By Bekeme Olowola
Financial technology (fintech) solutions are proliferating globally and disrupting services which were hitherto exclusive to traditional banking institutions. The unique offerings they bring to financial services covering payment gateways, trading platforms, digital currencies, lending, insurance and wealth management, to name a few, are what make them viable, even in underdeveloped countries.
Around the world, governments are also putting measures in place to improve innovation in this space, protect incumbents and attract more public funding and foreign investment for start-ups. The question, however is, how is Nigeria championing its indigenous innovation and how are existing ones being powered to the global stage?
Pundits have argued that Asia and Africa hold the biggest stake in the future of fintech. Not just because of population, but because of the extent of financial exclusion and other existing gaps which can only be salvaged by technology. â€œRather than disrupting an existing infrastructure as their counterparts in the developed world are, they are in fact building a whole new infrastructure of their own,â€ says Wim van der Beek, Managing Partner of Goodwell Investments, Netherlands.
In Nigeria, like other parts of the world, fintech is becoming a buzzword, with companies sprouting and operating in different niches. Some of the most popular software platforms are Interswitch, e-Tranzact, Paga, Paystack, Piggybank and Remita.
Fintech software, Paga, a mobile payment platform, is helping to drive financial inclusion in the country, where over half of the adult population remain unbanked and underbanked.
Flutterwave, co-founded by a 26-year-old Nigerian entrepreneur, has the most impressive start, having attracted $10million in investment in 2017. It was founded just two years back by a team of ex-bankers, entrepreneurs and engineers, with the mission to provide a technology platform that allows businesses to make and accept payments anywhere in Africa.
Another solution developed 100 percent locally by SystemSpecs Ltd, is Remita, which seems to be receiving both ovation antagonism at the moment because it sits right at the heart of managing public funds. It attracted national and international validation when it was adopted as the payment gateway to Nigeriaâ€™s Treasury Single Account, as it has helped the government achieve incredible success in fiscal management such that the Minister of Finance, Kemi Adeosun, and other government leaders, including Benue State governor, â€“ for whom the software identified 500 ghost workers â€“ speak glowingly about the payment platform.
Clearly, with these fintech innovations, Nigeria has the potential to play a major role in fintech solutions within and beyond Africa. The socioeconomic implication of fintech is broad. McKinsey Global Institute says that some of these fintech initiatives, especially those involving the use of mobile phones, could rapidly drive inclusion and add up to $3.7trillion to the GDP of an emerging economy within a decade. This potential, however, is hinged on availability of support from government and regulators. As is currently being done world over, the Nigerian government must begin to deliberately support and drive conversations about indigenous fintech software with the intent of exporting them to the world.
Here are a number of ways to encourage more innovation domestically and to also encourage international expansion of Nigerian fintech firms:
Recognition: Building our profile as a fintech hub starts from recognising the explosive innovation, and the potential ramifications, going on locally. Only then can we capitalise on our own indigenous solutions and sell them to the world. At present, it is doubtful that the government has a way of incentivising innovation and entrepreneurship in this sector. The Nigerian government has not ascribed much importance to the fintech space and its impact domestically.
Government has an important role in the evolution of fintech. To bring indigenous fintech solutions to the global stage, it is important for Government to be at the forefront of driving conversations to showcase Nigeriaâ€™s strides and solutions in this space making it a key part of the agenda at relevant fora – especially those targeted at attracting investment – within and outside the country. This will rapidly unlock new economic opportunities and accelerate our development as a nation.
Improving Regulatory Frameworks: Regulatory reforms in favour of fintech is a worldwide discourse. Although technology has challenged existing systems, some rules have not been changed to accommodate its emerging business models. Existing regulation should be upgraded to match the realities of a fintech-driven world.
For fintech to thrive in Nigeria, a framework that encourages innovation and ensures consumers are protected must be in place. Australia, Singapore and Japan, for instance, are creating a thriving fintech ecosystem as well as helping fintech firms access capital and export.
