According to a 2023 report by Disrupt Africa, Nigeria accounted for 32% of the fintech startups on the continent, with 217 in total. South Africa, Kenya, and Egypt followed behind with 140, 102, and 65, respectively. Between 2019 and H1 2023, data showed that Nigeria had received 49% of the total fintech funding on the continent, nearly half of the continent’s fintech funding in four years.

According to Statista, fintech startups form the largest subsector of the Nigerian tech industry. They account for 36% of the country's 481 startups and received 42% of the cumulative funding for tech ventures between 2019 and 2023.

According to the Disrupt Africa report above, every year since 2017, the number of fintech startups in the country has significantly increased. From 74 in 2017 to 101 in 2019,  144 in 2021, 172 in 2022 and 217 in 2023.  Regardless of developments in other sectors, fintech still remains the most attractive not just to investors, but also to new founders, each looking for a way to break into the market with their fintech product/service. This insight will highlight some of the reasons why the Nigerian tech industry is fintech-driven.

Nigeria’s Fintech Landscape

There are more than 170 fintech startups in Nigeria. These startups are spread across different verticals, with payment services occupying 33.5% of the Nigerian fintech market. Other notable areas of fintech development in the country include blockchain and cryptocurrency, lending, and personal finance.

These several verticals represent continuous diversified growth and innovation across different problem areas and needs in the country.

Why Fintech Is The Most Saturated Tech Sub-Sector in Nigeria

Supply is typically driven by demand. Fintech is the most popular tech subsector in the country because there is continuous demand for its services. Demand for fintech services is driven by everything from consumers' needs and behaviours to market trends, industry profitability, and even government regulations. These factors drive innovation in this sector.

• Government involvement:

Of all the tech sub-sectors in the country, fintech remains the one with the most regulations and government interest. This is not surprising because it is a sensitive sector dealing with people’s money, which can only thrive on trust enforced by a reasonable regulatory environment.

In 2012, before the rise of fintech in the country, the Central Bank of Nigeria (CBN) declared a National Financial Inclusion strategy with a plan to ‘reduce financial exclusion in Nigeria to 20% by the year 2020.’ With this target came regulations that encouraged the innovation of digital financial services across traditional banks and in the tech sector. Some of these include: the introduction of a tiered KYC regime to help financial companies verify customers, individual Bank Verification Numbers (BVN), cashless policy, national financial literacy framework, guidelines on mobile money services, as well as many others that drove more people towards the introduction and use of financial digital products.

An example of a policy that drove digital financial participation in Nigeria was the currency redesign policy announced in October 2022. It caused a cash scarcity in the first quarter of 2023, and even though digitalisation wasn’t a part of the policy’s goals, it can be credited with the 230.72% increase in mobile banking and the 45.52% increase in point-of-sale transactions as reported by the Nigerian Interbank Settlement System (NIBSS) in January 2023.

This policy also led to the adoption of agency and neo-banking services like Moniepoint, Palmpay, and Opay by more businesses and formerly unbanked underserved individuals. This automatically increased the margin of potential customers for fintech products and services.

• Nigeria Has One of the World’s Highest Mobile Banking Activities.

According to data from Statista Consumer Insights, 882 - 9,302 bank customers between the ages of 18 and 64 were surveyed to understand how they used mobile banking services. The survey revealed that Turkey and Nigeria tied at 83% as the countries with the highest mobile banking activities.

An affinity for mobile banking makes Nigerians more open to and accepting of digital transactions and other fintech innovations. In a country where the majority are averse to mobile banking services, it is much easier to fit a fintech idea into the Nigerian ecosystem because a large portion of the population is already well-versed in digital banking.

• A more digital population.

Nigeria has one of the largest internet economies in Africa. Data puts the internet penetration rate in the country at 55% and smartphone users between 25 and 40 million people. What this implies is that the more people using the internet in the country, the more likely they are also to adopt fintech solutions for online transactions, credit solutions, and even non-conventional means like cryptocurrency. In a research paper on the impact of network coverage on the adoption of fintech services in Sub-Saharan Africa, the result showed a significant and positive relationship between both variables.

