#1FinTech Landscape and Impact Assessment Study 2020 Report EFINA#2Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 2#3FinTech landscape in Nigeria Relative FinTech adoption scale No of FinTechs H 200+ No of FinTechs in Nigeria Funding LO $560mn FinTech funding in last 3 years Women in FinTech Long-term Economic impact¹ Top sectors by number of players O $3bn potential $1bn retail banking revenue increase 39% Payments 邊 investment 11% Savings 28% Lending 22% 48% Low High Of top 50 FinTechs have a female co-founder Of top 50 FinTechs have women in senior management + Development goal contributions Gender inclusion $50bn DFS GDP potential $ Financial inclusion Extending access to Education, Healthcare, Agriculture and Energy 5 imperatives for stakeholders Multiplier effect Unlock new business models Build a regulatory framework to spur innovation in the Create pull for digital identity Develop central credit infrastructure Accelerate digital infrastructure Grow the talent pipeline Fuel business digitization financial landscape Drive job creation SOURCE: MGI Digital Finance for all 2016, Literature review, customer survey n=215 2. Long-term defined as 5-10 years EFINA 3#4Executive summary Executive summary $ 0.0. 0000 Global FinTech growth is driven by a combination of factors - increased funding, modernized payment infrastructure, the rise of tech players and the sharing of data and technology. Threat of big techs and challenging B2C economics in developed markets are contributing to a gradual shift in FinTech models to B2B and increased collaboration between banks and FinTech The Nigerian FinTech landscape is attractive and growing, with a concentration in Lagos, focused on banked customers and providing payment and lending solutions. However, dynamics are changing - new pockets of growth are emerging driven by changes in consumer behavior, funding sources, and new business models; leading to an extension of Financial Services to unserved and underserved populations Despite the increased activity in the FinTech sector in Nigeria and the positive multiplier effect, economic impact to date is low, with FinTech activity accounting for only ~1.25%¹ of retail banking revenues in 2019. A concerted effort by all stakeholders to address structural challenges is required to capture a greater share of Nigeria's $50bn2 Digital Financial Services opportunity, and mitigate emerging risks as the sector evolves. This could help accelerate the ambition to include more individuals into the formal financial system There are a number of actions that could enhance Nigeria's Digital Financial Services landscape - leading to a higher number of people included into the financial system. However five of them, if well executed could yield the biggest impact - Innovation enablement, Digital ID, Credit infrastructure, Digital infrastructure and Technology talent pipeline 1. FinTech revenue as a percentage of total retail banking revenue 2. Assuming growth rate pre-COVID-19 Source: McKinsey Global Banking Pools, MGI Digital Finance for all 2016 EFINA 4#5Definitions FinTech InsurTech ☐ ■ A technological innovation in the prevailing model of delivering financial services ☐ Technology-led companies that enter the insurance sector, taking advantage of new technologies to provide coverage to a more digitally savvy customer base RegTech Blockchain ΑΡΙ GSI ■ Companies that address regulatory requirements using technology ■ A cryptography-based database technology and enables trustless storage and sharing of data Application programmable interfaces (APIs) enable the IT function to conveniently build and implement new applications in the ecosystem. ■ Global Standing Instruction - links Bank Verification Number (BVN) of all depositors to show credit history of debtors with all banks thereby preventing further loan for defaulters EFINA 5#6Glossary CBN NIBSS SANEF NCC NAICOM DFID USAID FCPCC ■ Central Bank of Nigeria ■ Nigeria Inter-Bank Settlement System Plc ■ Shared Agent Network Expansion Facilities Nigerian Communications Commission ■ National Insurance Commission ■ The Department for International Development ■ United States Agency for International Development ■ Federal Competition and Consumer Protection Commission EFINA McKinsey & Company 6#7Key questions answered in this report Chapter Global FinTech landscape Nigeria FinTech landscape and its evolution Key questions What does the global FinTech landscape look like and what areas do FinTechs play in? How has funding to FinTech evolved globally and what factors are driving it? What are the key trends shaping FinTech activity globally? What are the key enablers for a successful FinTech ecosystem based on learnings from global markets What is driving the growth of FinTech in Nigeria (size of the market, unmet needs)? How have FinTech evolved over time to take advantage of the opportunity? Who are the key FinTech in the market and where do they play? How has funding to the FinTech space in Nigeria evolved and what are key considerations? How is the FinTech space in Nigeria likely to evolve? Impact assessment of FinTech in Nigeria Recommendations for stakeholders о What are the areas that FinTech can make impact in Nigeria? What is the potential direct impact that FinTech can make on financial services? In what ways can FinTech contribute to capturing the overall opportunity from digital financial services? What are the key imperatives for stakeholders in Nigeria's FinTech landscape? EFINA 7#8Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 8#9Key messages from Global FinTech Landscape (1/2) Globally, FinTech play both across the banking and insurance value chains with an emerging shift to B2B models ■ FinTech activity is concentrated in consumer and SME segments and insurance with most players leveraging APIs and Cloud as their core. technology ■ There is an emerging shift towards B2B businesses in Western markets, however emerging markets remain attractive for B2C players ■ There is a growing emergence of big tech companies focusing on providing one stop solutions to customers through their developing ecosystems This is in turn resulting in increased partnerships between banks and FinTech to provide tailored solution to customers. Funding to FinTech players continues to grow and increased attention is being paid to emerging markets ◉ Globally, $36 bn invested in 2019 in FinTech players Funding is starting to shift to emerging markets as investors search for growth opportunities and markets like India and Indonesia have seen significant funding activity Funding to the African ecosystem is also seeing increased traction with a ~73% y.o.y increase in start up funding from 2018 - 2019 driven by FinTech EFINA#10Key messages from Global FinTech Landscape (2/2) Observation of successful FinTech ecosystems suggest 7 key elements that enable the growth and drive a deepening of financial usage across the ecosystem 1. Creating an enabling regulatory environment to foster innovation. 2. Fostering innovation by enabling ease of access to APIs and data e.g. Advanced analytics is becoming mainstream and there is growing adoption of open banking 3. Enabling global connections and learning with other ecosystems, including growing partnerships between banks and FinTech 4. Significant long term funding pool which is evident in the increase in FinTech funding globally 5. Building strong tech infrastructure which has facilitated the modernization of payments 6. Rise of ecosystem orchestrators, catering to unmet customer needs. across the financial services value chain through a range of use cases 7. Building a sustainable talent pipeline 10 EFINA#11FinTech definition: A technological innovation in the prevailing model of delivering financial services Could be any type of player... " Incumbents (e.g. Banks, Insurance companies etc.)1 Non-financial services providers (e.g. tech companies) Startups/New entrants. 