Financial technology is one of the new waves of disruptions in the financial sector, that is fuelled by the internet of things and the increasing digitalisation of the world. In the last decade, the industry has grown by more than 100 times from $1.8billion in 2010 to $19billion in 2015. Recently, the size of the global FinTech industry has been valued at $127.66 billion and is expected to grow at an annual average of 24% to amount to $309.98 billion by 2022. 

Fintech refers to the ecosystem where technology companies as well as financial institutions use the innovations in technology to foster financial services and increase access to finance in the market. It an umbrella term that refers to the innovations in technology that are challenging and changing the traditional approaches in the financial service industry. 

Almost every corner of the world has been touched by FinTech in as little as 20-25 years of its existence with the likes of PayPal charging at the front by helping people make seamless money transfers across the world and facilitating online payments. In almost every mention of FinTech in Africa, the name m-Pesa is mentioned under the same breathe. Founded in 2007,  M-Pesa helps Kenyans make all money transfers and payments online even allow for deposits and withdrawals with the ease of a mobile app.

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The advent of FinTechs in Nigeria and regulations

In Nigeria, the presence of FinTech is equally notable, and like its ecosystem, there is a continuous rise in the number of FinTech startups looking to offer better services than pre-existing ones. FinTechs in Nigeria are looking to expand the tentacles of the financial sector to reach its un-banked population of 60 million people (more than a quarter of its estimated 200 million population) through mobile apps that make services.

Also, they are looking to make an array of financial services more available to the banked population by providing seamless services like promising interests on savings and investment more than traditional banking. It is estimated that there are about 210-250 FinTech operators/companies operating in the Nigerian space, and these players brought about the valuation of the industry to $153.1 million in 2017 and are projected to rise up to $543.3 million by 2022.

Regulation of FinTech in Nigeria is overseen by the Central bank. As a measure of risk management, the CBN places a financial barrier of a minimum of $275,000 on entry into the FinTech market to help secure funds and credibility of operators.

Categories of FinTech

As earlier noted, the term FinTech is an umbrella term. It is an ecosystem with many species of habitats. These species are the different sectors in the finance industry from insurance to banking to investment to money transfers and other emerging areas like cryptocurrencies and Agritech.

This paper focuses on five categories for the Nigerian market: Agritech, Savings, and Investments (financial instruments), Crowdfunding, Mobile Payments, and Cryptocurrencies. In ranking the top players in each category, this paper will base its ranking on google play store’s data.

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Agritech: Farm Crowdy

In FinTech, agrotech is the use of internet technology to close the funding gap and infrastructural deficits plaguing the agricultural sector. They look to help farmers feed the world, cutting off middlemen and making farming more profitable. Most notably, it is a crowdfunding platform that allows investors to make short-term harvest cycle investments in agriculture and reap high interests.

As the first digital agriculture platform in Nigeria, Farm Crowdy has succeeded in keeping its first position in the industry by providing a platform that connects small-scale farmers with prospective investors who do not necessarily need to know about agriculture to invest. In allocated funds to small-scale farmers that helps them increase their output by adopting capital intensive/mechanised farming, providing them seedlings, training on crop yields, access to more farmlands, and providing insurance for agric products.

Since its launch in 2016, Farm Crowdy has helped 25,837 farmers, provided over 16,000 acres for farming, gained nearly 70,000 farm sponsorships from investors, reared more than 2.5 million chickens, and pays investors 13-25% returns on their investment. On google play store, Farm Crowdy is ranked 3.5 stars with 265 reviews and has over 50,000 downloads. Cumulatively, it has nearly a hundred thousand active users.

Other Agritech platforms that offer similar services include Thrive Agric, Growsel, Pork Money (which is crowdfunding for a pig farm), Requid, Agropack, Releaf, FarmNGA, Probity Farms, among many others.

