The History of FinTech 2.0 in Nigeria
The romantic story of money and tech in Nigeria
By the end of the 2010s, the first arc of the Nigerian startup story was over. It was marked by younger, homegrown founders coming onto the scene, and by the acceptance of Paystack into YC in 2016. Suddenly, we were on the world map. The years that followed could very well have been a movie.
But this phase is particularly interesting, and quite unlike the first phase. The timeline had been splintered. Many parallel timelines, or should we say sectors, had developed and bloomed. It’s hard to tell the story of this period in chronological order, but it makes more sense to look at the history of sectors instead.
This is the history of FinTech in Nigeria.
Paystack: Stripe, but for Africa
In hindsight, Paystack was a long time coming. The founders, Shola Akinlade and Ezra Olubi had worked on payment software products at different points in their careers. If the universe had to pick anyone to birth Paystack into the world, it was always going to be them.
Ezra had built Eyowo, a payment product while working as a software engineer at Softcom. He’d also worked on Softpurse, a fintech product that was quite similar to Paystack. Shola had built a globally used enterprise software called Precurio and was a software consultant for many Nigerian banks.
But Paystack was born when, as Shola describes it, he realized he could charge a debit card from his web browser.
That was his “Aha!” moment.
He showed it to OO Nwoye, a super-connector within the Nigerian tech ecosystem. Immediately he saw it work, he said “Guy, this is a company. This is Stripe!”.
What followed was a string of events that hadn’t happened before. Paystack won a grant of $50k in an innovation competition, then it got into Y Combinator in 2016, then it raised a seed round of $1.3m, and then a Series A round of $8m. Then, just four years later, they sold to Stripe for over $200m. A lot of people remember this as an inflexion point in Nigerian tech history, particularly because Paystack was the first African startup to ever make it to YC. And even at YC’s Demo Day event, Shola described the startup as “Stripe for Africa”. The name stuck.
I think something more interesting than the birth of Paystack itself is the culture of friendship that grew it to what it is today. It’s often touted as the perfect example of a startup done right.
From Butterflies to Unicorn
Isn’t it interesting how sometimes in history, two inventors invent the same thing at the same time? Think Leibniz and Newton with the invention of Calculus, or Charles Darwin and Alfred Russel Wallace with the discovery of evolution. The story of payment gateways in Nigeria is not very different. While Paystack had started a bit earlier in 2015, Flutterwave didn’t get started until a year later.
In contrast to Paystack which was essentially started by engineers, Flutterwave was started by industry experts. Gbenga Agboola (also known as GB) led a payment product called Pay with Capture at Access Bank. Adeleke Adebayo, another cofounder, had worked as the head of digital banking at the same bank. The only outlier was Iyin Aboyeji, who had just left Andela, the high-flying developer factory he founded just two years prior.
Flutterwave had built a way for people to receive payments over the Internet and they were quickly signing on clients. Big names like Microsoft, Mastercard, and Google were on board in no time. Over the next six years, the company raised over $170m and was valued at $1.5b post-money.
The origin of Nigerian FinTech 2.0 can be traced back to these two companies. Not only were they successful, but they also ushered in the gold rush of fintech in Africa. For the next half a decade, VCs were looking for winners in Nigeria’s fintech market, and there was no shortage of them.
The Million-Dollar Piggybank
In 2016 (Yes, every good thing in Nigerian tech happened during this year), a few graduates from Covenant University— Somto Ifezue, Odun Eweniyi, and Josh Chibueze — decided to start a company together. Their first product was a tool to pre-screen candidates for job roles. It was called PushCV. Clever name. This company went on to screen thousands of prospective employees from multiple companies and they were successful — in a sense. But they weren’t making any money and the product’s churn rate was high.
One day, they saw a tweet where a woman had saved ₦365,000 by saving ₦1,000 every day for a year. The tweet went viral and they decided to build an app that lets people do this easily.
They called it Piggybank.
Armed with $500,000 from Nigeria’s most prolific angel investor, Olumide Soyombo, they built v1 of the product and launched it. It grew organically and they saved $54,000 from 450 users in the first year. Today, the app has 4.5 million users and they have paid out ₦1.1 trillion to customers in the past six years while helping young Nigerians build a saving habit.
Today, the company is called Piggyvest.
The Gods of Credit
It would be befitting to call the story of FinTech in Nigeria “The Great Unbundling”. While Paystack unlocked online payments and PiggyVest unlocked savings, the credit scene in Nigeria was starting to see new entrants, and Carbon was the first. Of all the broken parts of financial services in Nigeria, consumer credit is perhaps the most broken of all.
It was hard for consumers to access credit from banks because people had very little in the way of collateral, and it was just too risky for banks to lend money to poor people. Carbon started in 2012 as OneFinance, offering unsecured loans to consumers and businesses. It rebranded to Paylater a few years later, and then to Carbon in 2019. Surprisingly the company became profitable very quickly, being one of the few African startups to release its financials every year.
Other startups like FairMoney, Renmoney, and OKash came onto the scene, charging anywhere between 10%-30% interest rates for unsecured consumer loans. While a lot of murkiness exists in the industry due to the entrance of loan sharks and unlicensed lenders, there’s no doubt that the licensed players are increasing access to credit in a climate where none existed for consumers.
These little “gods'“ of the credit space also include BNPL (Buy-Now-Pay-Later) startups, the biggest of which is CredPal, which offers working-class Nigerians a credit card for spending and online purchases. Other players include Klump, Carbon Zero, and CDCare. If one is to look for signs of life in this space, CredPal’s $15m venture debt funding is a strong sign of it.
Cross-Border Merchants: From AbokiFX to LemFi
Since 2020, cross-border money transfers have been a nightmare for Nigerian consumers and businesses. With multiple exchange rate regimes and a parallel market fraught with opacity and distrust, the people needed a solution, and AbokiFX was the first to come bearing one.
It started with a simple value proposition — publishing the prevailing parallel market rates for the major currencies every day.
It did this quite well and grew rapidly. In 2021, the team pivoted to building Grey, a neobank for remote workers, allowing Nigerians to create foreign bank accounts to receive their salaries. With the post-pandemic world seeing many Nigerians taking up remote jobs, this was an instant hit.
Since then, the space has been heating up with companies with products like Payday, Send by Flutterwave, Wirepay, Seerbit, and LemFi being built. Within the past four years, over $100m has been raised by remittance startups in Nigeria. It appears that as long as the dollar-naira bottleneck exists, these startups will continue to be relevant.
So, where is the future?
Open Banking has certainly changed changed the landscape, with infrastructure startups like Mono, Okra, and Anchor unbundling FinTech on behalf of builders, but what does the future look like for consumers?
Some people believe that MoMo has the potential to take off in Nigeria with the creation of PSB licenses allowing telcos like MTN to enter the payments space. Others think that crypto is the best payment rail for Nigeria and Africa.
The numbers look interesting for both spaces, so the future is most definitely a win-win for the consumers in both scenarios. Telcos have over 222 million subscribers in Nigeria and the country received over $60 billion in crypto value last year alone.
Time will tell who the clear winner is, but if history has taught us any lessons, we’ll bet on the solution most resistant to stifling regulation.
Stuff I’m currently reading
The Innovation Stack by Jim McKelvey
How to Get Rich by Felix Dennis
Your Startup As a Funnel by Alex Iskold
This was excellent 🙌🏾