1 Playing in any part of the value chain... B2B B2C C2C Infrastructure ◉ 2 3 Leveraging technology... ☐ Blockchain Data analytics APIs Cloud ...and delivering a wide range of financial services ■ Payments & Transactions Accounts Savings & Investments Lending & Financing " Life insurance Non-life insurance 4 1. Focus of this document will be in non-incumbent players that are typically startups and early stage companies 1833 EFINA McKinsey & Company 11#12Global FinTech Landscape Globally FinTech are focused on consumer and SME banking (1/2) ESTIMATES McKinsey FinTech Landscape, No of FinTech as % of database 16% 11% 14% Share of total banking revenue pools FinTech <5% 5%-7.5% 7.5%-10% >10% 14% x% % of FinTech in Customer segments 8% Consumer logo SME 4% 5% 14% 3% 3% 2% 8% Payments & database (% adds up to 100%) Early disruptors focused on the consumer and SME payments space : " ◉ ◉ Payments is a significant market accounting for >15% of SME/retail segments and continuing to grow 90% of customer touch points involve payments Cost of entry tends to be lower for payments ■ Data from payments has led to newer savings and investment models Increasing shift towards savings, investments & lending: Leveraging technology to make attractive savings and investments models available The rise in advanced analytics has given rise to newer FinTech business models in saving and lending Data generated by payments and advanced analytics creating new lending models Transaction Large corporate³ Savings, Investments & Lending & Financing Products/capabilities Account management Capital Markets SOURCE: McKinsey FinTech database, Panorama Global Banking Pools EFINA 12#13Global FinTech Landscape As well as on insurance (2/2) ESTIMATES McKinsey InsurTech Landscape, % of Insurtechs in database Customer segments Retail SME Large corporate Internal Operation B 33% 6% 14% 1% M 000 12% 8% 1% 16% 2% 3% Non Life Share of innovation in McKinsey InsurTech database 2% X% FinTech <5% 5%-7.5% 7.5%-10% >10% 2% % of Insurtechs in database (adds up to 100%) Health InsurTech has attracted significant activity from investors with 25% of FinTech playing in Insurance Insurance activity globally is predominantly in the retail and non-life segment, driven mainly by P&C motor insurance with sizeable activity in the Internal operations and non-life segment Within Insurance, players have focused on the non-life segment (e.g. asset insurance), deploying innovative models around distribution, risk assessment and customer servicing Global size of Insurtech highlights the opportunity for innovation in Insurance in Nigeria, where activity has been limited Products/capabilities Life SOURCE: McKinsey Insurtech database, Panorama Global Banking Pools EFINA 13#14Global FinTech Landscape API and Cloud technology are most utilized by FinTech, but Big Data/AA holds potential in emerging markets. Technology »Description ΑΡΙ Set of programming code that enables data transmission between one software product and another Number of FinTech leveraging tech trend, 2019 476 Cloud On-demand availability of computer resources especially data storage and computing power 449 ΑΙ Using machine learning and artificial intelligence for activities such as fraud detection and automated customer support 407 Leveraging data and analytics to provide insights that allows for more personalized customer offerings 369 Big Data/ Advanced analytics Blockchain Other Biometrics Distributed ledger and record systems with use cases. in cryptocurrency, registries & identity systems. This consists of other tech trends such as Regtech, Compliance Tech, Internet of Things and Virtual Reality Measurement and statistical analysis of people's unique physical and behavioral characteristics with use cases in KYC & fraud detection SOURCE: McKinsey Panorama FinTech Database, Press Search 87 166 143 API and Cloud remain foundational technology on which many FinTech are built Big data and advanced analytics have become mainstream globally but still remain early stages in markets like Africa Several new technologies emerging across Regtech, ComplianceTech and Internet of Things 14 EFINA#15Global FinTech Landscape The threat of big techs and challenging B2C economics in developed markets are contributing to a gradual shift to B2B models Most FinTechs utilize B2C distribution models... FinTech Distribution Model Count ≫..in developed markets, there is an emerging shift towards B2B models... Segment From 100% 1 SME 26% Payments/ 2 Remittances TransferWise transfers Wealth 3 SIGFIG Robo Advisory Management DIUIPA Digital wallet for groups to split costs International P2P money > To Expense management, budgeting and reporting for companies International large enterprise & corporate transfers White label products for banks 74% 4 SME wave SME invoicing White label SME banking products to RBS 5 SME 2019 B2B B2C 6 Insurance C2FO SME invoicing Slice On demand platform. 7 Broker INSURANCE CLARK Insurance Robo advisor Enterprise platform Cloud Platform Source: Panorama FinTech Database, Press Search, Expert interviews, WSJ White labels to banks and insurers EFINA 15#16Global FinTech Landscape - Funding Global FinTech investment has grown over the years with $36bn invested in 2019 alone VC-backed global investment in FinTech USD bn Ant Financial is making investments in SE Asia and Africa, focusing on funding. startups, tech companies, FinTech in the payment space etc. +22% p.a. 14.0 Ant Financial 4.5 35.7 30.0 23.2 17.4 18.9 13.3 14 15 16 17 18 2019 CAGR Number of Deals 1827 1961 2148 2232 2513 2432 6% Average Ticket 7.2 8.9 8.8 10.3 Size, USD Mn 11.9 14.7 15% EFINA SOURCE: Dealroom 16#17Global FinTech Landscape - Funding These investments have been concentrated in payments VC funding remains highly concentrated in payments... VC FinTech Deal value by category1 Total Funding Pools (USD bn)= and investors are increasing funding in late stage businesses VC FinTech Deal counts by stage³ Total Funding Pools (USD bn)= Average deal size 2019 $10bn $17bn $23bn $36bn Payments2 35% 34% 78 $9.3mn 14% Early stage 82 Retail banking 23.5% SME & corp. banking 19% 5.3% WM, capital markets 7.7% 6% FI Infrastructure 14% 12% Insurance 6.9% 6.5% Process 7.5% 8% Late stage Mature- 14 19 $20.7mn 4 4 $5.9mn 2017 2019 2017 2019 1.Based on a sample of 1500 players 2.Ant Financial's giga round excluded 3.Excludes Alipay's 2018 $14Bn funding. Early stage: Early VC, Seed, Series A / Late: Series B-E, Mature: series F-| and Late VC; Sum > 100% due to rounding error SOURCE: Dealroom, McKinsey FinTech EFINA 17#18Global FinTech Landscape - Funding North America and Europe still dominate bulk of FinTech funding, but there has been an increase in investments into emerging markets FinTech Deal Value by Region² Percent $18bn Mature/Developed FinTech Markets Emerging FinTech Markets $19bn $23bn $30bn 41% 40% 46% 47% North America 52% $35.7bn North America has the biggest share of FinTech funding over the years, receiving almost half of the global VC investments in 2019 The share of total funding for companies in emerging markets. has grown over the last 3 years with almost 25% of 2019 investments in emerging markets. driven by India In 2019 Indian FinTech funding doubled, driven largely by Chinese investments 11% 19% Europe +3% 17% 12% Australia -0.4% 21% -1% China 12% -1% 23% Latin America 34% 6% 26% 5% India 1% 20% 1% 13% South East Asia 2% 1% 10% 2% Africa 6% 5% 2%- 3% 6% -4% 6% 0%; 0% 0.4%; -1%; 0.1% 2015 2016 2017 2018 2019 1. 