Understanding FinTechs in Nigeria; the myth, strengths, weaknesses, opportunities and threats.
There have been a lot of buzz & questions around FinTech and how it has emerged as the new ‘disruptive market force’ challenging the traditional means of providing financial services in Nigeria.
Fintech stands for Financial Technologies. It refers to technological innovation in the financial sector, including anything and everything from mobile banking and peer-to-peer payments to distributed ledger technologies and digital currencies
They are firms/startups or products that are currently taking opportunities and leveraging tech to tackle financial problems in Nigerian society. They can be clearly divided into Payments, Asset/WealthTech, CreditTech, InsureTech, Crypto, Personal Finance etc.
Global Fintech investments have increased from $2.5 billion in 2012 to over $31 billion in 2017. In Nigeria, they account for 75% of $114million reportedly raised by tech firms.
With the current surge in interest by investors and the communities, regulators around the world are waking up to the immense possibilities and challenges this emerging sector poses with new laws and regulations.
However, it is often becoming more difficult to understand them.
PaymentTech is a very important space to both regulators, other tech startups and also users. It provides the base for financial interactions & also affects the monetary planning of the government. They include @flutterwave @paystacks etc
They are divided as follows; Payment Gateway Providers, Bill Payment Platforms, Mobile Money, Settlement Service Providers, Payment Infrastructure Service Providers, Payment Service Providers, Integrated Payment Players, Payment Service Banks, Agent Banking, Payment Terminal etc.
The payment sub-sector is one of the biggest sectors and they will be discussed in another article.
NIBSS @nibssplc is very important as it powers the Nigerian Central Switch system that connects all switching companies and enables inter-platform payments and settlements.
The InsureTechs leverage tech to provide microinsurance services while making the services more efficient and accessible via ultra-customized policies, social insurance that are cheap. They include HMOs @Reliancehmo, @topcheckafrica etc.
The CreditTech firms are innovating people’s access to credit and loan facilities in a faster and more customized way to suit the current low income amidst Nigerians. They include @get_fundall, @get_carbon, @renmoney, @zedvance, @branch_co, @PayConnects, @pagefinancials etc.
The WealthTech firms are leveraging tech & cutting edge customer services to provide access to savings, investment and personal finance services. They include @cowrywise @PiggyBankNG @get_fundall, @farmcrowdy, @thriveagric, @alat_ng, @REACHapp etc.
With the emergence of Blockchain and new techs, CryptoTech is fast gaining tractions giving Nigerians ease of storing, trading & owning about digital currencies esp. cryptocurrencies. They include @bitKoinAfriKa @NairaEx etc.
However, what is the Strengths, weaknesses, opportunities and threats abound as FinTech continues to grow and wax stronger?
By making the interaction between consumers and financial services easier and simpler, Fintech offers significant potential to; enhance efficiencies, reduce costs, modernise financial infrastructure, enable more effective risk management & expand access to financial services.
The privacy of personal information provided by users online is under spotlight these days. This issue is particularly relevant for the Fintech as is the risk of fraud or financial risks associated with consumers not fully understanding the new financial products.
The ‘de-risking’ phenomenon has become an existential threat to many countries. Fintech could potentially offer solutions to some of the key drivers of de-risking such as ‘Know Your Customer’ policy or eliminate the need for corresponding banking relationships.
The declining cost of internet services and growing mobile and smartphone penetration in developing countries also provide an excellent opportunity to leverage Fintech to promote financial inclusion amongst people who remain without access to formal financial services.
While existing regulatory barriers are helping banks to maintain the status quo. Fintech & traditional banking sector need not always compete but can also complement & learn from each other, forging new partnerships for the efficient delivery of financial services.
Cybercrime can potentially undermine the integrity of the entire financial system. This is perhaps the main reason why some Central Banks are reluctant to embrace Fintech more broadly.
There are also concerns that many Fintech start-ups are too focussed on launching their product quickly, without paying due attention to security measures. Then, there is a potential abuse of Fintech.
Without proper regulation, easy access to finance can encourage risky behaviours like excessive borrowing and high personal debt accumulation.
There is also some legitimate concern about market competition. A few early entrants in the market can get too large too soon and can wield monopolistic power. On the other hand, too many entrants providing similar services can also crowd the market &make supervision difficult.
Fintech isn’t just a buzzword, rather it is here to stay. The wide range of technologies and their possible use means that everyone can benefit from the technological innovations in financial services in a way that suits their needs .
This can lead to more sustainable growth by enhancing productivity and creating new markets and jobs.
The main challenge is striking the right balance between regulation and promotion of this rising sector. What is your take on it?