Savings and Investment:

Piggyvest

Fintechs in Nigeria offers investment platforms that tend to bridge the knowledge gap in investments in financial instruments, eliminating information asymmetry,  and reducing the hassles associated with financial instruments. In the Nigerian space, the savings and investment subsector is one of the most populated by fintech firms, among which the most dominant factor in this section is the Piggyvest app.

Piggyvest offers users the financial freedom to not only save responsibly but put their savings into use by investing them. It launched in 2016 as a savings platform – Piggybank – and later rebranded to include investments – Piggyvest. It prides itself as the first online savings and investment platform in West Africa and boasts of 350,000 active users.

Piggyvest promises users 10-13% interest rates on their savings and up to 25% on investment in financial securities. At just two years into the business, Piggybank announced that it had raised $1.1 million in seed fund, and saw a growth in savings rate by up to 3000% between 2016 and 2017. On Google play store, it records more than 500,000 downloads which are about five times more than its two closer competing savings and investment platforms like Cowerywise and i-invest (100k+ each). It also ranked 4.7 stars with 20,000 reviews. 

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Wealth.ng

While the aforementioned fintech companies have gained ground in the demand for fintech services, Wealth.ng is introducing high-scale innovation into the market. Recently it entered into a partnership deed with Paga, one of the dominant names in the money transfer sector of the industry, to improve the quality and efficiency of service delivery. Among the industry, there are hardly any existing partnerships, instead, each company competes for customer acquisition and better service.

Wealth.ng sees business differently. A decade ago, many people would dismiss the thought of investing in financial securities for lack of adequate knowledge of how it works or understanding of the trends. Wealth.ng has completely bridged this gap by including consumer education as part of its services. With this, they walk potential investors through every step and provide an array of investment options for each person.

Other players in the savings and investment subsector include Afrinvest, Kudi, Investment one, Payday investor, and many others.

Mobile Payments: Interswitch

This is no doubt the busiest in the FinTech industry in Nigeria, and one of the top FinTech areas globally. According to the Central Bank, between January to December 2019, the volume of transactions via mobile monies stood at 377,265,208 which reflects a transaction value of N5 trillion. The FinTech company at the forefront of this charge is Interswitch. In 2019, it sold a 20% share of the company to Visa for $200 million which brought the company’s valuation to $1 billion (N360 billion) – a unicorn status. At this valuation, it surpasses giant financial houses like Access bank (N327 billion), and UBA (N227 billion).

Unlike savings and investment platforms that people use for savings from time to time – hence mobile apps, mobile payment apps are used for the likes of utility bills, cash transfers, deposits, and withdrawals. Businesses use mobile payment platforms for transaction purposes. However, on play store, Interswitch still boasts of more than 100,000 downloads in its quickteller app and over 50,000 downloads in its quickteller agent app, which top other of its complementary payment apps for Nigeria and other African countries.

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Other major players in the payment platform in Nigeria include Flutterwave, Paystack, Remita, e-transact, Vogue Pay, among others.

Cryptocurrencies: Quidax

To many people, cryptocurrencies are still a mirage. As such, investing in any form of cryptocurrency would be considered a wasteful investment. In the Nigerian fintech ecosystem for cryptocurrencies, Quidax is helping cryptocurrency spreading the knowledge and raising awareness for cryptocurrencies, and helping enthusiasts and investors make crypto investments.

Launched in 2018, Quidax has made its platform seamless for trading different cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin, and other cryptocurrencies using the naira. Its market approach of trading directly with naira and boycotting exchange rate variations is a major development in the crypto market. One year after it started, CEO Buchi Okoro said they saw a transaction volume of more than $110 million from users in 70 countries from 6 continents. On play store, it has over 10,000 downloads and rated a 4.1 star.

Crowdfunding: NaijaFund

As an alternative to raising funds for personal and business projects like hospital bills, school fees, and the likes, crowdfunding platforms help users source funds from a sea of ‘strangers’ willing to spare some funds to help out. On the global scale, GoFundMe leads other crowdfunding platforms by ensuring a transparent system where people seeking for financial assistance could present their ordeals and receive solidarity.

