The development of the fintech industry has been a bright spot in the Nigerian economy with the potential to get brighter—even given the challenges posed by the ongoing COVID-19 crisis. The sector has been gaining momentum, as agile and innovative startups move to take advantage of increased technology penetration and high levels of unmet needs in the traditional banking sector to seize market share. In the past three years, fintech investments in Nigeria grew by 197 percent, with the majority of investment coming from outside the country.
This paper succinctly explores the place of fintech innovations and financing, highlighting the diverse ways in which finetech innovation and financing will help to salvage the problem of unemployment in Nigeria.
Financial technology (abbreviated fintech or FinTech) is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. The use of smartphones for mobile banking, investing, borrowing services, and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public.
Financial technology companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies.
Fintechs have led with innovation in product development, designing useful, convenient and affordable financial products and services for millions of Nigerians. In the process, they have created a multiplier effect across the economy, unlocking new business models beyond financial services, fueling the growth of e-commerce, increasing the STEM talent pipeline, and moving the needle on progress towards the country’s development goals.
Nigeria is now home to over 200 fintech standard companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
2.1 DIMENSIONS OF IMPACTS
Fintechs can create impact in three broad dimensions: through stimulating economic activity, by creating a multiplier effect, and by driving progress towards development goals. Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country.
The sector can unlock economic benefit by driving increased productivity, capital, and labor hours through digitization of financial services.
Increased fintech activity could also indirectly grow the digital economy by, for example, providing business-to-consumer (B2C) marketplace tools such as payment integration on social media platforms, and further enabling the Nigerian e-commerce industry.
Finally, fintech can support Nigeria’s human capital development by driving financial inclusion and literacy through the provision of accessible and affordable financial products that are innovative and cater to the needs of unbanked and underserved segments of the population across culture, gender, and geography. Significant opportunities also exist for fintech to enable solutions within education and health to address societal challenges such as student financing, digital learning, and affordable health insurance.8
Fintechs could adjust their business models to support their income in the crisis, while also adding value to the country’s efforts to protect lives and livelihoods. In Europe, for example, fintechs are collaborating with governments and other organizations to deliver aid, supporting consumers with digital solutions to track and claim government backed-funds, and even providing tools to guide SMEs to viable disruption-funding sources. Locally, fintechs could consider pivoting to B2B solutions, supporting SMEs and large corporates with digital solutions for themselves or their customers, and also collaborating with other venture-backed businesses that are providing embedded finance.
2.2 HOW DO FINETECHS MAKE MONEY?
1. Data and Information
One of the popular reasons why FinTechs are so successful is that they can gather customer data and offer more personalized services. FinTech organizations can easily know where their customers are spending their money, how they receive salaries, and who their favorite merchants are.
More and more FinTechs are taking on this strategy to earn revenue. For example, the budgeting app Yolt has tons of user data pertaining to its budgeting habits. Thus the data can be a goldmine for third-parties, including credit score companies, loan lenders, and others.
2. Subscription Fee and Premium Packages
With this monetization model, the money comes directly from the end-customer’s pocket. Either on a monthly, quarterly, or yearly basis, the FinTech bills the users a certain regular amount as a subscription fee. This app monetization model is very effective for FinTechs, as free trials allow users to try their hands on the product before paying a premium.
Another strategy is ‘Freemium,’ where the FinTechs provide users with limited feature access to the FinTech apps for an unlimited period. However for features which provide a greater amount of value, the users have to pay a subscription fee.
Advertising products and services is one of the simplest forms of app monetization. This model works fine as the users don’t have to pay subscription fees to access FinTech’s product or services. FinTechs can sell user’s attention or data to advertisers to earn revenue.
This is among the most lucrative and effective revenue strategies for FinTech companies. With this mode, the FinTech companies partner with other third-party institutions to offer value via other means. For instance, a FinTech solution can also provide health insurance, credit scoring, accounting services, and many more.
Despite the challenges posed by the COVID-19 crisis, the Nigerian fintech landscape holds significant potential to grow revenues exponentially in the future. The pandemic is accelerating changes in consumer behaviour, with fintechs positioned to plug the gap left by traditional banks and create new products and services that add value to consumers and support them during this challenging time. Indeed, the rapid response from fintechs, as well as their role in assisting with the disbursement aid to vulnerable communities, has demonstrated this.
Fintechs also have a vital role to play in accelerating the recovery of the economy more broadly by, for example, facilitating loans and payments, supporting SMEs, and driving financial inclusion.
Evidenced by the immense impact of Nigerian fintech companies such as Paypal, Kuda, Piggyvest, Opay cum the aforementioned benefits, I strongly believe that finetech innovations and financing will create a paradigm shift in the Nigerian unemployment narrative.
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4. Sanicola, Lenny (February 13, 2017). What is Fintech? Huffingtonpost. Retrieved August 20, 2017
5. Eyitope(Topsy) Kola-Oyeneyin Mayowa. Kuyoro, and Olanrewaju (September 2020) “Harnessing Nigeria’s Fintech Potential
6. Eyitope(Topsy) Kola-Oyeneyin Mayowa. Kuyoro, and Olanrewaju (September 2020) “Harnessing Nigeria’s Fintech Potential” http://www.mckinsey.com
10. What Are The Types of Fintechs and How Fintech Make Money http://www.nimbbleappgenie.com/blogs/how-fintech-make-money