 million Nigerians,3 45.4 million adults
(53% of the adult population) were financially excluded, while 20.7 million adults (24% of the
adult population) used 'informal only' products and services, such as savings clubs/money pools
and money lenders.2
The EFInA survey further revealed that 35.9 million adults owned a mobile phone, with 16.4
million owners of mobile phones falling into the banked category, which is 94.6% of the banked
population and 19.5 million unbanked, which is 68.6% of the unbanked population. The survey
established the potential for using mobile phones and other internet-enabled devices as a
distribution channel for providing financial services to unbanked Nigerians.
The EFInA study was precipitated by the Central Bank of Nigeria (CBN) framework on mobile
and agency banking, which aimed to promote and facilitate the development of an efficient and
effective system for the settlement of transactions, including the development of electronic
payment systems and promoting Mobile Money Services. The primary aim of the framework
was to promote a cashless society by providing financial services to over 80 million Nigerians
who do not own bank accounts and include them in the formal financial economy. The
significance of this framework hinged on the fact that 57% of Nigerians live in the rural areas
where financial institutions find it commercially unviable to operate. It emphasized the potential
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value of electronic financial services and payment systems in Nigeria. The framework
determined three models for implementation, namely.
1. Bank-Focused – Referring to a Financial Institutions as Lead Initiator
2. Bank Led – Referring to a Financial Institutions and its Consortium as Lead Initiator.
3. Non-Bank Led – Referring to a licensed corporate organization Lead Initiator.
The guidelines also included provisions for establishing and regulating Agent banking and Agent
banking relationships in Nigeria as it applies to Mobile Money services and financial innovation
and inclusion.4
The Central Bank of Nigeria (CBN) granted over ten operating licenses to Bank Focused, and
Non-Bank Led financial institutions and companies. Some of these operators included: Guaranty
Trust Bank (GTBank), United Bank of Africa (UBA/Afripay), Stanbic IBTC, Ecobank, Fortis
MFB, Pagatech, Paycom, eTranzact, FETS (Funds and Electronic Transfer Solutions),
Eartholeum, M-Kudi, and Virtual Terminal Network (VTN). It is important to note that the
current successful operators of Fintech are Non-Bank Led companies. At the initial rollout,
Fintech operators focused on providing the services listed below:
1. Cash transfer and receipt
2. Utility bill payments
3. Prepaid payment for mobile phone services
4. Mobile wallets allowing cash deposits and withdrawals
The mobile money transfer product offerings of the early operators competed with traditional
banks, but the main differentiator was the lower KYC requirement for the Fintech customers.
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Aim and Objective
This research paper aims to explore the impact of FinTech to expand, improve and automate the
delivery of financial services to financially excluded Nigerians, and assess its performance by
measuring both economic and social impact.
The study's objectives are to determine the growth drivers of the Fintech industry in Nigeria,
explore the industry and product evolution and evaluate the role that emerging FinTech
ecosystems play in deepening financial inclusion and expanding economic growth in Nigeria.
Research Methodology
Empirical data used for this study was collected manually via interviews with current Fintech
industry operators in Nigeria. Three present industry experts were interviewed from two of the
leading Fintech companies in Nigeria. The author of this paper worked at Paga in a management
position from its inception till 2016 and is a subject matter expert in the Fintech sector in
Nigeria. The author's observations and industry experience will be employed to analyze
subjective factors that may not be captured through data.
Secondary data was sourced from archival research, mainly research publications, regulatory
publications, and information sourced from the internet.
Findings
The Growth Drivers of the Fintech in Nigeria
There has been significant growth in the Fintech sector since 2010. A youthful population,
increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion
and cashless payments combined to create the perfect recipe for a thriving fintech sector.8
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There are over 200 standalone Fintech companies, excluding the banks and telcos, offering
fintech solutions. Successful Fintech companies in the industry include Paga, Cellulant,
Interswitch, Remitta, Etranzact, Flutterwave, Paystack, Piggybank, Onefi, Fetwallet,
CowryWise, OPay, et al. They offer a wide range of enhanced financial services, but with a
central focus on products and services that are designed to meet the customers need, can be
deployed quickly, are easy to use.
The EFInA Fintech Report of 2018 states that 80% of the FinTech market comprises Digital
Retail Payment (36%), Lending (25%), and Payment Infrastructure (19%) firms.7 The products
developed by these firms focus on simple solutions like retail payment processing, fund
transfers, utility payments, P2P, and B2P lending.
