Nigeria’s fintech space grew in leaps and bounds in 2020, and 2021 has all the ingredients to build on the growth of previous years. Founder and CEO of Trium Networks, Adedeji Olowe, has made new interesting predictions for the new year.
On December 30, we revisited the financial predictions for 2020 which featured major talking points like WhatsApp Pay, Paystack’s acquisition, MTN’s bid for a PSB licence, and OPay’s continued push for the payment market.
This year’s predictions feature more acquisitions and interbank transactions and Olowe walks us through what he describes as educated guesses, considering that no one can accurately predict the future.
CBN will finally give MTN a PSB licence
As discussed in our review of 2020’s fintech predictions, MTN could not lay its hands on a PSB licence, but 9mobile and Glo got them. Olowe attributed this to the fact that everyone, the Central Bank of Nigeria (CBN) included, is scared of MTN’s dominance.
MTN is Nigeria’s largest service provider in terms of subscriber base and network coverage and a PSB licence could potentially swing payments in their favour. However, the limitations of the PSB licence could present an uphill battle for licensees. However, MTN might be willing to brave that challenge.
Olowe believes MTN would not give up on trying to get the licence, and according to him, the recently appointed CEO, Karl Toriola has a track record of making things happen.
Toriola’s appointment takes effect in March 2021, and the CEO designate has already rocked the media with the purchase of ₦41 million ($107,470) worth of MTN Nigeria shares.
Agency banking locations will surpass 1 million
In 2020, agency banking exploded, recording commensurate increases in non-merchant POS transactions. This explosion was led by the likes of Paga, OPay, and TeamApt. Having ditched its other verticals, OPay reportedly traded $1.4 billion worth of transactions in a month.
Before the CBN came up with a new policy for remittances to only be paid in dollars, banking agents were also delving into the space.
Olowe expects all the market actors to drag the agency banking locations beyond 1 million in 2021.
Monthly interbank transactions to surpass 500 million
Though the Nigerian Inter-Bank Settlement System (NIBSS) has not released the latest data for the month of December, transaction volumes we tracked during the festive period — December 25 to January 1st — showed some impressive numbers.
Olowe holds that because of the work the NIBSS is doing and the myriad of payment services providers increasingly penetrating the market, monthly inter-bank transactions will surpass 500 million.
Nigerian banks to implement free inter-bank transactions
Olowe surmises that some major banks would soon make inter-bank transactions below a certain amount free. “Think Access, GTBank, or Sterling, but not UBA,” he says.
Kuda and Sparkle have captured the attention of several banked adults with the introduction of free inter-bank transactions, and not even the CBN’s reduction of transfer fees in 2019 daunted their market penetration.
The likes of Barter, OPay, and Palmpay have also attracted users with their low/no transfer fee policies.
Olowe maintains that such a move by major banks like Access or GTBank could be a masterstroke. Recall that both of the aforementioned banks made a similar play in the lending sector by introducing platforms for collateral-free loans with more competitive interest rates.
Agency banking to become the last mile for digital payments
Once agency banking becomes successful, Olowe projects that the next thing will be for them to integrate a layer of application programming interfaces (APIs) and it could become the last mile for digital payments.
“If agents are fully KYCed and have constant location-aware devices, then the physical can meet online for loans, KYC verification-as-a-service, e-commerce deliveries, and transfers-to-cash from banks,” he says.
KYC and identity verification have long been a tough nut to crack for companies and governments alike, but Olowe argues that the NIN exercise achieving some semblance of success could boost the financial sector.
Virtual accounts will come of age
Olowe predicts that virtual accounts, led by innovators from TeamApt, Rubies, Zenith, Sterling, Wema, and Sparkle will become increasingly commonplace.
Olowe argues that virtual account-based payments are better and more inclusive than card-based payments and he expects them to blow card payments out of the water in 2021.
Though the prediction was made last year, it remains to be seen what the outcome would be.
You can read more about virtual accounts here.
Local investors to step up their game
Olowe predicts that local investors will up their game in 2021 and expects investments to grow to at least 30%.
Stripe’s acquisition of Paystack in October 2020 was perhaps one of the most notable events in Nigeria’s tech ecosystem last year. It also led to a fear of missing out among several investors.
Techpoint Africa’s Startup Funding Reports have shown foreign investment to be the major source of funding for startups. In some quarters, local funding was as low as 1%.
However, our Decade Report also showed that local investments are second only to US-based investors in terms of size and number of deals made.
Olowe echoed sentiments held by entrepreneurs like Iyin Aboyeji about attracting the right kind of money, and for prospective investors to be patient. For others like Leadpath’s Olumide Soyombo, the existence of a globalised marketplace reduces the relevance of discussions about the countries from where investments emanate.
WhatsApp will make a payment play in Nigeria
Last year, Olowe predicted that WhatsApp would give fintechs a tough time. With several users constantly joining the platform, he believes WhatsApp will make a play for payments in Nigeria.
“All it needs to do is slap a virtual account behind every WhatsApp profile, and the rest is history,” he says.
He also explains that the legal troubles big tech companies like Google, Facebook, and Apple face could make them shift their focus to Africa’s untapped market.
Visa will buy Interswitch for $800m
Olowe guesses that US payments giant, Visa, could buy Nigerian fintech Unicorn, Interswitch, for $800 million in 2021. He argues that the fall of the naira, and the fact that Interswitch’s owners would be itching for a payday as soon as possible could work in Visa’s favour.
Recall that in 2019, Visa bought 20% of Interswitch for a value of $200 million, effectively confirming its Unicorn status with a $1 billion valuation. We also explored how London-based investment company, Helios Investment Partners, owns more than half of Interswitch.
Olowe believes that Visa’s continued interest in Africa would spur them to buy out Interswitch and the reduced value of the naira would make things easier. It is worthy of note that Visa also has a significant investment in Nigeria’s new age payment disruptors, Flutterwave and Paystack.
Interswitch, on its part, has been making plans for a dual listing on the London Stock Exchange (LSE) and the Nigerian Stock Exchange (NSE). However, the global pandemic and several other factors have halted these plans.
It remains to be seen if an IPO and/or acquisition could happen for Interswitch in 2021.
Mastercard will acquire eTranzact in response
Interswitch is arguably the largest payments processor in Nigeria, and as our editor, Ifeanyi Ndiomewese pointed out in 2019, US payments giant Mastercard could lose ground to Visa in the payment race following the latter’s acquisition of a 20% stake in Interswitch.
In 2017, Mastercard held 62.2% of Nigeria’s POS transaction volumes followed by Verve at 21%, and Visa at 16.2%. While Visa was losing in the Nigeria space, it continued to dominate the global market.
Visa and Mastercard have been battling for supremacy in arguably Africa’s largest market through key investments in Flutterwave, Paystack, and Interswitch.
According to Olowe, since Interswitch processes most of Mastercard’s transactions in Nigeria, a Visa acquisition would spur Mastercard to buy out Nigerian fintech giants, eTranzact to help level the playing field.
“Only a fool will let its competitor decide its fate,” he says.
Interestingly, Ifeanyi also called this move in 2019, pointing out the fact that eTranzact also owns a switching licence and already performs transactions for Mastercard.
It is important to re-iterate Olowe’s assertion that none/some of these predictions might come to pass, and it is more likely that they won’t happen. Regardless, the new year could hold a lot of promise based on the growth of previous years.
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