Image: SafeBoda

From Nigeria, three themes emerge in fintech

By Kofoworola Agbaje

With Africa’s largest economy and biggest population, it’s no surprise that Nigeria was the top African VC market in 2019, receiving an estimated USD 747M in funding,62 percent of which went to fintech, according to Partech’s 2019 Africa Tech Report.

As an emerging market fintech investor that invests in Africa, Asia and Latin America, we at Quona Capital are truly excited about this growing space. In our latest fund, Fund II (AQF), we are increasingly investing in Africa and MENA.

We thought there would be no better way to share our excitement and insights on emerging themes in the Nigerian fintech ecosystem than to convene some of our ecosystem partners and co-investors — IFC, CRE and TLcom — and three innovative but different fintech startups in an open discussion about what’s happening and what’s ahead in Nigerian fintech. We were joined by leaders from Paystack (Shola Akinlade, Co-founder and CEO), SafeBoda (Babajide Duroshola, Nigeria Country Manager) and Okra (Fara Ashiru Jituboh, Co-founder and CEO/CTO) for this event.

  • Paystack, a payment provider that allows merchants to accept online and offline payments, just made history this month with the announcement of their >$200M acquisition by Stripe,making this the largest startup acquisition to date to come out of Nigeria. Paystack is used by over 66,000 businesses in Nigeria, Ghana and recently launched in South Africa.

During the event, we explored a few specific themes shaping the Nigerian fintech ecosystem — payments and e-commerce, embedded finance, and APis — through a series of short fireside chats between investors and fintechs.

From these conversations, three key themes emerged:

Startups in Nigeria are market creators

Steve Jobs once said, “People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

While this quote relates to product, the same can be said for market size as well. One thing made apparent during the webinar is that though all three of the fintechs featured have dramatically different business models, each started out by answering a common question: How big is the market (famously known in VC circles as Total Addressable Market, or TAM)? If founders in Nigeria restricted their TAM goals to currently available market data, the norm for most models, the market size would never appear to be large enough.

When Paystack started in 2015, the total value of web and mobile payments in Nigeria that year was ₦533 billion and the total value of e-payments was over ₦50 trillion. By the end of 2019, the value of web and mobile payments had increased ~9x to ₦4.8 trillion, and the total value of e-payments had increased ~3.8x to ₦191 trillion. While a number of factors — such as the Central Bank of Nigeria’s Cashless policy, Interswitch infrastructure and NIBSS instant payments — have contributed to this surge, it would be inaccurate to ignore the contribution of fintechs such as Paystack who have simplified web and mobile payments and are helping more than 66,000 business transact online.

Startups in Nigeria are providing better data on market size

Nigeria still remains a cash economy with very little data on the informal sector. Yes, we could probably come up with a rough estimate of how much an Okada man (motorbike ride-hailing driver) made per month, but not very accurately — as there was very little data or transparency in that sector. Startups like SafeBoda have digitized this sector and now have data on monthly city rides per day, average length of ride, average cost of rides, average revenue per ride, and more. And with SafeBoda operating in Ibadan, Nigeria’s third-largest city with a population of over 6 million, Nigeria’s economy clearly extends beyond the borders of Lagos. I believe we will start to see more startups operating outside Lagos.

We still have work to do in order to build a truly inclusive financial ecosystem

Amidst this thriving ecosystem and high level of innovation, we still are far off from an inclusive financial ecosystem. In a country of 200 million people (~50% adult), only 40 million people have a bank account. Adequate last-mile distribution and trust are major barriers to expanding financial access, and although the traditional brick and mortar approach bridges the trust gap with its high-touch model, it is too expensive to scale and sustain. COVID has shown us just how quickly other parts of the world have moved toward digital-first payment structures; digital solutions will be a great leap forward once trust is established in cash-centric places like Nigeria.

The next generation of fintechs, such as Okra, are addressing this by building APIs that allow information to flow between banks and third-party apps. A good use case for this is the integration of financial services to non-financial businesses that have access to the last mile, which is the core value proposition of agency banking…imagine if your local store or cooperative could provide all the financial services you needed? This move towards interoperability can further move the needle toward a financially inclusive world.

A complete recording of the Nigerian Fintech event is available here. We’re excited by what lies ahead, and look forward to nurturing and investing more in this thriving ecosystem!

Kofoworola Agbaje is an Investment Associate for Quona Capital. From her base in Lagos, Nigeria (her hometown), she works on regional sourcing and due diligence of investment opportunities in Africa, and also provides valuable support to Quona’s portfolio companies.

Prior to Quona, Kofoworola worked for the technology team at the Royal Bank of Scotland in London across different investment banking divisions. In addition to working on several high-profile IT integration projects, Kofoworola’s roles varied from building enterprise software applications to operation management of credit risk applications and teams. Kofoworola holds an MBA from The Wharton School of the University of Pennsylvania, and an engineering degree from Imperial College London.

Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.