2016. and 2018 data excludes the large funding round for Ant Financial, USD 4.5 and 14 bn 2. Sums do not add up to 100 due to rounding errors SOURCE: Dealroom, McKinsey Panorama EFINA 18#19Global FinTech Landscape Experience from successful FinTech ecosystem US, Europe and China are the leading FinTech ecosystems by funding and number of companies, with India and Indonesia emerging United States Total Funding: USD 32.3 bn Number of companies³: 3670 Leading segment: Payments Key Players - Paypal, Stripe, Square Europe Total Funding: USD 16.4bn Number of companies³: 23200 Leading Segment: Mobile Payments Key Players: Transfer wise, N26, Monzo, Raisin China (including Hong Kong) Total Funding: USD 14.9 bn² Number of companies³: 379 Leading Segment: Payments Key Players: Alipay, WeChat Pay, PingAn Brazil Total Funding: USD 1.4bn Number of companies³: 93 Leading Segment: Mobile Banking Key Players- Ebanx, NuBank Africa Total Funding²: USD ~1bn Number of companies³: 491 Leading Segment: Mobile Payments, Lending Key Players: OPay, Branch, Jumo, Mpesa, Bitpesa India Total Funding: USD 8.2 bn Number of companies³: 357 Leading Segment: Payments Key Players: PayTM, Lending Kart 1. Total funding over last 3 years 2 China excluding Ant Financial's massive funding rounds 3 No. of FinTech added based on Dealroom database (non-exhaustive) SOURCE: Dealroom, Startup and Landscape Analytics (SILA); Bitter Bridges, Press Search, Forbes, Crowdfund Insider Indonesia Total Funding: USD ~10 bn Number of companies³: 249 Leading Segment: Super Apps Key Players: Gojek, Grab EFINA 19#20Global FinTech Landscape Trends There are 7 key trends shaping the global FinTech landscape, with key implications for extension of finance in Nigeria (1/2) Key Global Trends Funding to >>>Description FinTech is increasing Modernization of Payments infrastructure Big tech players continue to encroach Rise of Super Apps SOURCE: Expert Interviews, Literature review ◉ ◉ FinTech funding is reaching record levels and expected to continue to grow. Barring the Ant Financial deal in 2018, the $36bn invested in FinTech in 2019 was a record Strong performance in card transactions in combination with innovations in payment solutions (e.g. real time payments and mobile wallets), regulations (PSD2 and open banking) are driving strong shift from cash payments Similar trends are seen in emerging markets where payments is the entry point to FinTech Big Tech players ('TechFin') such as Amazon, Google, Facebook & Apple with large customer bases are making bold moves into financial services Google and Facebook in particular are aggressively moving into emerging markets such as India where Google Pay dominates the payment market ■ In China, two key ecosystem orchestrators have emerged e.g. Alibaba, Tencent, however many FinTech providers globally are developing super apps and emulating the ecosystem players This is being replicated in other Asian markets like India (PayTM) and Indonesia (Gojek, Grab) ■ Western players such as Uber are also making moves to build super-apps leveraging their core assets EFINA 20#21Global FinTech Landscape Trends There are 7 key trends shaping the global FinTech landscape, with key implications for extension of finance in Nigeria (2/2) Key Global Trends » Description Open banking Regulators are playing a stronger role globally to foster and shape innovation e.g. EU push to offset big platforms, PSD2/Open banking and moving beyond sandboxes Big Data/ Advanced Analytics ☐ ■ FinTech players are using a broader set of use cases across the sector to successfully drive the application of advanced techniques (e.g. deep learning) and wave of new Al business solutions Shift to B2B models Shift towards B2B and partnership focus continues with startups serving more as catalyzers than disruptors; large potential to make financial sector more efficient B2C likely to remain attractive in emerging markets SOURCE: Expert Interviews, Literature review EFINA 21#22Global FinTech Landscape - Enablers The growth of these FinTech ecosystems has been enabled by 5 key factors (1/3) Enablers Initiatives Financial 1 services regulation Regulatory Sandbox Problem statements to address industry pain- points Pricing interventions Fostering data sharing Unbundling licensing Description ■ Environments that relax specific regulatory and legal requirements to allows FinTech test Developing and publicizing initiatives to encourage innovative solutions to financial services industry problems Examples countries with successful implementation Singapore ▪ UK Hong Kong ■ Singapore ◉ Hong Kong ☐ Reduction in tariffs and pricing to drive ▪ India customer adoption of digital products Encouraging/mandating sharing of customer data between various parties in the financial services industry ■Issuance of tiered licenses proportionate to scale of activities ■ UK ◉ Germany Ireland Singapore India EFINA 22#23Global FinTech Landscape - Enablers The growth of these FinTech ecosystems has been enabled by 5 key factors (2/3) Enablers Initiatives Description Examples countries with successful implementation Alliances between regulators and Global Innovation Agreements associations in various countries to foster innovation in financial services Global 2 Connections FinTech Partnerships Local Investment Initiatives 3 Funding Increased Global Funding UK ■ UAE Australia ■ Direct cross border partnerships between FinTech to encourage knowledge sharing and expansion of networks. ■ Schemes that encourage local investment in FinTech through benefits offered India China UK (UK SEIS) Hong Kong Increased funding to thriving FinTech ecosystems a case of capital finding opportunity India ■ China Singapore Hong Kong EFINA 23#24Global FinTech Landscape - Enablers The growth of these FinTech ecosystems has been enabled by 5 key factors (3/3) Description Examples countries with successful implementation Enablers Initiatives Broadband coverage Ubiquitous broadband coverage and quality and affordability ■ India ■ USA (New York) India 4 Infrastructure Increased device penetration ■ Indonesia India Digital infrastructure University ecosystem Improved smartphone and mobile phone penetration due to lower prices. Initiatives that allow easier access to digital payments products e.g. digital ID, eKYC etc. Ecosystems where tech alumni have strong affiliations with universities and mentor current students National digital training programs to up tech talent 5 Talent Training Programs scale Tech Hubs Existence of big tech and engineering companies which allows for apprenticeships and development of tech hubs India ■ USA (Silicon Valley) Russia Malaysia India EFINA 24#25Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today > Nigeria's FinTech landscape and its evolution Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 25#26Nigerian FinTech landscape - key messages (1/2) The Nigerian financial services space represents significant opportunity for FinTech FinTech in Nigeria are gaining traction by addressing customer pain points across the value chain and attracting significant funding in the process leading to an increasing focus on driving. financial inclusion The financial services landscape is attractive with banking in Nigeria accounting for over $9bn in value pools However, most consumers today face with significant pain points: - - Access to services Affordability Ease of use and products and user experience A combination of unmet needs and increased tech penetration creates opportunities for FinTech to grow in Nigeria FinTech activity is concentrated in consumer segments particularly payments and lending with increasing activity in savings & wealth management. However, gaps exist in MSME lending, insurance and pensions. FinTech are mainly located in Lagos with limited presence in Abuja with most employing B2C models FinTech in Nigeria have evolved from the early players- FinTech 1.0 focused on B2B to the emergence of FinTech 2.0 players focused on niches and the recent emergence of FinTech 3.0 players orchestrating ecosystems These FinTech are addressing critical customer pain points around access, affordability and ease of use of financial services which have historically hindered financial inclusion Investors have been attracted to the growing innovation in FinTech with over $1bn invested over the last 3 years Customers are also increasingly adopting FinTech products particularly the youth & affluent segment 26 EFINA#27Nigerian FinTech landscape - key messages (2/2) Despite the flurry of activity, the amount of impact created by FinTech is still a fraction of the potential ☐ ☐ FinTech can create value across 2 key dimensions. - Economic impact: Increasing the value pool for financial services by bringing in new customers or increasing usage of