Chapter one

Introduction

• Background to the study

Globally, the fintech sector is among the most appealing for investors looking for the next wave of disruptive innovation. Digital “neo-banks” are expanding their market share, especially among younger consumers, while bespoke apps and platforms are taking once-elite financial services, such as stock market investing, into the mainstream. Total investment activity globally—combining venture capital, private equity and merger and acquisitions—reached a peak of US$120bn in 2018, up from US$51bn in 2017.1 Africa can lay claim to having laid the foundations of fintech with the mobile money revolution springing out of Kenya back in 2007. Today, it remains a front-runner in financial innovation: The number of fintech companies in Africa grew at an annual rate of 24% between 2009 and 2019, fuelled mostly by Nigeria, Kenya and South Africa.2 Ham Serunjogi, co-founder and CEO of Chipper Cash (which entered the Nigerian market in September 2019), describes the country as “one of the more mature fintech and tech markets in Africa. It has definitely been a pioneer and a leader on many fronts, with a lot of great companies. I’ve been impressed by how they’ve grown and the problems they’ve solved”. Fintech revenues are forecast to grow from US$153m in 2017 to US$543m by 2022, driven by expanding payment services, the e-commerce market and rising smartphone penetration.3 While unique subscriber penetration was at 50% in Nigeria at the end of 2019—less than peers like South Africa and Ghana—in absolute terms that still amounts to 100m unique subscribers. “That is South Africa, Kenya, Ghana and Cote d’Ivôire put together, which gives you an idea of the size of the market of mobile and the impact it could have on growth of tech services,” says Kenechi Okeleke, senior manager at GSMA Intelligence, the mobile industry association. That number is forecast to rise to 130m by 2025.4 Nigeria also has around 126m active internet connections according to the country’s Communications Commission.5 Importantly, discussions on fintech in Nigeria often centre on its potential to drive financial 4 “Spotlight on Nigeria: Delivering a digital future”, GSMA, 2018.

The World Bank, as of 2018, 37% of the adult population was unbanked according to a survey conducted by Enhancing Financial Innovation and Access (EFInA).6 Insufficient bank branches and ATMs have impeded greater financial inclusion: for every 100,000 adults, Nigeria has 4.3 bank branches compared to 5 in Kenya, 8.6 in Ghana and 10.1 in South Africa.7 Consumers also continue to face difficulties with securing a biometric bank verification number (required since 2014 to open bank accounts and keep them active) and high service fees make financial services unaffordable. The unbanked in Nigeria could be an attractive pool of potential consumers for fintech firms who are able to effectively reach them. Traditional financial institutions are being transformed globally through a new wave of technology diffusion and product innovations. The industry is rapidly adjusting to a redefined financial market landscape occasioned by the entrance of financial technology firms known as FinTech. A basic definition of Fintech, according to Coetzee (2019) is, “The use of technology in the provision of financial services and focuses specifically on disrupting the modus operandi of particular banks.” Fintech refers to technology-driven entities that enable financial innovations resulting to new products, services, processes, applications, and business models with associated material impacts on the financial market, financial institutions, service provision modes (Wang et al., 2020). Literature has revealed the reality of technology disruption of the financial services industry globally (Coetzee, 2019; Kola-Oyeneyin et al., 2020; Ojo & Nwaokike, 2018; Wang et al., 2020). Rather than ignore the disruption, financial institutions across the globe are responding by redefining their digital business strategies to accommodate Fintech integration to enable new products, innovative services, with contemporary business models that suit the digital aspirations of their customers. Nigeria’s Fintech investment has continued to leap exponentially with over $600 million garnered over the last five years, and more than 200 Fintech firms already thriving as standalone companies (Kola-Oyeneyin et al., 2020).

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