There are four growth drivers identified and discussed in this paper. While they are not
exhaustive, empirical data collected from the interviews with current Fintech industry leaders
support the reasoning that these are the drivers that have the most significant impact on growth.
Regulatory
Support
Changing
Customer
Behavior
Low Cost
of
Deploying
Technology
Easier
Access to
Capital
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1. Regulatory Support
A critical driver of the growth of Fintech in Nigeria remains the sustained push by
regulatory operators towards achieving financial inclusion. The Nigerian government's
drive to ensure that all Nigerians are formally included in the monetary economy is the
most significant growth driver. The Central Bank of Nigeria has provided operating
guidelines, clear policy statements, and an enabling environment. Regulation and support
in the form of access to grants, partnerships with government-funded development
agencies have further lowered the barriers to entry into the Fintech sector. Favorable
policies like the operational guidance of implementing a "Shared Agent Network and the
Agent Aggregator model" allow operators to lower costs through shared infrastructure. A
financial inclusion target of 80% was set by the CBN to be performed in 2020.6 The
target has led to further policy developments at the local and state levels enabling Fintech
companies involved in financial inclusion. The government recognized the role Fintech
plays in facilitating financial services, and it creates a conducive environment for Fintech
to thrive.
2. Changing Customer Behavior
Increased internet penetration and smartphone use have significantly changed consumer
behavior, making convenience and accessibility a priority. Nigeria has the largest mobile
market in Africa, with 162 million mobile subscribers in 2017. It represents an 84%
penetration rate, up sharply from 53% in the previous year.
Changing customer expectations and a corresponding demand for digital services have
called for innovative solutions from traditional players and Fintechs. Customers expect
and demand a better experience and service. This expectation is in part driven by
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exposure to the freemium apps on the apple and google app stores on apple and android
devices. The surge in e-commerce activity in Nigeria from online shopping vendors like
Jumia and Konga, food delivery apps, and ride-sharing apps also points to a change in
customer habits.
3. Lower Cost of Deploying Technology
Fintech companies have no legacy constraints, and as a result, are nimble and positioned
to take advantage of opportunities arising amid the technological evolution. The fast
pace of technological developments of analyzing data and the new mobile and online
channels opened new possibilities to those that were ready to pivot – especially easy as
they didn't have legacy systems. Cloud computing, cloud data hosting, and storage have
further driven technology cost down. The average price of storage has declined by 31%
per annum over the last ten years.4 Fintech operators no longer have to host expensive
data centers, which raises operating costs significantly.
4. Increased Access to Capital
FinTech investment in Nigeria is on the rise as investors are increasingly attracted to the
industry's potential and the opportunity to tap into it. Nigeria has experienced an increase
in investment activity over the last few years. Fourteen funding deals were reported as of
September 2016 compared to just two in 2010.9 Among the most notable investments that
concluded recently are in 2019, Interswitch confirmed that VISA acquired a minority
stake for USD 200 million, valuing the company at USD 1 billion. In 2020, Paystack was
acquired by Stripe in a deal worth about USD 200 million. Flutterwave also secured USD
170 million in a 2021 Series C round. These three Fintech companies demonstrate the
attractiveness of Nigerian Fintech companies to global funding. With more accessible
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access to funding and capital, Fintech entrepreneurs can quickly start new ventures,
innovate new products and pivot their business models. Capital funding for Fintech is
accessed as seed capital from angel investors and accelerators, venture capital funds, and
corporate venture vehicles.
Fintech Evolution in Nigeria – From Money Transfer Services to Platform Services
The traditional banks and their financial systems have existed for over one hundred years in
Nigeria. Their performance has fallen short of meeting the desired goals of providing essential
financial services to millions of Nigerians. A significant problem faced by the traditional players
is the cost of delivering financial services through the brick and mortar branches they operate. It
is economically unviable to locate bank branches in rural areas. In contrast, the rural-urban
divide of Nigeria is split 50-50.12 FinTech is seen as the solution to the financial sector
challenges that Nigeria has experienced for decades. The use of internet-enabled mobile
technology, Unstructured Supplementary Service Data (USSD), Near Field Communication
technology, etc., is a game-changer for the government to meet this social goal of providing
financial services to all citizens.
The early Fintech operators like Paga, Etranzact, Mkudi, Teasypay, etc., focused on C2C money
transfer services aptly tagged "Mobile Money." The products were modeled after the successful
"MPESA" operated by Safaricom in Kenya. Mobile Money products were designed around the
ownership of a virtual mobile wallet that the customer could fund at an agent location. Funds
deposited into the wallet can be transferred to another customer or used to pay for a utility bill.
