Nigerian businesses in fintech are rising stars
In Africa’s technological ecosystem, fintech continues to be the industry darling. In 2020, there were more than 200 fintech businesses in Nigeria, and fintech startups received 50% of the financing that flooded into Africa’s digital sector overall. According to a McKinsey analysis, Nigerian fintech firms garnered more than $600 million in funding between 2014 and 2019.
The fintech industry is still young and has a ways to go before it reaches its full potential in terms of scale and growth, despite record-breaking funding rounds and the abundance of Nigerian startups creating financial services and products for a population that is largely unbanked but young and tech-savvy.
Tosin Eniolorunda wrote in an email to TechCabal that “2022 has been a year of worldwide headwinds for practically every sector, and fintech has been no exception.”
“For start-ups, these issues have shown up as a slowdown in VC activity, which has led to both reduced valuations and a decline in VC funding,” the report states.
Layoffs and cuts are on the way.
“In the absence of external capital, many founders and fintech executives have chosen to streamline their firms by reevaluating their plans and slashing costs – tragically, sometimes in the form of job cutbacks – and in extreme cases, it has caused entrepreneurs to shut down their operations.”
Sudden layoffs have occurred throughout Nigeria’s booming startup industry. Vendease, a Nigerian food procurement firm, recently lay off 9% of its workers, and Quidax, a Nigerian crypto exchange startup, laid off 20% of its workforce in November. In 2023, Eniolorunda expects that more startups will choose the “do more with less” strategy to profitability.
“In contrast to the ‘growth at any cost’ approach that characterized 2021 and even the first few months of 2022, profitability and unit economics are now at the top of the priority list for investors worldwide,” Eniolorunda said.
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Small and medium-sized businesses in digital mode
However, it is not all doom and gloom for Nigeria’s startup scene in 2023. Eniolorunda commented on the growing number of SMBs that plan to digitize their businesses by 2022. Small businesses are feeling the push to go digital sooner rather than later as more end users purchase smartphones and demand for cashless payment options grows. As a result, we are seeing a new generation of B2B-focused innovators creating operational tools for smaller merchants and enterprises.
“Historically, established suppliers have left these businesses behind, and as a result, we’ve seen a considerable number of disruptive, technology-led firms arise in the area.” “VC money has tended to follow across the value chain of SMB digitization, from payments to company management solutions,” Eniolorunda stated in his response.
Partnerships, customer experience, and other goals for 2023
This year has seen its fair share of business-related crises in Africa’s ICT landscape. TechCabal released an investigative story in June that sparked numerous discussions about workplace culture in Nigerian companies. Kloud Commerce made headlines lately when its previous CEO, Olumide Olusanya, informed staff that the company would be closing on September 30. The narrative of Kloud Commerce’s quick death shows a lapse in due diligence on the part of the investors.
“There will be longer investment deadlines since VCs will want to undertake extensive due diligence.” Valuations will continue to be tied to a company’s fundamentals, such as unit economics, and there will be an emphasis on high-quality transactions with proven business models.”
Eniolorunda also predicted that larger fintechs will collaborate with smaller fintech companies in 2023. The good news is that strategic alliances and acquisitions are popular among Nigerian fintech companies.
“In the fintech area, consolidation will begin in the form of collaboration with banks, but also larger fintechs developing strategic relationships with smaller ones.”
Eniolorunda concludes by arguing for improved customer experience through the use of fraud detection tools and verification technology in their apps and digital platforms.
“Finally, and most critically, fintechs must prioritize customer experience to ensure that they continue to protect their clients from fraudulent activity in the coming months and years.”