existing customers Developmental goals: Helping realize impact of digital financial services through increasing financial and gender inclusivity and enabling the digital economy Across these factors, FinTech have made moderate progress on financial inclusion but impact has been limited elsewhere Given the value at stake, a concerted collaborative effort by key stakeholders will ensure enhancement of the FinTech ecosystem and more realized benefits from the promise of digital financial services There are a number of actions that could enhance Nigeria's digital financial services landscape, however 5 of them could yield the biggest impact - Foster innovation - Develop a credit infrastructure - Create a pull for digital ID Increase the tech talent pipeline Expand digital infrastructure A concerted and collaborative effort involving CBN, other financial services regulators (NAICOM, PENCOM), NCC, NIBSS, Donors and Foundations could lay the enabling framework to power the next level of growth EFINA 27#28Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today › Nigeria's FinTech landscape and its evolution Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 28#29Nigeria FinTech Landscape Nigeria has a large population of ~200M people, ~60% are financially included which we have broken into 8 profiles Methodology To assess FinTech adoption across Nigeria, we segmented populations into clusters based on common factors that influence FinTech usage Segmentation Age 18-25 25-40 40-55 55+ Segment 1 1. We used a 5 step segmentation process to segment the population into clusters SME 8 SME Age Gender ✓ Location Income Affluent 6 Young affluent 7 Senior affluent ☑ Occupation Middle Formal 4 5 Middle youth 3 Mass¹ Informal youth 2 2. Per cluster, we determined the likelihood of FinTech usage using education level and tech knowledge as primary filters 2 Formal mass Informal mass BOP2 1 BOP 1. 2. Formal mass separated from informal mass despite similar income levels based occupation and educational level, Informal mass and informal youth combined as both earnings and tech knowledge BOP combined across ages group due to similar income level SOURCE: CBN financial inclusion are similar EFINA 29#30Nigeria FinTech Landscape Overview of profiles Profiles 1 BOP1 2 Informal mass 3 Formal mass 4 Formal youth 5 Middle 6 Young affluent 7 SME owner 8 Senior affluent Description Low income individuals, earning <N20K, uneducated Individuals earning N20k-N100k, low tech knowledge, focused on basic services and Fl Individuals earning N20k-N100k, medium tech knowledge, formally employed Young adults earning N20k-N100k, relatively tech savvy, low disposable income, interested in savings Individuals earning N100k - N400k, tech savvy, savings focused with occasional investments Individuals earning N400K+, medium- high tech savvy, investment focused Earning N400k - N1M+, runs business in Lagos and other medium towns, interested in business expansion opportunities Educated seniors with N1M+ income, amassed wealth N20M+ focused on convenience, medium tech knowledge Examples Rural dwellers Housewife Subsistence farmer Artisan/ Petty trader Okada riders domestic worker Teacher Civil servant Student Early graduate Hustler Young professional Middle aged professional Freelancer Mid-level execs Family business Large trader owner Senior civil servant Senior execs Mid-level civil servants Retirees 1. BOP: Bottom Of Pyramid EFINA 30#31Nigeria FinTech Landscape Across the value chain, there are a large number of unmet needs, especially in the mass and SME segments (usually the excluded) Nigerian financial services revenue pool 2022 projections, Naira Bn High Low High market opportunity BOP1 Informal Formal Formal Core Mass2a Mass2b Youth3 Middle4 SME owner Young Affluent5 Senior Affluent Accounts Savings/ investments Lending Low 384 Medium 80 Low 431 Payments High 100 Low Insurance Total Medium opportunity Competitive Low Low Medium Medium High Medium High High intensity Total market 240 286 469 size ('Bn) Competitive Total market intensity size ('Bn) Key takeaways Lending presents the biggest revenue opportunity - serving customers across youth, SMEs and affluent Growth in the mass market and low competitive intensity makes it an attractive market for FinTech Insurance remains underserved and underpenetrated - opportunities exist in health insurance 1. BOP includes rural dwellers and subsistence farmers 2a. Mass market includes housewives, petty traders, okada riders, artisan/domestic worker 2b. Includes teachers, entry level employees, civil servants 3. Youth includes students, early graduates and hustlers SOURCE: McKinsey Africa Retail Banking report, Team Analysis 4. Middle market include young professionals, mid-level civil servants 5. Young affluent includes mid level execs & middle aged professionals 6. SME owners includes large traders, freelancers, family business owners 7. Seniors include senior civil servants, senior executives and retirees EFINA 31#32Nigeria FinTech Landscape Across all profiles, there are significant pain points across the financial services value chain which if solved can foster financial inclusion Segment BOP and informal mass Formal mass and youth Middle and young Customer pain-points ■ Lack of limited access to financial services products ◉ 回 Pricing of products is greatest barrier to adoption. affluent SME owner & Senior affluent Lack of tailored, products to cater to needs of population (account benefits, saving) Unaffordable rates for financial services products (lending, insurance) Poor user experience on various platforms Limited value added services / benefits from using products. ■ Limited access to lending products at favourable rates ■ Limited access to POS terminals due to high volume requirements ■Limited availability of value added service such as advisory / estate planning ■ Poor user experience Fintech offerings to address customer pain points Fast, affordable payments Cash in, cash out Flexible savings & investments Quick loans 32 EFINA#33Nigeria FinTech Landscape The combination of unmet needs and the growing penetration of smartphones creates an opportunity for FinTechs to grow; which can help drive the extension of Financial services There is an increase in smartphone penetration and customer comfort with mobile technology... Number of smartphones, Millions. 18 +14% p.a. 23 21 Mobile payment transaction volumes, Million 252 2017 1. Extrapolated based on mid-year 2019 data +79% p.a. 8061 576 18 2019 and FinTech are leveraging technology to innovate address unmet customer needs ☐ FinTech are creating new products leveraging the data that smartphones provide e.g. multiple FinTech are using BVN and phone number verification to provide loans to customers - using algorithms on the customer's mobile transactions to determine credit risk e.g. Quickteller Mobile data and UX have allowed FinTech to develop products and go to market directly, leveraging app stores² as a distribution platform to reach over 23 million smartphone users Digital onboarding is becoming easier as banks and FinTech invest in customer education and leverage agents for one-on- one guidance to drive financial inclusion 2. Dependence on app stores for distribution also has implications/risks for FinTech (e.g. Playstore's recent policy on lending apps) SOURCE: e-marketer, CBN, NIBSS EFINA 33#34Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today > Nigeria's FinTech landscape and its evolution > Nigeria FinTech landscape > Nigeria FinTech funding trends > Customer adoption of FinTech in Nigeria > How FinTech could evolve in Nigeria Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 34#35The Nigeria FinTech Landscape The Nigerian FinTech market is undergoing dynamic development FinTech is a fast-growing market Traditional banks are reinventing themselves in response Description ■ Nigeria is home to 200+ FinTechs FinTech activities are primarily focused on payments with increased activities in the lending and savings space Some banks have launched fintech solutions, through inhouse