Venturing Into Nigerian FinTech Market

Duamentes launched its Global Cryptolandscape Study and revealed leading experts’ quotes and perspectives during a recent event in Nigeria.

Africa’s digital economy is rapidly expanding, with current estimates at $115 billion and projected growth to $712 billion by 2050. However, the continent still lags behind in key digital indicators like internet usage and mobile broadband subscriptions. The digital opportunity in Africa is concentrated in Nigeria, South Africa, Egypt, and Kenya, which collectively represent around 50% of key digital metrics. This concentration is fueled by growing economies, a young and tech-savvy population, and increasing digital access.

“Digital penetration in Africa is skyrocketing, outpacing other regions with projections indicating that by 2025, one in six internet users globally will be in Africa, and approximately one in three new mobile subscribers will be from sub-Saharan Africa. Smartphone connections are expected to double, and digital platforms are set to create three million jobs by 2025.” shared Dr. Babatunde O. Obrimah, COO of the FinTech Association of Nigeria.

In Africa’s financial services sector, opportunities abound amidst challenges such as reliance on informal services and limited access to formal ones. Despite the dominance of cash transactions, the rise of fintech solutions presents avenues for addressing these challenges and catering to evolving market needs. By embracing innovation and bridging gaps in the financial ecosystem, Africa can unlock its immense potential for economic growth and prosperity.

Nigeria stands out as a leading country in crypto adoption, boasting the highest rate of crypto ownership among its population. Nigerian users exhibit varying degrees of awareness regarding cryptocurrencies and blockchain. While recognizable coins such as BNB, BTC, DOGE, and Shiba command widespread recognition. Users often ignore the complexities of blockchain technology, instead paying attention to its practical uses and financial benefits.

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“At Duamentes, we collaborate with numerous FinTech companies, and when we conduct country scoring, Nigeria consistently appears on our shortlists of companies to expand. Why? Rapid Adoption, Market Potential and Innovations.” shared Ksenia Sternina, Managing partner at Duamentes Global Alliance.

Cryptocurrency trading in Nigeria spans various perspectives. Some users trade as a serious financial endeavor, while others see it more as a leisure activity or entertainment rather than a primary source of income. According to Duamentes Global Crypto Landscape study, Nigerian crypto enthusiasts rely on social media platforms like X or WhatsApp groups. X stands out as a preferred platform for accessing crypto news and updates, playing a central role in shaping crypto discussions.

Despite concerns about crypto scams and regulatory restrictions, peer-to-peer (P2P) exchanges continue to flourish, indicating the strong demand for cryptocurrencies and users’ innovative approaches to overcoming challenges. MLM schemes have also gained popularity, shaping the crypto landscape and demonstrating the intersection of cryptocurrencies and MLM practices in Nigeria.

Olubunmi Fabanwo, BDM at Banks & Blockchain shared “Addressing the existing gap in blockchain education is crucial, given its complexity. Increased education is essential to unlock opportunities and shield against scam projects in Nigeria.”

Technology and Regulations

The financial services industry in Africa is valued at $165 billion, with payments, banking, and insurance dominating the sector. Consumer demand for digital services has challenged the banking sector to also digitalize its consumer products and services. In Nigeria, for instance, half of banking customers prefer digital channels for transactions, signaling a strong preference for digital over traditional banking.

Nigerian FinTechs are bracing for a regulatory overhaul from the Central Bank of Nigeria (CBN) in 2024 with 277% surge in financial losses in 2023. These regulations aim to introduce tighter controls to combat persistent fraud issues, indicating a regulatory landscape that is becoming increasingly stringent for fintech companies.

“Blockchain regulation introduced in Nigeria last year extends beyond cryptocurrencies to address identity management and supply chain challenges. Fintech companies are leveraging blockchain to tokenize properties and develop stable coins, indicating a growing interest in blockchain solutions. The government, led by the Minister for Digital Economy, recognizes the importance of fintech and is actively considering blockchain adoption to foster innovation.” Shared Dr. Babatunde O. Obrimah, Chief Operating Officer COO of the FinTech Association of Nigeria.

Regulatory frameworks play a critical role in providing stability and fostering innovation in the financial system. Despite challenges stemming from delays in regulation, efforts are underway to establish clear guidelines for digital assets. Regulations set the stage for innovation while ensuring security and progress.

“Nigeria remains one of the most promising markets in Africa, and scaling here opens doors to similar demographics across the continent. As the landscape changes, success hinges on effective collaboration. Stakeholder support follows an understanding of business model while emerging regulations across Africa aim to safeguard users.” shared Adeshina Adewumi, CEO at Trade Lenda.

Investments Landscape

The rise of Africa-focused funds and heightened global investor activity further underscore growth prospects. Mega rounds, liquidity events, and unicorns are becoming more common, bolstering investor confidence. Over the past decade, Africa has seen seven liquidity events exceeding $50 million and produced 11 unicorns in the last six years, with 5 of them from Nigeria.

“International FinTech companies find Nigeria appealing due to its large market, supportive regulations, and tech-savvy population. Yet, they also face hurdles like complex regulations, market diversity, and operational risks. Recently, we’ve seen improvements and increased investor interest, making Nigeria’s FinTech scene promising.” shared Dara Ahmed, BDM at Interswitch Group.

Nigeria presents vast opportunities for digital disruption, particularly in sectors marked by informality and fragmentation. Digital disruptors address these challenges by offering targeted solutions, and gradually expanding their offerings to create an ecosystem of solutions. Sectors like financial services, healthcare, and transportation stand to benefit from this approach.

“There are many factors that are for the benefit of businesses opening in Nigeria, including the growing market and talent size ensuring a steady flow of customers and a strong workforce as well, another is the adoption of technology in payments which makes Fintech products easier to sell and use. The recently passed Startup Act also plays a large role in enabling tech companies to start up and grow in Nigeria with minimal bottlenecks.” shared Babatunde Akin-Moses, CEO at Sycamore.

Investors eyeing Nigeria should recognize these opportunities and tailor their strategies accordingly. Bridging the funding gap for Series A/B rounds may require adjusting investment sizes and risk preferences. Market entry strategies should consider different nuances, with collaboration with local incubators offering valuable insights.