The "Agent" here refers to a brick-and-mortar outlet that is qualified, trained, and approved by
the operator to act as a cash management center. Agents help the customer to fund their wallets
and earn a commission for the transaction. An agent also provides cash to a customer who
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receives money in his wallet from another customer. The agent gets a commission for providing
these services).
The Fintech operators developed mobile apps to host the digital wallets, with the customer's
mobile phone number serving as a unique identifier. All the customers required to register for a
wallet was an active mobile phone number. Strategic partnerships were built with the telcos so
customers could access their wallets and perform transactions using USSD services if they did
not have access to the internet.
Emerging technologies and customer needs have changed the business model of many operators.
Application Programming Interface (API) has introduced a lifestyle component to Fintech
products today. Flutterwave, whose payment solution aims to provide the fastest and most
seamless way for businesses to receive payments, operates a platform that lets businesses sell to
their customers online or in person. Flutterwave helps businesses provide quick and seamless
checkout services, card issuing and management, e-commerce websites, invoicing, and payment
links.17 Flutterwave has positioned itself as a one-stop shop for the lifestyle enthusiast.
Since 2010, Paga has innovated its product offering and business model beyond C2C money
transfers. On the Paga web and mobile app, a customer can pay utility bills, ranging from
electricity, phone, cable, to a highway toll. Paga is in partnership with international remittance
firms so that registered and non-registered Paga customers can receive instant and secure
international money transfers to their Paga mobile wallet or a bank account.18 Paga also partners
with developmental aid organizations to bulk disburse micro-grants and financial aid to
recipients. Paga's product pipeline includes the recently rolled out standalone product -
Paycheck, which provides an all-in-one solution to securely handle salaries, taxes, pension,
payslips, and other benefits for all employees, and a micro-savings and loans product.
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Cellulant, with an audacious goal of changing the way customers pay and get paid in 34 African
countries from a single, connected payments platform, aims to be a one-stop payments platform
in Africa. With offices in Kenya and Nigeria, it processes 12% of Africa's digital payments.
Cellulant recently launched "Agrikore," which is a blockchain-based smart-contract payment and
marketplace system that ensures that everyone in the agriculture value chain (Farmers, FMCGs,
Agriculture inputs providers, produce aggregators, insurance companies, financial institutions,
governments, development partners) can do business with each other in a trusted environment.13
Agrikore helps manage each player's digital identities in the value chain, ensuring transparency
and trust. Digital identity management also helps control the goods and services flow between
users, which is stored on a public ledger. Each transaction on the Agrikore platform is recorded,
providing transparency, a process for resolving disputes, and other problems that may arise
between parties.
OPay believes that everyone should enjoy financial and social inclusion, without regard for
physical borders, boundaries, or even social status. OPay provides a one-stop mobile- platform
for utility bill payments, money transfer services, transportation payments, and food & grocery
delivery. Innovative products launched in the market include a mini-POS synced with a
merchant's OPay account to process instant payments and transactions for unregistered
customers. OPay also provides a high yield saving account for its customers.19 An example of
Fintech's evolution from money services to a platform is ORide, which layered on the Opay app.
ORide is a shared transportation app that connects drivers to passengers and uses the OPay
payment gateway to process payments for the service. It was, however, discontinued due to
regulatory concerns.
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Vital new technologies driving these innovations are Application Programming Interface (API),
Artificial Intelligence (AI), Distributed Ledger technology, & Biometrics.
New entrants in the market like "Okra" describe themselves as an API "super-connector" that
creates a secure portal and process to exchange real-time financial information between
customers, applications, and banks. Okra's business model provides integrations to developers
and businesses into existing banking services and takes commissions off subsequent transactions.
These integrations include accounts authorization, balance, identity, income, payments, and
commerce.10
The Fintech Eco-System – Achieving a Double bottom-line Impact.
Ecosystems are "intentional communities of economic actors whose individual business
activities share in some large measure the fate of the whole community."11 Value is created by
the availability, progress, and development of the various parts that play in the ecosystem.
The Players
1. Regulators - CBN
2. Fintech Companies
3. Infrastructure Providers/Partners – NIBBS, Telcos
4. Investors – VC, Angel Investors, Equity Investments
5. Enablers – Innovation Labs, Incubators, Research
The Fintech landscape in Nigeria consists of Fintech Companies, Investors, Regulatory
Agencies, Infrastructure Partners, and the Enablers.