innovations or collaboration opportunities with FinTechs " Key indicators Emergence of 200+ FinTechs addressing various scustomer pain-points The scope of FinTech investment keeps growing Nigeria is becoming an entry point to Africa and a testing bed for innovation The regulator is pushing a digital agenda I FinTech investments in Nigeria grew 197% over the past 3 years, driven primarily by foreign investors, particularly Chinese investors Foreign-backed fintechs have a pan-Africa expansion strategy, with Nigeria as their entry point Nigerian fintechs are increasingly exporting their business models to other emerging markets The regulator has proactively launched initiatives to drive financial inclusion and push for a cashless economy ☐ First Bank's FirstMonie facilitated the deployment of 200,000+ agents across Nigeria GTB's Quickcredit provides access to loans up to N5 mn in 2 minutes ■ 2019 investments include OPay $170 mn and Interswitch $200 mn Flutterwave attracted $35 mn funding in its Series B round in 2020 Migo scaled its business to Brazil Creation of SANEF shared agent network Issuance of PSB licenses to drive rural penetration of financial services Recent reduction in electronic payment charges SOURCE: Market research, expert interviews, team analysis EFINA 35#36Nigeria FinTech Landscape The FinTech landscape in Nigeria is composed of several stakeholders across the private & public sector Primary stakeholders in the ecosystem Development Partners FinTech Media/ online communities and platform Universities/ Innovation labs and Other enablers Operators Educators think tanks Interswitch Card Schemes ΙΠΠ DODO CBN State, local and federal governments T FinTech companies Banks Big Tech Players Industry Association Groups NIBSS Infrastructure Players Key stakeholders in Nigeria's FinTech landscape Private enterprises ((91) Telcos Venture NCC A SEC Regulators Providers of Capital Toll Capital Incubators/ Accelerators NAICOM Angel Investors Private Equity P EFINA 36#37Nigeria FinTech Landscape FinTech activity in Nigeria has evolved from focusing on B2B to a growing number of B2C-focused and ecosystem players 2000-2007 2007 - 2018 2019 - present Key players Core focus Key drivers Regulation Infrastructure FinTech 1.0 SystemSpecs UP eTranzact≫ UNIFIED PAYMENTS innovations that work for you Interswitch ■ B2B services enabling banks and other financial institutions mainly in payments ■ NA EurOPay MasterCard and Visa (EMV) to enable pin and chip card transactions ☐ Paystack FinTech 2.0 paga your cash, anywhere, anytime Flutterwave® cellulant life is mobile CowryWise ρ carbon OPay piggyvest ■ CBN launched PSV 2020 to drive cashless economy ■ Prominence of mobile payments ☐ B2C players focused on specific niches ■ Cashless policy, financial inclusion/ SANEF NIBSS Instant Payment MasterCard Internet Gateway MasterCard Payment Gateway FinTech 3.0 JUMIA ONE palmpay DNA Ecosystem players offering full array of financial and non- financial services e.g. ride- hailing, music NA ■ NA EFINA 37#38Nigeria FinTech Landscape Nigerian FinTechs are primarily focused on payments and consumer lending across formal and informal segments. ESTIMATES McKinsey FinTech Landscape, No of FinTech as % of database Customer segments 11% 6% Consumer SME Corporate/ FSP 30% 18% 20% 4% 0% Share of total banking revenue pools FinTech <5% 5%-7.5% 7.5%-10% >10% x% % of FinTech in database (% adds up to 100%) Д Key insights Payments have served as the entry point for most FinTechs ~90% of customer touch points are in payments Lower barriers to entry in payments ~15% of revenue pools are in payments Lending has also seen growth in FinTech activity Large unmet demand Leverage of analytics on available customer data (e.g. phone data, payment data) to determine lending risk Reduced barrier to entry (players leveraging MFB and State Money Lender Licenses) Rising activity in wealth management: Unmet need for better return Payments disruption enabling increased customer control over their money Gaps still exist in "non-low hanging fruits" areas, specifically MSME lending and insurance 3% 2% 3% 0% 2% 000 1% Insurance 0% Payments 0% Lending Savings & $ Investments Accounts Products/ capabilities SOURCE: McKinsey FinTech database, Panorama Global Banking Pools EFINA 38#39Nigeria FinTech Landscape FinTech activity has initially been focused on the youth and middle segments; although there has been some efforts in the informal (excluded and included) segments Accounts BOP paga your cash, anywhere, anytime Concentration of activities Informal Mass Young Formal Mass Formal youth Core Middle Affluent SME owner paga paga paga K kuda. K kuda. prospa your cash, anywhere, anytime your cash, anywhere, anytime your cash, anywhere, anytime paga Quickteller barter Paystack africa barter POPay Payments P Lending cellulant ife i nebil your cash, anywhere, anytime paga your cash, anywhere, anytime POPay palmpay MINES.IO Quickteller POPay palmpay QuickCheck KwikCash carbon renmoney POPay palmpay Quickteller KC KwikCash renmoney QuickCheck wallets Savings & investments Social Lender Social Lender Bankly CowryWise CowryWise Smart Teller piggyvest piggyvest Social Lender RIBY RIBY FlutterwaveⓇ carbon QuickCheck carbon branch MINES.IO carbon Lidya renmoney schoolable KC KwikCash CowryWise chaka piggyvest RISE Wealth.ng chaka RISE Wealth.ng The youth and middle segment have seen early activity due to the low hanging opportunity arising from many unmet needs (e.g. credit) and the higher propensity to switch to digital alternatives There has been increasing focus on the mass segments particularly in lending & payments as players have been attracted by the size of the segment and regulatory focus on financial inclusion Gaps still remain at bottom of pyramid as very few commercially viable use cases have been developed to serve this segment The MSME segment beyond payment has also seen limited activity Insurance Д angel MC AutoGenius AutoGenius MARI EFINA 39#40Nigeria FinTech Landscape FinTechs are developing innovative value propositions across the financial services value chain (1/2) NOT EXHAUSTIVE Products Sub-category Core value proposition Payments Wallets Processors Remittances Merchant service providers Savings Savings Wealth management Easy to sign up, easy to use stored value wallets using mobile phones and incorporating key use cases for customers across transportation, food & digital services Simplified channels to allow MSMEs and corporates receive online payments from customers Easy, instant cross-border transfers at a fraction of cost & time of conventional players- often leveraging cryptocurrency Merchant terminal providers allowing merchants receive offline payments Automated, disciplined and high return savings for middle class customers & millennials Offer customers investment options in diverse industries on online platform at attractive rates (significantly higher than banks savings accounts) Example players Ppaga OPay your cash, anywhere, anytime. cellulant life is mobile Paystack Interswitch Flutterwave etranzact Bit Pesa SureRemit CHIPPER MAKINE Itex @TOP PAYMENT Global CITISERVE Accelerex CowryWise piggyvest RISE Wealth.ng ↑trove investing, simplified. chaka Indication of traction OPay processes ~ $10m of transactions daily Paga processed $2bn of transactions in 2019 Flutterwave processed over $5bn of transactions in 2019 Paystack processes over NGN 10bn of transactions monthly ChipperCash has over 600 thousand active customers and 3 million transactions monthly PTSPs serve over 120 thousand merchants in Nigeria, though merchants are mainly acquired by banks Piggyvest has acquired ~1 million customers, saving over NGN 1 bn monthly Crowdfunding platforms particularly in agriculture have raised over $25mn from retail investors in last 3 years 40 EFINA#41Nigeria FinTech Landscape FinTechs are developing innovative value propositions across the financial services value chain (2/2) NOT EXHAUSTIVE Products Sub-category Lending Retail lending MSME lending Lending infrastructure Services Personal