The Nigerian Fintech industry has garnered significant attention in Africa. Reports indicate that, despite a challenging global economic environment, the ecosystem attracted up to $1.2 billion in 2022 in funding.
The fintech industry began to emerge in the late 1980s when information technology solutions became crucial for the backend operations of commercial banks.
This transformation was driven by the need for enhanced management and operational practices, as well as the implementation of stricter regulations within the banking sector, as highlighted by the central bank.
During these early days, Indian and American-inspired solutions were present in the fintech space. However, towards the early 1990s, the Nigerian banking sector transitioned from relying on imported technology solutions like SAP Banking and NCR to developing their in-house technology solutions for banking and financial services.
Describing this transition, CBN said that in 1993, the Nigerian Inter-Bank Settlement System (NIBSS) Plc was founded to provide infrastructure for handling interbank payments.
Soon after, NIBSS was joined by SystemSpecs and Unified Payment Services Limited emerged in 1992 and 1993, respectively, to offer essential infrastructure for payments within the Nigerian banking community.
A decade later, Interswitch and eTranzact, which delivered multi-application, multi-channel electronic transaction switching, and payment processing platforms to banks and other financial service providers, also came onto the scene.
“From these early days, significant growth has led to the current landscape dominated by a plethora of Startups offering a wide range of financial services from payments processing to cryptocurrencies and wealth management,” CBN said.
One of the key catalysts behind the expansion of fintech in Nigeria stems from the pressing demand for financial inclusion.
This is evident when comparing the current financial exclusion rate of 35.9% to the figure of 46.3% recorded in 2010.
Supportive regulatory environment and global investment
Additionally, CBN revealed that in the course of this transformation, it has played a huge role in fostering fintech growth.
It cited examples with policies such as the Payments System Vision 2020 (2007), National Financial Inclusion Strategy (2012, 2018), Cash-less Policy (2012), Framework for Regulatory Sandbox Operations (2018, 2021), Open Banking Initiative (2021), and the eNaira-Central Bank Digital Currency Project (2021), among others.
It also went on to praise the Nigerian Fintech space for being outstanding in the continent. For example, in 2022, Nigerian startups attracted $1.50 billion out of the total $4.69 billion raised by African startups.
This also reflects what is happening in the African blockchain ecosystem with Nigerian firms among the top.
Recommendations for policymakers
As fintech continues to thrive in Nigeria, the CBN noted policymakers, regulators, and supervisors worldwide face the challenge of striking the right balance between fostering innovation and safeguarding the financial system.
It added that it has some recommendations to give to help make progress in the Fintech space both locally and in other nations.
The recommendations include utilizing regtech for better monitoring, collaborating with regulators for unified fintech regulation, investing in R&D, implementing capacity development for regulatory staff, and organizing study tours to learn from advanced jurisdictions.
Regtech, short for regulatory technology, is the use of technology to help businesses comply with regulatory requirements.
Regtech solutions can provide real-time monitoring of transactions, detect potential fraudulent activities, and assist in customer due diligence processes.
Nigeria’s booming fintech sector showcases its potential for financial inclusion and economic growth. Supportive regulation has attracted investors, but maintaining a balance between innovation and stability is critical for continued success as a fintech hub in Africa and beyond.