While it is commendable that the President Muhammadu Buhari administration gave local know-how a boost by signing Executive Orders 003 and 005 â€“ which seeks to support local content development across the country – other support, through progressive industry-specific policies, tax incentives and programmes to engender growth, will go a long way towards creating a vibrant fintech ecosystem.
Funding: Nigeria could take a cue from other countries to improve the availability of capital for new and existing firms. For instance, in 2016, the Monetary Authority of Singapore made a meaningful commitment to the development of fintech by investing about $225 million over the next five years in start-ups. As reported by Deloitte, the country also co-hosts events such as hackathons with accelerators to encourage growth and create strong links between fintech and the public sector.
Similarly, Australia developed hubs for fintechs and committed approximately $500million to promote innovation. Dubai International Finance Centre also launched a $100 million fintech-focused fund to develop the sector.
Attracting Foreign Investors: Fintech is already a hot topic for investors. According to data from Disrupt Africa, fintech was the biggest attraction for investors in Africa in 2017, gulping one-third of venture funding. Although a chunk of this was enjoyed by Nigerian start-up, Flutterwave, marketing Nigeria as a viable investment destination for fintech services would attract more of these investments.
The federal government (FG) â€“ and its state counterparts – could also explore assisting fintech firms to connect with foreign investors.
Partnerships: There are two ways this can play out. First, the government needs to facilitate collaboration between banks, and other financial services companies and fintech companies. This is a major impediment to the growth of fintech companies within the country. Undeniably, fintech is the future of banking, and the earlier the banks stop seeing them as competitors, the greater their chances of survival.
Second, the public and private sector can collaborate to further improve Nigeriaâ€™s position in the global fintech space. The government can join in as shareholders in major fintech projects. M-Pesa was so successful in Kenya because of a combination of government support and consumer demand. As at 2017, M-Pesa had spread to 10 countries.
Forbes reports that in Middle East countries like Saudi Arabia, fintech is likely to emerge as a sector competing with oil in a matter of years because of the governmentâ€™s commitment to open up more opportunities outside of oil, in line with its Vision 2030. Similarly, in March 2018, the UK government set out a Fintech Sector Strategy to help related industries collaborate and â€˜coopeteâ€™ – an interorganisational relationship that combines â€˜cooperationâ€™ and â€˜competitionâ€™.
Bilateral Projects: The highest value from fintech will be derived when the government collaborates with the fintech sector to develop export markets for home-grown solutions. There are many countries for instance who are at the early stages of developing a technological framework for their Treasury Single Account. There are also countries looking for ways to better drive financial inclusion.
Nigeria boasts of efficient solutions to drive these and the government will play a major role in recommending adoption in other countries. As at June 2017, about 23 of such arrangements were in existence between 16 countries already. Late last year, Hong Kong and Dubai teamed up to promote same cross-border fintech innovation. Without the help of government, it is usually difficult for most fintech companies to scale through regulatory hurdles involved in exporting their technology.
Donation of Intellectual Infrastructure: Fintech could be viable tool for regional engagement and integration. It can also be Nigeriaâ€™s form of foreign aid to other countries as opposed to the faux pas of sharing electrical supply with other countries despite battling epileptic power supply. In this light, the government can use fintech as an official development tool designed and funded to combat the problems associated with corruption, financial inclusion, unemployment and poverty in other countries.
Fintech presents an opportunity for us to position ourselves as the giant that we are, especially among other developing countries where integration of technology in financing is still at infancy. With a population of over 190 million, the market for fintech is particularly huge in Nigeria.
As I close, I reiterate that Nigeria is well-positioned to become a hot spot for fintech globally. The FGâ€™s move towards ensuring that this sector is vibrant will have long term implications on our economic growth as a nation. If properly supported, fintech is projected to create a new kind of economy that is knowledge-driven and can be a veritable source of wealth creation for the country, much like our treasured crude oil.
- Bekeme Olowola is the Chief Executive of the business sustainability outfit, CSR-in-Action.