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1. The Regulators
The primary regulator of Fintech activities in Nigeria is the Central Bank. The CBN defines
and enforces regulation as it concerns Fintech operations. The CBN has remained a key
driver of Fintech to expand financial inclusion in Nigeria. Financial inclusion positively
impacts the lives of Nigerians, particularly those in rural communities that the traditional
banks have neglected due to their being unsustainable financially. Financial inclusion in rural
communities unlocks economic impact by enabling increased consumer consumption. It also
increases the quality of life of the women in those communities. When women have access to
financial services, it drives increased spending on education, healthcare, and higher quality of
human capital in the economy. Through a sustained regulatory push, the number of
financially excluded adult persons in Nigeria in 2020 is 40%, down from the 70% number in
2008.20
2. Investors
STAKE-
HOLDERS
REGULATORS
CBN
Local Govts
INFRA -
STRUCTURE
PARTNERS
Agent Network
FINTECH
COMPANIES
INVESTORS
VC
Private Equity
Angel Investors
ENABLERS
Innovation labs
Research
Educators
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The Nigerian Fintech sector has remained one of the most attractive sectors to foreign
investors outside of the extractive industries. Between 2014 and 2019, Nigeria's fintech
sector raised more than USD 600 million in funding.1 The direct benefits of these inflows
into the Nigerian economy are economic stimulation and employment generation, directly
correlating with human capital development and access to management expertise, skills, and
technology. With total FDI inflows of USD 3.3 Billion in 2020,16, the Fintech sector is
positioned to be a top recipient of FDI, growing to over 10% in receipts since 2010. FDI
directly correlates with investor confidence, which spurs economic activity, resulting in more
opportunities and jobs.
3. Fintech Companies
The Agent Network is a component and is by far the most important in the Fintech ecosystem
currently. The agents are the first touchpoint of early Fintech adopters. This is where
customers first interface with the products and gain the trust of the services. An uneducated
or less tech-savvy customer can register for a mobile wallet, perform KYC, and fund their
wallet at the agent location. In addition, the agent can perform money transfers, cash deposits
and withdrawals, and all other transactions for registered and non-registered customers. The
agent earns a commission for transactions conducted at their location as an incentive and
increased foot traffic, which supports their existing business. The CBN estimates that there
are over 150,000 existing agents serving as touchpoints for Fintech companies. It set an
audacious goal in collaboration with the operators to get the number to 500,000. This
translates to an existing 150,000 businesses that have their revenues and profits increased by
serving as Fintech agents. My interview with an industry professional from Paga revealed
that Paga currently has 27,653 registered agents, with the average monthly revenue ranging
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from N10,000 to N500,000 ($25 - $1250). Agents are classified into tiers, determined by the
volume and value of monthly transactions performed at their locations. The top-level agents
representing 25% of the total number of active agents generate monthly revenues of up to
N500,000. These agents typically have multiple locations, are staffed with employees, and
incur other overhead costs. The mid-level agents are 40% of total agent numbers, while the
lower-level agents make up the balance. Mid-level agents have a dedicated space and
employee for their agency business. Lower-level agents typically run the agency as an add-on
to their existing business and operate it by themselves. Asides from the benefits of additional
revenues and profits to the agents, the Paga agency has added approximately 17,000 jobs to
the economy. The social implication of agency banking services provided by the agent
network is that it has brought banking services closer to customers – particularly those living
in rural areas where the big banks may find it unprofitable to open branches. Transaction at
agent locations rose sharply by about 30% during the first and second lockdown during the
inial outbreak of the COVID crises, solidifying the value of agents as a convenient
alternative to the bank branch. The EFInA Impact Assessment study 2020 suggests that
Fintech can contribute to the Digital Financial Services GDP uplift of $50bn by 2025 driven
by increased productivity, increased capital, and increased labor hours from digitization.20
4. Enablers – the developers, researchers
Fintech companies operating in Nigeria highlight the demand for talent development in the
tech sector. Using my experience in a Fintech startup, attracting, developing, and retaining
talent is one of the biggest challenges companies face. The demand for developers, testers,
engineers, and other highly skilled professionals outpaces the supply. Companies like
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Andela, operating in Nigeria since 2014 and Slatecube, are talent accelerators, help to bridge
that gap by training software developers.