• Fintech success potential:

Fintech is the one tech sector that cuts across various classifications or groups in the economy. It has the largest potential market size or customer base because everyone, at some point, needs to perform a financial transaction. Whether it’s making payments or seeking loans, money is the one thing we all have in common, explaining why it is a dominant sector even in tech.

Aside from the market size is also the fact that ‘57% of fintech startups (165) in Nigeria reportedly generate yearly revenues of over $5 million’ according to a 2020 Ernst & Young and FinTech Association of Nigeria report of about 290 startups. This same report showed that 85% of Nigerian fintech are post revenue (i.e. they have started selling and making money), and 76% of them are already profitable. Paired with the fact that fintech startups are more likely to attract larger investments than any other sub-sector and account for three of Nigeria’s five unicorns, all these make it the most desired choice for founders or those looking to build a startup in the country.

Between 2017 and 2023, 143 new fintech startups were added to the Nigerian fintech landscape. While this number has consistently risen, of late, there have been more shutdown announcements and even mismanagement related incidents with some of these fintech startups and founders. To protect the reputation of the fintech industry in Nigeria and still keep it attractive for foreign venture capital investments, stricter regulations may need to be enforced by the government, including stricter background checks, before giving out licenses to practice.

References

Blavatnik School of Government. (2023, February 23). “Cash Politics: The Impact of the Currency Redesign Policy on Nigeria’s 2023 General Elections.” http://www.bsg.ox.ac.uk/blog/cash-politics-impact-currency-redesign-policy-nigerias-2023-general-election.

Central Bank of Nigeria. “Financial Inclusion.” https://www.cbn.gov.ng/DFD/Financialinclusion.asp#:~:text=The%20National%20Financial%20Inclusion%20Strategy%201.0%20(2012%2D2018)&text=This%20commitment%20led%20to%20a,at%202012%20stood%20at%2046.3%25.

Disrupt Africa. (2023). “Finnovating for Africa: Reimagining the African financial services landscape report.” https://disruptafrica.gumroad.com/l/tnnjib.

Disrupt Africa. (2022). “The Nigerian Startup Ecosystem Report 2022.” https://old.disruptafrica.com/wp-content/uploads/2022/09/The-Nigerian-Startup-Ecosystem-Report-2022.pdf. 

Ernst & Young. (2020). “Report: Nigeria FinTech Census 2020 Profiling and Defining the Fintech Sector.” https://www.ey.com/content/dam/ey-unified-site/ey-com/en-ng/documents/ey-fintech-nigeria-census-final.pdf#page9.

Mothobi, O., Kebotsamang, K. “The impact of network coverage on adoption of Fintech and financial inclusion in sub-Saharan Africa.” Economic Structures 13, 5 (2024). https://doi.org/10.1186/s40008-023-00326-7. 

NIBSS. “POS Transactions Grow by 40%.” https://nibss-plc.com.ng/pos-transaction-grow-by-40-e-payment-hits-n39-58tn/. 

Regtech Africa and Agpaytech. (2023, October). “The State of Fintech and Regtech in Nigeria 2023 Report.” https://www.agpaytech.co.uk/pdf/regtech.pdf.

Statista. “Share of Internet Users in Africa As of January 2024, by Country.” https://www.statista.com/statistics/1124283/internet-penetration-in-africa-by-country/. 

Statista. (2023, May 15). “Share of Tech Startups in Nigeria 2022, by sub-sectors.” https://www.statista.com/statistics/1337956/share-of-tech-startups-in-nigeria-by-sub-sector/.

Statista. (2023, December 4). “The Leaders and Laggards of Mobile Banking.” Statista Consumer Insights, https://www.statista.com/chart/27528/share-of-mobile-bankers-by-country/.

TechCabal. (2024, July 1). “Mara, A Crypto Startup Backed by Coinbase Lost $16 Million in 2022 as Leadership Fell Apart.” https://techcabal.com/2024/07/01/mara-blew-16-million-in-2022-as-the-leadership-fell-apart/. 

TechCabal. (2023, May 11). “Nigeria’s Cash Crunch Winners Show That Distribution is a Moat.” https://techcabal.com/2023/05/11/nigerias-cash-crunch-winners-show-that-distribution-is-a-moat/.