Are Flutterwave and Paystack the Peak of Nigerian Fintechs?

In the past decade, we have witnessed an increased number of fintech startups take on various services formerly dominated by traditional banks, and this has reshaped the conventional business models within the financial industry.
With the adoption of mobile technology, particularly in Africa, fintechs have been able to create new markets and an appeal to underserved markets as well. From creating accounts for the unbanked to providing payment gateways to pay and receive cash. In 2021, I’m convinced that there is at least one fintech out there that seeks to improve and/or automate the delivery and use of one or more of these services.

Over the past few months, some African fintechs have been able to raise a great deal of funding from investors, most recently Flutterwave(Nigeria) and Stitch (South Africa) were able to raise US($)170m and US($)4m respectively, while international payment processors Stripe acquired Paystack(Nigeria) in a deal estimated to be worth around US($)200m.
The startups that have been able to raise these funds have one thing in common; they are payment gateway processors i.e platforms that enable customers to pay for a product or service on a merchant’s website. These fintechs are able to integrate different payment methods (debit cards, credit cards, digital wallets, bank accounts, and cryptocurrencies) into convenient apps or APIs which merchants can integrate to their own websites for a fee, which typical traditional banks would charge more for.
In Nigeria, besides payment gateway processors, many more opportunities still exist in the fintech space, one of which is Alternative Credit Lending; Credit lending startups like Lidya and FairMoney take a new approach to this by combining qualitative and quantitative factors together with intelligent and self-learning algorithms which consider alternative data points like social signals in order to make better lending decisions over time.
Unlike payment gateway processors, alternative credit lending fintechs generate a profit from the interest on the loans they give, and although they offer these loans at cheaper interest rates than traditional banks do, the debt-recovery costs for them are more expensive for these fintechs than they are for the traditional banks to cover. And in order to impress investors, they have to keep their non-performing loans to the barest minimum.
Alternatively, an opportunity also exists in the Asset management space; FinTech companies like Bamboo, Risevest, and Trove enable retail investors to trade stocks or mutual funds in Nigeria and the United States for a commission fee. These fintechs ease access to foreign markets for the retail investors in Nigeria. They make their profit by utilising assets under their management and from commission fees on trade transactions executed by customers.
Other asset management fintechs like PiggyVest and Cowrywise ease savings and investments for the mass market, by offering a higher interest rate on savings than traditional banks do and offer short-term investments to their customers.
There are also Digital Banks, they, like any other traditional bank offer the same services, except that their infrastructure is built completely online i.e no physical office, no bank tellers, and no physical documents needed. Digital banks like Alat and Kuda benefit greatly with the huge cost savings in manpower, real estate and tending to customers, and are therefore able to offer cheaper services to customers. Like traditional banks, digital banks make money on transaction fees and other services like issuance of credit cards and lines of credit to customers.

As with digital banks, Insurtechs (Fintech companies that operate in the insurance industry) in Nigeria are taking all of the traditional services to the digital world. Despite being relatively unpopular, startups like Casava are able to offer tailor-made insurance products like; health, device, and employment insurance. All of these, together with better underwriting practices, these fintechs are able to price their premiums at variable rates depending on the customer, thereby offering aggressively cheaper coverage compared to traditional insurance companies.
In comparison to other African nations like South Africa, Kenya, and Ghana, Nigeria has the lowest insurance market penetration, with less than 2% of the population having any form of insurance i.e less than 4 million people have insurance, in a population of over 200 million people. With personalized marketing to the multitude of potential customers, there are many business possibilities to explore for insurtechs.
In summation of all this, the Nigerian fintech industry holds huge potential not just in the country but the entire tech-ecosystem and with more profitable and impactful businesses on the rise, there is likely to be more exits of such startups by way of going public or by acquisitions.

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