According to data research firm Briter Bridges, African fintechs raised more than $2 billion, 38% of the $5.4 billion African startups raised in 2022. This number also includes undisclosed deals Briter is aware of. so much.
Although fintechs still secured the bulk of the funding, it was far less than the $3 billion (62% of total funding for the year) raised in the big boom of 2021.
“No one knew what 2022 was going to be like, right? That literally just took out a lot of the predictions that we made. Well, you know, it was for fun to begin with. Educated assumptions,” says Adedeji Olowe, CEO of Lendsqr and trustee of Open Banking Nigeria.
Keeping up with what seems to be an annual tradition, we brought in Olowe to take a look at the Nigerian fintech space in 2022 and look ahead.
How was the FinTech space fair in 2022? Was MTN too late in the mobile money game? What was the next move for big tech companies like Facebook and Google, and of course, is there room for more players to come in? Olowe helps us look back on 2022 and points out certain things to look forward to in the new year.
The following article has been edited for brevity and conciseness. It also adds newer information than what was in the video, which was shot in 2022. Happy reading.
Nigeria experienced a currency crisis in 2022 and Nigerians could barely pay for international transactions with their bank accounts. Why did the CBN create so many restrictions?
I guess you should probably ask what you think is the reason why central banks in developing countries always put very tight control on their currency.
So there is a global currency. We all use US dollars ($), right? Each country invariably has an account that they use to trade with other countries. So imagine in the same way that every bank has an account with the central bank. In fact, there is a global central bank, right?
I think it’s called the Bank for International Settlements. Now when you want to import anything into the country. The person who is buying from you, regardless of his own currency, probably wants to take your US dollar from you because that is the only currency he knows of, and he can trade any other country as well.
Now how much they have as a country is a function of what they have exported and sold.
What is common to most developing countries is that they don’t make enough stuff to sell. They matter almost everything.
When you import more than you produce, you will start to have very few dollars to go around. What do you do when something is small? You ration it.
So rationing is causing the problem. If Nigeria starts producing more than it exports right now, more dollars will be available to everyone.
It is not a technological problem, it is a macroeconomic problem. That’s what most people in crypto don’t understand when they say that crypto will solve the problem. It will not solve the problem. If we are not creating value, we have absolutely no way out of the rut.
Now we don’t need to do agriculture. We can look at India, for example, which thought that writing software for people was not enough. They went on to build global companies like PayTM, Freshworks, and Zoho that create value for them.
Great, so Africa didn’t mint any Unicorn in 2022. What do you think about that?
Unfortunately, no one saw that winter was coming. What caused it is a combination of factors such as Russia’s invasion of Ukraine. Also, if you remember very well, the US government released trillions of dollars as relief during the COVID-19 pandemic.
Several Americans and people from all over the world found themselves with a lot of money. They were investing, tech companies were building for people to work remotely, and there was plenty of cash. So the valuations skyrocketed. We felt that it would fall apart after a while, but nobody imagined that it was going to be like a very bad car accident. Globally, unicorns are dying everywhere.
Despite all the craziness, the only company that is close to being a unicorn in Nigeria, even if there is no formal assessment in that direction, might be TeamApt (now Moniepoint). They have grown significantly; if this winter wasn’t there, they’d probably already be kissing unicorns.
Prediction: Moniepoint goes from being a microfinance bank to becoming a commercial bank. read more
Interesting. So when do you think winter will end?
I can’t say exactly when this winter will end, but if you look at history, I could say around 12-18 months. What I see is that a lot of startups will die because they don’t have the discipline and they don’t have a good product to start with.
The growth that most of them had was just setting the money on fire. But outside of that, a lot of people are also solving real problems. Many companies are resilient. Many companies are disciplined. When these companies emerge, we will see growth return.
By the end of 2023, I think things will be back on track, but worst case scenario, it won’t go past 2024.
Prediction: By the end of the year, only a few major and most powerful fintech players will remain.
