With technology catapulting the accessibility of financial services in economies such as the U.S. and Canada, the FinTech industry shows promising signs of growth. Intuitively it may seem more practical for investors to focus only on developed and prospering countries but the opportunity for individuals focused on innovation and pioneering an industry could lie in developing countries like Nigeria.
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Need for financial inclusivity
Only an approximate 30% of Nigerians having access to financial services, presenting a clear need for improved avenues of accessibility. With lack of financial incentive for banks to develop branches outside urban cities, mobile phones are the key to distributing these services. Though popularity of services and products vary throughout wealth levels, one of the largest commonalities in Nigeria is the mobile phone (though the most common models used are very basic) with 84% having a mobile subscription and the market contributing 7.7% to the overall GDP. A majority of those with financial access are included via digital features of their bank account indicating a pull for the accessibility and convenience of FinTech services as it aligns with the trajectory towards financial digitization. Many short comings resulting in a high financial exclusion are addressed in many business models around the world. This coupled with the prevalence of mobile phones with a positive attitude to digital services already ensures a mode of distribution leaving it up to companies to develop a business model that would leverage idea that already exists into low complexity solutions.
Potential Exists Even Amongst Poverty Line
Nigeria is one of the most populous countries in the world with 185 million people, creating a consumer base of even a percentage of its upper and middle class would provide companies with sustainable activity. Undeniably, the large presence of poverty calls into question if the remainder of Nigeria's demographic could even translate into frequent financial activity. However, the daily transactions of those well above poverty would be supplemented by frequent money transfers attributed to Nigeria's culture of community dependence. With a large rural to urban immigration and a motivating factor being to support emigrated rural communities, rural migrants frequently require the use of money transfers. The culture of filial responsibility further escalates the need of money transfers within the country amongst those close to the poverty line to support their family members. Additionally, from high density marketplaces to hawkers on almost every road, the exchange of money happens frequently across all income levels. In essence the lack of wealth does not imply a lack of financial service engagement. A Fintech in Nigeria could find contributions from a flourishing middle class in Nigeria culminated with the micro uses of those hovering poverty levels.
Point of Comparisons
The success of the Kenyan micro-financial service firm M-Pesa, sets a reasonable expectation as to what the implementation of fintech could look like in Nigeria. Although there is not a complete uniformity between the Kenyan and Nigerian market, the high levels of poverty and financial exclusion prevalent in both countries produces a reasonable point of initial comparison.
The market opportunity for financial accessibility is apparent through M-Pesa’s popularity. As of 2017, it’s transfers accounted for almost half of Kenya’s GDP . Economically, the impact was astounding. A study found that access to the service lifted 2% of Kenyan households from poverty. These comparisons could allude to an (possibly overstated) optimism in the effects of replication in a country such Nigeria. It’s important to understand that while M-pesa’s model is not guaranteed to directly be repeatable, it displays the potential for the leverage of technology to exist within poverty.
Nigeria’s GDP is 5 times greater than that of Kenya’s at $375.8 Billion USD and $74.9 Billion USD respectively. The success of a fintech company is supported by the presence of economic activity associated with a high GDP. If such a business witnessed enough sustainable activity in Kenya, the same can be expected in Nigeria where the GDP is larger.
Overall Potential
Companies looking to become industry pioneers could find an untapped market in Nigeria. With a lack of financial accessibility there is a need for technology to be leveraged with financial services. It is important that those entering the market cater to the capacity, while mobile phones are largely used, these entering the market must understand at what level of advancement in technology exists. The ability for a company to successfully cater to the technological capacity, as seen in Kenya’s M-Pesa, can find a way to transform extremely low wealth communities into active engagers of their financial service.
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