finance Distribution Accounts Merchant solutions Financial institutions Digital insurance Core value proposition Instant, unsecured, short term loans to retail customers leveraging alternative credit scoring algorithms and data Quick, unsecured working capital loans to MSMEs with minimal documentation Lending platform for banks and other lending players to simplify lending process and provide risk assessment Automated expense tracking, budgeting and investments leveraging machine learning Value added services for MSMEs and merchants such as inventory management, loyalty & accounting Platforms and services for financial services providers to leverage to provide digital services to their customers e.g. software, automation Technology enabled, easy to setup and low cost models to scaling agent networks Fully digital banking services leveraging smartphones Insurance marketplaces Example players carbon •FairMoney ferratum money renmoney Lidya schoolable Indicina Social Lender igo Λ Masase money better REACH LUYSTAR accounteer amart cloud RIBY →Kudi K kuda. 2003 AutoGenius KliQr thank cash teamapt PayCentre NOW Capricorn Digital Digital Solutions and Distribution Now Rubies A Cassava Fintech ALAT Indication of traction Carbon disbursed over $35.6M in loans in 2018 Lidya has disbursed over 10 thousand loans valued at $12mn to 2 thousand MSMEs Migo has originated more than 3 million loans to over 1 million customers in Nigeria since 2017 REACH tracks expenses for over 50 thousand users ThankUCash has processed over $5.5m in transactions on its loyalty platform Riby has 1.1M members and 30k co-ops Team Apt serves over 26 African banks Kudi processes over NGN 1bn per day in transactions Alat has signed up over 350 thousand users since launch Limited traction among players EFINA 41#42Nigeria FinTech Landscape As the Nigerian financial services market evolves, banks are adopting new strategies to remain competitive ■ Build partnerships with FinTechs, opening up their infrastructure for FinTechs to integrate and drive innovation E.g. Ecobank hosts an annual fintech challenge, Access bank's Fintech Foundry which funds and accelerate the growth of Fintech startups Ecobank Fintech Challenge AF AFRICA FINTECH FOUNDRY Sterling Bank ■ Reinvent themselves leveraging. digital technologies to change operating model and deliver new proposition to the market distinct from existing mode E.g. Wema Bank built ALAT, the first digital bank in Nigeria A ALAT A Build partnership D Compete ■Compete with different FinTech players as well as industry peers. with Fintech propositions E.g. First Bank's FirstMonie to drive agent banking and GTB's Quickcredit for loans in just 2 minutes Firstmonie ...close and simple Agent QuickCredit Strategic options for incumbents by WEMA Reinvent yourself B Acquire C Acquire/merge with FinTechs as a means to capture synergies and drive scale E.g. some banks are making equity investments in Fintechs EFINA 42#43Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today. > Nigeria's FinTech landscape and its evolution. › Nigeria FinTech landscape › Nigeria FinTech funding trends > Customer adoption of FinTech in Nigeria > How FinTech could evolve in Nigeria Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 43#44Nigeria FinTech Landscape - Funding FinTech funding in Nigeria has grown at ~197% over the past 3 years Funding in Nigeria USD millions PalmPay Opay Interswitch 459 52 2017 Oor JF 27027484 B FEDERAL RESERVE.NOTE F6 SOURCE: EflnA 2018 FinTech report, Wetracker 2018-19 FinTech report 40 200 Key insights ■ ☐ Funding has grown >190% over the past 3 years driven by increased foreign investments 2019 investments were driven largely by Visa's $200M investment in Interswitch and Chinese capital in OPay ($170M) and Palm Pay ($40M) +197% p.a. 170 105 49 18 2019 EFINA 44#45Nigeria FinTech Landscape - Funding Funding is concentrated on later stage investments and there is a perceived gap in pre-seed funding partly due to limited local participation For deals >$1mn, funding split by stage in Nigeria mirrors global average... Global Funding Pools by stage USD billions Late stage Early stage Nigeria Funding Pools by stage USD billions However, there is a perceived gap in pre-seed funding (<$1mn) partly driven by limited local participation Issues highlighted by FinTech and investors Gap in pre-seed funding "Funding to the industry has improved but it is still difficult for entrepreneurs to raise pre-seed capital of $50-$100k" "People are asking for unreasonable equity up to 30% for pre-seed rounds" FinTech founder 26 36 0.46 FinTech founder 18% 24% 24% Limited local participation "Nigerian investors don't yet understand the venture asset class" "Less than 5% of investments are from local sources" Local VC FinTech founder 76% 82% 76% 2017 SOURCE: Dealroom, McKinsey Panorama 2019 2019 Limited support system for early stage FinTech "Many FinTech founders locally are not prepared upfront for the requirements of fundraising" FinTech leader "There are very few technology lawyers or support structure for entrepreneurs here" 45 Local VC EFINA#46Nigeria FinTech Landscape - Funding This is reflected in the fact that >50% of the funding has gone to companies with foreign affiliations Funding value of top 20 FinTech investments in Nigeria by founder, 2018-2019 USD millions 221 221 Interswitch alone accounts for ~80% of investment attracted by local founders 58 55 ထ ထ 58 253 200 Interswitch Cellulant 561 23 48 23 561 Foreign founders Local founders with foreign affiliations 1 YC companies2 Local Nigerian founders³ Total 1. 3. Founders with foreign/Western college education and/or professional work experience Local founders with no foreign/Western college and/or professional work experience 2. Y combinator companies - Key insights ☐ ☐ Accessibility to funds and preparedness differentiates diaspora founders from local founders, who leverage their networks and deliver funding pitches based on requirements of international investors Foreign accelerators like YC Combinator & 500 Start-ups have helped few FinTech to bridge the preparation and access gap ~84% of funds invested in foreign or foreign affiliated FinTech excluding Visa into Interswitch) EFINA 46#47Nigeria FinTech Landscape - Funding China is ramping up investments in emerging markets like India, however, unlike India, Chinese investment in Nigeria has been focused on Chinese founded businesses China is leading investments in emerging markets like India similar to Nigeria Chinese investment in FinTech 2019 USD, Millions 2018 2019 In India, these investments are typically in local founded and run companies Local Chinese FinTech investor Paytm 817 Alibaba Group 阿里巴巴集团 Founder/ Capital CEO $200M ...however in Nigeria, the investment has been focused on Chinese founded businesses Chinese Chinese company investor P OPay | 源码资本 SOURCE CODE CAPITAL IDG资本 IDG Capital Partners Founder/ Capital CEO $170M 208 96% 43 8 Nigeria India policy bazaar ае Compare. Buy. Save. 95% Tencent 腾讯 NiYO Tencent 腾讯 $130M $35M H H SEQUOIA CAPITAL 红杉资本| CHINA palmpay $40M TECNO 47 EFINA#48Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today > Nigeria's FinTech landscape and its evolution › Nigeria FinTech landscape › Nigeria FinTech funding trends › Customer adoption of FinTech in Nigeria > How FinTech could evolve in Nigeria Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 48#49Nigeria FinTech Landscape - Consumer Survey Key messages from customer adoption of FinTech products ①Highest adoption in Lagos among middle and affluent customers, early traction in the South and nascent activity in the North ✓ 1 Successful players leverage use cases such M as transport, food & bills III Referrals driving adoption especially for women M Trust in FinTech is growing ✓ Customers value accessibility and convenience Customers across segments have the highest FinTech adoption in Lagos, driven by increased awareness, proximity to technology and access Quickteller and OPay are most widely known & used products and have successfully grown their customer