Nigerian FinTechs raised a cumulative $439 million in the year 2020. That’s according to a report published by EY Nigeria and the FinTech Association of Nigeria. The amount represents about 20% of the total raised by FinTechs in Africa within the same period.
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In a year blighted by the COVID-19 pandemic, the potential of the FinTech industry became clearer, as more transactions went online, and were facilitated by digital payment platforms. This may have strengthened the resolve of VCs who were already interested in the emerging sector in Nigeria.
Foreign investors contributed 57% of the funding, more than their local counterparts. This mirrored the situation with investments in the sector over the past several years. Although 2020 didn’t see mega-deals of the sort witnessed in 2019, the support received by Nigerian startups remained impressive.
The top deals in FinTech in 2020 included:
- Flutterwave– $35 million
- Bitfxt– $15 million
- Aella Credit–$10 million
- Kuda– $10 million
These deals also constituted four of the top five funding raises in Africa.
Two of the startups mentioned here—Flutterwave and Kuda –have since achieved greater rounds in 2021. Flutterwave’s $170 million Series C funding round (announced March this year) made it a unicorn; also in March, Kuda secured $25 million to expand its operations in Nigeria.
The Numbers That Drive Investor Decisions
One reason investors have remained attracted to the Nigerian FinTech sector is the glaring potential that it possesses. They are especially interested in startups that can reach the country’s 56 million unbanked people, a huge population by any measure. Returns from achieving this could run into billions of dollars.
There’s growing confidence in the ability of startups in the industry to meet and exceed their projected returns. This is shown in the size of capital raises they have clinched over the years. About 35% of them were greater than $10 million. Compare that to the 22% of deals that were $1 million- $5 million, and 17% of capital raises that were in the $5 million-$10 million region.
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These numbers function like a growing loop that reinforces the status quo. The more capital that’s raised by startups in an industry, the more they’re likely to raise in the future, other factors held constant.
But the angels and VCs who participate in these funding rounds aren’t splashing their funds on just any startup.
Why Investors Are Interested In Nigerian FinTech
The EY Nigeria FinTech Report notes that most of the funding raised has gone to post-revenue FinTechs—basically the more mature of the lot. While angel backing has constituted about 10% of all financing in the industry, Series A and B funding rounds have constituted 24% and 14% of the rest.
The FinTechs receiving investor support are high-growth startups. About 33% of FinTechs turned in profits of between 20% and 50% in 2019; 57% of post-revenue startups recorded profits exceeding 50%. In 2020, 76% of post-revenue FinTechs were profitable. In 2019, it was 86%.
Besides focusing on companies that had already demonstrated capacity for high growth, investors have also had their eyes on the impressive rise in the number of people using FinTech products—particularly payments services.
For instance, the volume of Electronic Fund Transfer (EFT) surged 77% in 2020; in monetary terms, the growth was about 50%. Transactions carried out via USSD, POS, and mobile apps have all risen significantly since 2016.
In simple terms, the industry is brimming with potential, and growing very fast. It’s precisely the sort of thing an investor would want to put their money on.
Final Words: More Growth Ahead?
Current projections suggest there’s even better news yet to come out of FinTech. One projection says its revenue base could reach %543 million by 2022.
Of course, there’s no guarantee that the current positive trend will carry on into the future. All sorts of things could truncate this run—including government actions that are deemed to not be investor-friendly. The hope is that there’s enough momentum within the industry to power past the uncertainties that may exist within the Nigerian environment.
Featured Image Source: Nairametrics
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