You talked about crypto earlier. What do you think about cryptocurrencies, especially in regards to the Nigerian currency crisis?
I can’t see the value proposition. It’s all so speculative that you’re not solving your own problems. Sometimes people call me one of those dinosaurs, and I may not have seen the big picture. But from my own point of view, it’s more like a Ponzi scheme, but I don’t want to jump to any conclusion and say, “Crypto is dead!”
Many good technologies sometimes start out in very shady ways and then evolve. As they mature, they become more relevant, begin to solve real problems, and are embraced by everyone.
You suggested the arrival of WhatsApp Pay, but so far it has not worked. Will the big tech players keep looking at Africa? How do you see this unfolding?
I think even the giants are in retreat right now. So you have layoffs everywhere with companies like Meta, Twitter, Microsoft, and even Amazon.
However, I think these guys will look around and say let’s go to Africa. All of these companies are looking for growth, and their dollar goes much further now in Africa than it has in recent years. I still strongly believe that a global player will come to play.
Speaking of global players, we didn’t see any global payment acquisitions in 2022, meaning Mastercard or Visa acquiring eTranzact and Interswitch.
I think you should ban me from making acquisition predictions. Of course, it still makes financial sense to me, but there’s more to these things than I’ve said so far. But I still think that it can happen. Especially a foreign player coming in.
As I said, there is a lot of pressure on foreign companies to grow. Netflix is down 75% this year. Facebook has been down this year. If these players find somewhere to grow, they will grab it with all their might.
MTN and other telcos launched PSB in 2022. Were they too late?
No, I don’t think so, I don’t think so. The size of the market, meaning that we haven’t touched it yet, is so big. We have players, but the potential is still great. We are talking about 200 million people. We’re talking about getting everyone to do their transactions online.
At a minimum, we have 100 times more opportunities. MTN may not be the one to ultimately dominate the space, but this space is still very, very large.
Prediction: MTN PSB reaches Moniepoint and becomes the biggest super agent
Speaking of online transactions, what about free transfer completions?
I know it sounds very stupid to ask CBN to regulate prices when in reality it is supposed to be a business decision. But there is a bigger picture of these things. I’ve been in that campaign for a while. I’ve written to CBN before, it makes sense that it’s free.
How has the NIN fared in the financial space?
The NIN is almost there, but it is far from dethroning the Bank Verification Number (BVN). Now, NIN is required for literally everything you’re doing. Your passport and company registration.
The number one problem that the NIN has had is that it is expensive to use in the financial space. The operators are charging 50-70 naira to let you have access to that data, which is too unreasonable.
Another problem is that the NIN doesn’t really connect to anything. Once I have it, I can see that this is your face, and I know that it is you. But it doesn’t come with any consequences. If I have NIN, I can still bring you fake accounts. This is where the BVN is still superior.
Verification is especially important for lenders. How has the lending space fared in 2022?
The lending space is growing. Banks are actually getting more and more involved. FCMB is big, Access Bank is big, and Sterling is getting very big. But then, it hasn’t grown to the level it’s supposed to. It has not reached critical mass.
One of the biggest challenges, which is what Lendsqr is trying to solve, is that there have to be consequences for non-compliance. There has to be enough data for lenders to make the right decisions and be sure they will get their money back.
One thing that makes this data exchange possible is Open Banking. How are we doing on that front?
It hasn’t gone so well. We worked with CBN in 2021 to create a framework and they published the exposure draft in 2022. But nothing else has happened since then.
I don’t work at CBN, and they have their own formula for doing things, but sometimes, all you have to do is wait, relax, and see what happens.
What else do you forecast for 2023?
- CBN loses the war without cash. Again.
- Telecommunications companies lose the USSD war. Again
- Major Super Agent Networks Crack Cardless Transactions
- New debit card scheme misses the mark
- The FCCPC loan regulation loses relevance
- Startup investment recovers because nothing lasts forever, not even bad news
- CBDCs including eNaira are on standby
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