base through use cases integrated with customers lifestyles like transport, food & bill payments Even with minimal marketing, women play a critical role in driving FinTech adoption through referral programs, particularly savings Customers are increasingly trusting to FinTech and 40% of lower income and underbanked customers trust FinTech and/or agents the same as or more than banks FinTech adoption is largely driven by convenience and access to products/services which address specific unmet needs EFINA 49#50Nigeria FinTech Landscape - Consumer Survey I: FinTech adoption is highest in Lagos and growing in the South, however, adoption in the North remains nascent Adoption across Nigeria Lagos Adoption Lack of adoption Adoption across segments Index relative to middle/affluent segment Fast adoption of FinTech Adoption driven by close proximity to technologies, higher educational levels, better infrastructure and stronger economic power Mass BOP 3 products in mass customers as they become financially inclusive 70 South High digital adoption across customer segments with individuals using USSD, agents and cards at entry level Youth 87 are likely to explore Middle 100 38% of mass and youth FinTech users use savings products, 62% of whom are females Affluent 100 Adoption remains low due to lower education levels, income and limited access to financial services SME 60 North ° Across segments, lending products more commonly used by males but females focus on money transfer and wallet services FinTech offer the most products to middle segment customers who multiple products and have higher tech knowledge Adoption decreases with affluent and senior affluent individuals who are more likely to use their banks for financial services Senior О Source: Customer interview and survey (n=215), Nigeria - 49% females and 51% males South Abia, North Abuja, Kano, Jos, Kaduna, Maiduguri EFINA 50#51Nigeria FinTech Landscape - Consumer Survey II: OPay and Quickteller are some of the most widely recognized and used FinTech solutions4 Customer awareness on FinTech products is increasing across Nigeria... OPay FinTech awareness % of FinTech users aware of product Usage Percentage, % OPay is the most recognized in Lagos while Quickteller dominates the North and South Lagos¹ % of FinTech users aware of product Usage Percentage, % South2 Usage North³ % of FinTech users Percentage, % % of FinTech users aware of product Usage Percentage, % 48% P OPay 13 30% POPay 88 47% P OPay 53 53 aware of product 22 22 55% 40 Quickteller 78 69% 62% 15 70% Quickteller Quickteller Quickteller paga 63 24% your cash, anywhere, anytime paga your cash, anywhere, anytime piggyvest 49 42% piggyvest 33 23 23 82% 15 37 16% 10 47% paga paga 30% your cash, anywhere, anytime your cash, anywhere, anytime 7 46% piggyvest 30% piggyvest 36% 1. Mainland, VI, Lekki, Ikoyi, Yaba, Tejuosho markey, Unilag, 2. Abia 3. Abuja, Kano, Maiduguri, Jos, Kaduna 4. Out of 19 FinTech - OPay, Paga, Quickteller, Palmpay, Barter, Wallets, Carbon, Branch, Renmoney, Kwikcash, Lidya, Cowrywise, Piggyvest, Flutterwave, Wealth.ng, Chaka, Bamboo, Trove Source: Customer interview and survey (n=215), Nigeria - 49% females and 51% males EFINA 51#52Nigeria FinTech Landscape - Consumer Survey II: Players like OPay and Quickteller became relevant to users by addressing critical use cases and adapting their products to local context OPay and Quickteller successfully penetrated the market with high customer recognition and usage through relevant use cases, customer education and local context adaptation Use case Customer education Contextualization 1. Based on customer survey responses OPay focused on offering transportation and food which account for ~50% of spending at discounted prices to capture customers Quickteller gained customer across the country through its use case of bill payments such as electricity bill, cable, internet as well as wallet payments for airtime and data top-up OPay invested in customer education by employing 10,000 agents who acted as foot soldiers to educate customers on OPay products Quickteller rolled out a vast network of "Paypoint agents" and recruited members of the community (business owners, NYSC members, job seekers etc.) to be agents, educating customers on Quickteller usage and incentivizing individuals to register and enroll new customers onto the platform OPay tailored its services to local context by providing "Keke" services for transportation and Hausa in Northern Nigeria to cater to customer needs Quickteller leveraged partnerships with its billers to push Quickteller payment to their customers e.g. cable providers, electricity companies, educational institutions etc. Source: Customer interview and survey (n=215), web search, team analysis EFINA 52#53Nigeria FinTech Landscape II: OPay is attempting to embed itself in the lifestyle of mass and youth customers Tunde the hustler's interaction with OPay throughout day ILLUSTRATIVE A B Ρ OPay ■ Wakes up ■ Takes ORide to town for his daily trade Tops up ORide account with N1000 for the week G Buys airtime using OPay app F E Buys breakfast at local restaurant MamaSam and pays with OPay QR and gets N50 cash back Needs a short NGN 20,000 loan to buy materials for a contract. Applies and get loan through Okash Places bets on Bet9ja event for himself through OPay app Sends money to his mother for her upkeep and mother picks up money from agent On his way home, requests an ORide, gives driver N3000 to top up his own wallet H Saves the N3000 in OWealth account as daily savings D Visits his clients for repairs and clients pay him via USSD Visits local bar through ORide J EFINA 53#54Nigeria FinTech Landscape II: Other FinTech products are increasingly gaining traction especially among SME owners Chima the SME owner's interaction with fintech products ILLUSTRATIVE A B C Bolt Takes Bolt ride hailing service to travel to his mini-market in Yaba Generates customer invoices and applies for N200,000 quick loan on Lidya to purchase inventory F E Deposits N50,000 in Piggyvest account - N20,000 savings and N30,000 in agriculture investment G Deposits money in account via agent to avoid queues at the bank H Pays supplier via Flutterwave for inventory delivery D Walk-in customers pay for merchandise using Quickteller, Paga, cards on POS or cash Orders food on Jumiafood and pays online with JumiaPay Closes shop and deposits money in business account at local bank branch Takes Uber home | EFINA 54#55Nigeria FinTech Landscape - Consumer Survey III: FinTech adoption has been driven by referrals, with women playing a critical role in adoption, especially around savings products FinTech referral in Nigeria 55% of customers heard about FinTech products through a friend 65% of women using FinTech in Lagos heard about a FinTech product through their friend 60% of women using FinTech in the North heard about products through referrals Products often referred Savings Wallet ° Customer quotes I joined because my friend sent me a referral code and when I invited someone else, I got N1000 reward Piggyvest customer, Lagos We all entered Quickteller's customer referral to win NGN 1M. So I registered a lot of people Quickteller customer, South Accounts My friends share any promo they have with me. It's part of the sisterhood Cowrywise customer, Lagos Source: Customer interview and survey (n=215), Nigeria - 49% females and 51% males EFINA 55#56Nigeria FinTech Landscape - Consumer Survey Trust in FinTechs in Nigeria is growing, although customer trust remains higher in banks Customers trust in FinTechs is growing... Low trust particularly amongst lower income segments Percentage of FinTech users who trust same as or more than banks, % Increased trust is driven by 4 factors, primarily agent relationships 1 Agents Better experience 2 / accessibility Ease of money withdrawal People trust me because I am a member of the community and they know their money is safe Agent, Lagos It's convenient, fast, reliable, and the occasional bonus N300 after every Use OPay user, Lagos I know how much they charge