A 15-minute walk from Paga HQ on Herbert Macaulay Way in Yaba, a suburb of Lagos, is
the CcHub (Co-Creation Hub) founded by Bosun Tijani. Since its launch in 2011, CcHub has
provided advisory, mentorship, and incubation support to ninety-plus individuals and startups
to help them bring their ideas and products alive. CcHub, Andela, and Slatecube all started
operations post Fintech launch in Nigeria, and they help exist to meet the need for talent and
feed the pipeline. Their training programs develop the skillsets needed for software product
development, and they also provide an enabling environment for entrepreneurship and startup
launch. Andela has seen investments from the Chan Zuckerberg Initiative and Spark capital,
while CcHub partners with Google for Startups, Omidyar Network and Ford Foundation. The
capital inflows into the Fintech enablers, the skills, and technology acquisition, the
development and transfer of those skills create an economic and social impact. The upside is
the increased job creation and STEM talent pipeline.
5. Infrastructure Partners
The Nigeria Interbank Settlement System (NIBSS), owned by the CBN and all licensed
Deposit Money Banks, is a crucial infrastructure partner. It facilitates same-day clearing and
settlement of inter-bank transfers and payments across all deposit financial institutions.
Conclusion
Since the 2008 EFInA survey2, the Nigerian population determined by the Central Bank of
Nigeria to be financially included is 60% of the adult population of 200 million Nigerians. It can
be concluded from the research that Fintech's performance in Nigeria impacts the ecosystem
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economically and socially in three broad dimensions: through stimulating economic activity, by
creating a multiplier effect, and by driving progress towards development goals.8
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My appreciation goes to Victor Baiyere, Austin Okpagu and the Paga agents that participated in
interviews for this research paper.
References
1. State of play: FinTech in Nigeria
https://eiuperspectives.economist.com/sites/default/files/eiu-mastercard-
mtn_fintech_in_nigeria_22nd_march_2020_1.pdf
2. EFInA Access to Financial Services in Nigeria 2008 survey
https://www.efina.org.ng/wp-content/uploads/2018/12/EFInAAccess-to-Financial-
Services-in-Nigeria-2008-surveyKey-Findings.pdf
3. World Bank: Nigeria Population
https://data.worldbank.org/indicator/SP.POP.TOTL?locations=NG
4. Guidelines on Mobile Money Services in Nigeria
https://www.cbn.gov.ng/Out/2015/BPSD/Guidelines%20on%20Mobile%20Money%20S
ervices%20in%20Nigeria.pdf
5. Value of Fintech, 2017, KPMG International Cooperative
6. The Future of Fintech in Nigeria, 2019, SEC Roadmap committee Final-Report-of-the-
FinTech-Roadmap-Committee-of-the-Nigerian-Capital-Market-August-22-2019
7. Efina Fintech Report 2018, Overview and Lessons Learnt from Global FinTech
Landscape and Nigerian FinTech Landscape
8. McKinsey & Company. 2020. Harnessing Nigeria's fintech potential report
https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Middle%20East%2
0and%20Africa/Harnessing%20Nigerias%20fintech%20potential/Harnessing-nigerias-
fintech-potential-vF.pdf
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9. KPMG Report 2016, FinTech in Nigeria, Understanding the value proposition.
10. https://techcrunch.com/2021/04/21/nigerian-fintech-okra-raises-3-5m-backed-by-
accenture-ventures-and-susa-ventures/
11. Moore, J. (2006). Business ecosystems and the view from the firm. Antitrust Bulletin,
51(1), 31-74.
12. United Nations, World Population Prospect 2019 https://population.un.org/wpp/
13. Africa's online market and payments platform for .... https://www.cellulant.com/agrikore/
14. Nigerian fintech startup Paystack acquired by Stripe in .... https://disrupt-
africa.com/2020/10/15/nigerian-fintech-startup-paystack-acquired-by-stripe-in-landmark-
moment-for-african-tech-ecosystem/
15. Disrupt Africa. African Tech Startups Funding report 2020 https://disrupt-
africa.com/funding-report/
16. UNCTAD, World Investment Report 2020 https://unctad.org/webflyer/world-investment-
report-2020
17. Flutterwave website https://www.flutterwave.com/us/
18. Paga website https://www.mypaga.com
19. OPay website https://www.opayweb.com/
20. EFINA FinTech Landscape and Impact Assessment Study 2020
https://www.efina.org.ng/wp-content/uploads/2020/08/Fintech-Landscape-and-Impact-
Assessment-Report.pdf
