The future of fintech in Nigeria: Challenges and opportunities

Over the last few years, the growth of the Fintech industry in Nigeria has been rapid, as evidenced by increasing adoption of digital financial services by the masses, rising investment activity, and the establishment of indigenous Fintech companies. 

The Fintech industry in Nigeria holds great promise and is growing, although there are several serious challenges to this promise. In this article, we will be discussing both the challenges and the opportunities that lie ahead for the Fintech industry in Nigeria. 

Challenges the fintech industry is facing in Nigeria

1. Poor infrastructure 

Fintech thrives on speed and access. Yet, where there is no stable power supply, affordable internet, and nationwide network coverage, it is difficult to reach the very people who need these services most unbanked rural populations.

Even something as simple as checking a USSD code to make a mobile payment can be affected by poor network coverage. This affects the prospects of Fintech platforms to go beyond the major urban centers like Lagos, Abuja, and Port Harcourt.

2. Cybercrime threats

As digitization becomes more widespread in Nigeria, so has the increase in cybercrime. Scammers are getting smarter, employing phishing, SIM swapping, and other exploits to steal from users. In some cases, complete platforms got hacked, leading to customer funds and reputation losses.

Most Nigerian Fintech startups are quite young; thus, are likely not to have the funds to devote to a first-rate cybersecurity infrastructure. However, because money is everything in finance, customers will not engage in digital services if they are not convinced that their money and information are secured from fraud and cyberattacks.

Apart from technical security, there are also issues of user education regarding online safety, like not sharing OTPs and not clicking on suspicious links. Poorly educated users would be the vulnerable link even when systems are secure.

3. Funding issues 

Some Nigerian Fintech startups have been able to pull in millions of dollars of foreign investment. But there are only a few that have been able to achieve that. Dozens of early-stage startups cannot raise the capital needed to start. Local funding sources are limited, and foreign investors prefer putting their money in a company that has shown some traction. 

Even if the startups can get outside funding, they are faced with the realities of currency fluctuations and repatriation. Earnings from profit tend to vanish because of changes in naira values, and there are typically bureaucratic delays when moving money in and out of the country. This funding gap makes it more difficult for Fintech startups to scale. 

4. Lack of consumer trust 

It still terrifies many Nigerians, particularly older generations, to put their money into an app. There is great distrust of online platforms due to the prevalence of online scams.

Even the youth are skeptical. If a Fintech app goes down for a few hours, there is widespread panic. This lack of trust makes keeping customers an expensive struggle for Fintech firms, who need to invest in constant reassurance and handling complaints. 

5. Inconsistent government regulations 

There is no legal framework at the moment to govern new business models and technologies such as cryptocurrencies, and at the same time, there are no clear regulations and laws covering Fintech activity. Thus, Fintech operates in an unpredictable atmosphere that is hazardous to both consumers and businesses. 

For example, in 2021, all cryptocurrency transactions were banned in Nigeria by the government. This negatively affected businesses and individuals dealing with cryptocurrencies, with huge losses being reported. Fluctuations of the Naira and unstable exchange rates also did a number on the growth and scalability of Fintech in Nigeria. Such sudden changes bar Fintechs from long-term planning or investing confidently in new technologies or product lines. 

Opportunities for the fintech industry in Nigeria

1. Large unbanked population 

Although mobile banking has increased, millions of Nigerians lack a formal bank account. EFInA estimates that as of 2020, about 36% of Nigerian adults were financially excluded. That’s a huge market just waiting to be explored. 

Fintech startups could serve the unbanked population through USSD codes or agent networks rather than smartphones, creating savings products, microloans, and insurance products based on the needs of low-income people. This is already happening in part with companies such as Paga, OPay, and TeamApt—getting to users at markets, motor parks, and villages. The more these kinds of platforms grow, the better Nigeria will eventually become. 

2. Youthful population 

The median age in Nigeria is around 18, making it one of the youngest populations worldwide. This generation has grown and interacted using smartphones and social media to conduct all their business online, whether that’s shopping, chatting, or banking. 

This is an enormous opportunity for Fintech because most of the population is tech-savvy and willing to try new digital innovations as long as they prove to be easy to use and relevant to their real needs. 

Innovative digital banks such as Kuda and Sparkle are already appealing to this audience with apps that are minimalist and allow free banking. The widening of internet access will only spur this youth-driven uptake.

3. Open banking and APIs

The Central Bank of Nigeria has published open banking guidelines through which third-party developers can access financial data (with consumer consent) through APIs. They allow Fintech start-ups to build smarter services such as budgeting applications, wealth management platforms, and business intelligence by tapping users’ data from banks and payment companies.

It will also be a bridge for collaboration between Fintech startups and traditional banks. Rather than conflicting, they would work together to add value to each other and reach even more consumers. 

4. Digital payment and E-commerce

All e-commerce activities in Nigeria are booming, and every single online sale requires a payment gateway. That backend is powered by Fintech startups. Billions of transactions are processed by Flutterwave, Paystack, and Remita, making it easier for most small businesses to get online.

The more widespread E-commerce becomes, the greater the need for Fintech startups to provide digital payment services. The room for growth is enormous, and many small businesses till today still take cash or bank transfer payments. Fintech can target these businesses, and provide better and more convenient payment options. 

5. Cross-Border innovation 

Nigeria is not building just for Nigeria. Many Fintech companies are also trying to penetrate into other African countries. Flutterwave is in over 30 African markets. Chipper Cash is in Nigeria, Ghana, Kenya, etc.

This particular cross-border play is important. Africa’s economies are fragmented, but Fintech can unite payments and remittances within a single infrastructure. It also implies that Nigerian start-ups can scale past local constraints and be built for the whole continent. 

Summary 

The Future of Fintech in Nigeria is promising but not certain. The industry is at a crossroads, laden with promise and peril. 

If the regulators, entrepreneurs, investors, and consumers can come together, Fintech might become Nigeria’s biggest export, transforming not only banking but healthcare, education, agriculture, and much more. 

There will be some bumps along the way, of course. But with determination, innovation, and a deep respect for on-the-ground realities, Fintech can help shape a more inclusive, prosperous future for Nigeria.