Although GoFundMe shares a strong presence in almost every country, it doesn’t deter other industry players from participating. In Nigeria, NaijaFund presents itself as one of the foremost indigenous crowdfunding platforms. Although mainly present as a web app, it has since its 2016 launch helped Nigerians bridge the funding gap for personal and business projects, in which it claims 10% of the total funds raised. 

In one of my recent pieces, I elucidated on the importance of and need for standardized reporting on mutual funds. Just recently, the Security and Exchange Commission (SEC), as the apex organization that regulates operations of mutual funds in Nigeria, issued “new rules on collective investment schemes”. This new rule bothers more on the calculation and reporting of expense ratios for mutual funds. This is indeed a step in the right direction, as mutual fund investors should be made to know, in no equivocal terms, how much fees they are paying for the mutual funds they invest in. The importance of that is that it helps the mutual fund investors with the opportunity to compare fund fees, while investing and even before investing so as to make informed choices

Though the new rule has been lauded as a step in the right direction, it does not seem to go far enough. Mutual fund, as an investment vehicle, is still new and young in Nigeria and it is begging for understanding among investors, especially, retail investors. As a result, the industry needs to be properly regulated and with proper enforcement so as to instill confidence among investors.

Historical Performance: Though knowing how much a fund costs is important, such information becomes almost useless when used in isolation of some other parameters. In most cases, fund fees are used together with fund performance to find out if what is being paid for is worth it. For example, if you have two funds, in the same category, one having 0.5% expense ratio and the other 0.75% expense ratio, intuitively, the fund with the lower expense ratio becomes the choice. What if I tell you that the 0.5% fund has historically made 10% return over the past 10 years while the 0.75% fund has made 25% return over same period, your fund of choice will probably change, even though past performance does not guarantee future performance. Therefore, in addition to asking fund managers to report expense ratios, the SEC should ask them to also report historical performance, among others.

Risk Return Profile: Again, what if I tell you that the 0.5% that has the history of 10% return has a low risk or is a fund with a risk-return ratio of 5% while the 0.75% fund with a history of returning 25% gain is a high-risk fund with risk-return ratio of 50%. Meaning that in a bad market, there is 50% chance of losing all your money while the other fund offers 5% chance of losing your entire investment. Depending on your risk tolerance, your choice of fund may change with that additional information. Therefore, the SEC should advocate for fund managers to report the risk-return profile of their funds. Currently, Stanbic IBTC Asset Management Ltd seems to be the only fund manager that reports the risk profile of their funds, on a scale of 1 through 5.

Sill or Luck: Again, what if I had told you that the fund with 0.5% expense ratio made 5% return 3 years ago, 8% return,2 years ago and 7% return, last year but the fund with 0.75% expense ratio made 45% gain, 3 years ago, lost 20% 2 years ago and lost 25% last year. Over the three-year period, you will see that the fund with 0.5% expense ratio made 20% gain but the fund with 0.75% expense ratio made 0% gain, even though it made 45% three years back. Again, with that information, you may wish to rethink your thought on which fund to invest in. Investors should, and many do pay attention to consistency of fund performance because it helps them to know if the fund manager outperformed the benchmark as a result of luck or as a result of skill. The fund manager that made 45% 3 years ago and lost all that the next 2 years, most probably hit the 45% jackpot by luck while the fund manager that gained 5%, 8% and 7% respectively over a 3-year period must have done so out of his investment skill. Therefore, the rule should ask fund managers to report their monthly performance over the last 5 or 10 years so that investors can have a feel about the consistency of performance as well as be in a better position to access whether a fund manager depends on luck or skill.

Perform advanced finasncial calculations on Nairamterics

In Closing: Given the “youthful” nature of the mutual fund industry in Nigeria, one agrees that the role out of the rules may have to be a gradual process, but the earlier the better. More importantly, such rules should be enforced, as research has shown that most of what the fund managers promise in their prospectuses are not delivered as at when due. A good example is daily mutual fund prices, which only a handful of fund managers make available on their websites. Yet there does not seem to be anything being done to enforce the publication of the daily prices.

During the Nairametrics Economic Outlook webinar in May 2020, I took a buy option that Oil prices would hit the $50 mark by the end of 2020. It was a huge gamble to take but thinking through the question in a matter of seconds, my intuitions led me to the buy option.

Many will wonder what crystal ball I must have looked at when I decided to make a buy option at the webinar, well my take on that will be the crystal ball of my intuitions. The world order has many times seen the oil prices starting to rise more as the winter season starts getting to spring and many of the world’s production economies gear up for the peak of production and supply chain distribution during the summer.

As summer tends to reach it’s peak towards the end of July into August, seemingly, oil prices take a slight a plunge to adjust for the effects of the last part of the summer holidays into fall where another sizeable round of production kicks off to meet the demands of the winter period which is filled with several celebratory holidays such as the American Thanksgiving, Christmas, the beginning of a new year and many of the Asian holiday celebrations such as the Chinese new year.

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That trend was similar at the end of 2019 and we were all preparing for the growth of the world economy which had been predicted to grow at 3.3%. With the start of a major outbreak of COVID-19 during the Chinese New Year in January, the disruption of the world economy began not many believed that the impact would be far more detrimental to the world in terms of production and supply chain management. The effect of this and many other incidents like the Saudi Arabia and Russia oil war sparked the biggest downward trend of Oil prices which at one time was predicted to hit rock bottom at below $10/barrel as it happened in the early 1980s.

Two major challenges were greatly responsible for this downward spiral which I believe if responsibly managed in the second half of the year would lead oil prices heading in Northern direction and probably reaching my predicted price of at least $50/barrel by the end of the year.

1. The surge in the cases of COVID-19 hospitalization which disrupted the health care system and invariably the economic modalities of many countries.

2. United States of America’s reactions to the global health pandemic which led to not having a united front for dealing with the pandemic.

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As can be seen, the oil price averages have started moving the Northern direction again following its lowest average of $18/barrel in April, when the whole world was fully shut down in order to manage the health care crisis. In May, it averaged $29/barrel and it is looking at averaging out to $40/barrel at the end of June. This trend I believe will continue because more economies are beginning to open up slowly and the worlds production and supply chain management systems which for me are great determinant for the oil market are beginning to get back to a bit of normal.

However, there are a few boxes that must be checked in order to ensure that this trend will continue. For this, I have identified three boxes.

1. How the world manages a potential next wave of an upsurge of COVID-19. I believe that Europe and Asia are the most prepared for this, with parts of North America (excluding the United States of America), South America and Africa too.

2. The increased opening of the world’s economies to trade and movement which would begin to become fairly functional towards the last parts of the third quarter of the year. However, I fear that the United States of America would lose out on this if they do not address the first box more adequately.

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3. The outcome of the world’s most-watched and anticipated democratic election. The November 3, Presidential elections.

The outcome of the November 3, US presidential elections, will play a huge and fundamental role in the way the outcomes of the first two boxes will play out. If there is a return of the incumbent, I see Europe, Asia and the rest of the world build their own reserves towards self-reliance and the continued economic wars would only lead to more chaos for the Oil markets.

The increased numbers of COVID-19 challenges in America for box one could lead to more difficulties in opening economies to deal with America and the movement of Americans. Thereby increasing trade tensions and invariably leading to America flooding the supply of the Oil market to push prices down.

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A change in the realms of power to a new government, could lead to some form of stability between the traditional allies and even adversaries as the world would come together to manage the challenges of box one, leading increased and better managed economies being opened and invariably a more stable oil market to help manage the economic challenges of a health and safety issue thereby improving production and supply chain management systems and finally Oil markets driving the oil prices further North to reach the projected $50/barrel at the end of 2020.

Finally looking at my crystal ball of intuitions, I see better-managed world economy by the end of 2020 and oil process above the $50/barrel and a more restructured world economy in 2021 with the various applications of the NEW NORMAL.

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