me unlike banks that will just be deducting charges Paga user, South When we get paid for our goods, we withdraw our money from the wallet unless we have other agric. products to buy Cellulant user, North High trust 51% of youth and mass customers trust FinTech the same as banks 3 Pricing/ transparency ... and ~33% trust FinTech more than or equal to banks for swift transactions Percentage, % Trust bank more Same as bank 26 SME owners trust FinTech due to fast settlements More than bank 7 Source: Customer interview and survey (n=215), Nigeria - 49% females and 51% males EFINA 56#57Nigeria FinTech Landscape - Consumer Survey V: Customers value access and convenience, which has driven increased FinTech usage over the past 6 months FinTech usage has increased over past 6 months... and access is the highest contributor to adoption Rationale for usage Access and convenience Value Price I can pay all my Other Access and convenience More usage Less usage 54% of customers have increased their FinTech usage over the past 6 months Source: Customer interview and survey (n=215), Nigeria - 49% females and 51% males 13 29 57 Trust Value / service my bills, do my transfers on my phone without going to the branch Youth, East When I cannot go to the bank, I go to the agent around here and can immediately see the money in my account SME owner, East It gives me the discipline to save and restrict when I can withdraw the cash Middle customer, Lagos EFINA 57#58Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape > The Financial services landscape in Nigeria today › Nigeria's FinTech landscape and its evolution > Nigeria FinTech landscape › Nigeria FinTech funding trends > Customer adoption of FinTech in Nigeria > How FinTech could evolve in Nigeria Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 58#59Nigeria FinTech Landscape The FinTech space is expected to continue to grow, particularly across 5 sectors (1/2) Growing sectors Online payments Retail lending Wealth Early bets management Why Digital economy is expected to continue to grow with many merchants accepting online payments and other commercial use cases emerging Despite growth, there's still significant under-penetration of retail lending Could be the entry point for mass & BOP segments into digital financial services With payments becoming seamless and information being democratized, consumers have more control over their money and will start to look for higher returns SOURCE: Expert interviews, Stakeholder interviews, web search, Team analysis Early indicators Online payments have grown at 28% CAGR over last 3 years Flutterwave is processing over $5bn in transaction volumes after 3 years Paystack processes over 25% of all online payments in Nigeria daily 8 out of the top 10 financial apps in the Google Play store in Nigeria are lending apps Online lenders continue to record 80- 100% annual growth in credit disbursed In the last 6 months, 6-8 players have entered the wealth management space Crowd funding platforms have raised $10M+ from retail investors. Opportunities Escrow services for e-commerce Vertical solutions e.g. for health, education Non-cash lending (e.g. POS lending) P2P lending (e.g. via cooperatives) ■ Lending infrastructure (e.g. ☐ central credit score) Lending analytics for BOP/mass and non-salaried individuals Robo-advisory to help people make investment decisions Alternative investment platforms (e.g. real estate, SME financing) EFINA 59#60Nigeria FinTech Landscape The FinTech space is expected to continue to grow, particularly across 5 sectors (2/2) White spaces Offline payments MSME lending Why Cash is still significant in the Nigerian market but CBN push for cashless is making cash more expensive (e.g. NIP transactions less than NGN 20k costs less than an ATM withdrawal) ■ As mobile wallets become more mainstream, people will need use cases to drive more offline transactions ■ Underserved market that is growing Increasing digitization of payments (via both online & offline payments) will make it easier to lend to MSMEs National asset registry will make it easier to fund SMEs Early indicators POS payments are 6X the size and growing faster than online payments at 40% CAGR (vs 28% for online payments) ■ Consumers are already making retail payments using mobile apps and USSD, but process still has friction for merchants Retail lenders like Carbon are starting to explore the MSME lending space ■ SME focused lenders like Lidya and Lendigo are emerging, though still relatively small in size Opportunities ◉ Offline payments infrastructure platform (similar to UPI¹) Merchant acquisition Merchant service providers (e.g. POS, loyalty) ■ Invoice discounting Value chain financing Credit scoring & lending for SMEs 1. Unified Payment Infrastructure SOURCE: Expert interviews, Stakeholder interviews, web search, Team analysis 60 EFINA#61Nigeria FinTech Landscape - Player archetypes Based on emerging trends and learnings from other markets, 3 archetypes of FinTechs will continue to exist in Nigeria Ecosystem orchestrators (Fintech 3.0) Mid-sized niche players (Fintech 2.0) B2B enablers (Fintech 1.0) Description Large, deeply funded players, operating as a platform/superapp that acts as a gateway for customers to a wide range of services beyond financial services (e.g. transportation) ■ These type of players could also be 'TechFin'- technology companies with existing customer bases that offer financial services as an add-on offering ■Longer tail of medium sized businesses who are focused on executing on individual verticals (e.g. payments, savings) or geographies (e.g. Northern Nigeria) or segment (e.g. SMEs) Experience in other markets suggest, these type of players thrive in their domain of expertise, solve distinctly local problems and are often acquisition targets for the larger players FinTech focused on enabling banks, telcos, corporates or other FinTech to improve their offering ■ Could start out as B2B or have pivoted from a B2C model with a great product but limited traction and challenging Source: Expert interviews, Web search economics Indonesia examples India examples Nigerian examples GO JEK Paytm P OPay Grab Мока Kredivo Buy now, Pay later C88 al akulaku LENDINGKAT Pine Labs policy bazaar Insurance compare kiya? TM com → piggyVest Bankly W digit CRED paystack carbon Mbiz redcarpet P EFINA 61#62Nigeria FinTech Landscape 3 broad elements will determine likely winners but importance will differ by archetype Key elements Playing in the right sector Right strategic bet Characteristics of successful players Playing in large, relatively untapped market with significant potential to grow Scalable business model B2C business model with a low cost and scalable distribution model Clear customer needs Clear value proposition Product market fit Strong founding team Execution Deep funding pool Identified a clear set of unmet customer needs where customers have demonstrated willingness to adopt ■ Great user experience (i.e. built and customized for local context e.g. local language, social commerce) with resulting high degree of user adoption Founding team with strong track record of execution and with the right mix of skills tailored for the sector of focus ■ Access to significant funding pools from foreign or local investors to fund rapid scale and customer acquisition SOURCE: Expert interviews, Team analysis Low Medium High Very high Ecosystem orchestrators Degree of importance Niche players B2B enabler EFINA 62#63Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 63#64Impact Assessment In the long term (5-10 years), FinTechs can create impact on three broad dimensions - economic impact, development goals, and multiplier effect Unlock economic impact FinTech activity in Nigeria could impact the economy by: ☐ ☐ Expanding the revenue pools by ~18% in additional retail revenues Attracting up to $3bn in foreign direct investment from global investments in FinTech Contributing to the Digital Financial Services GDP uplift of $50bn by 2025 driven by increased productivity, increased capital and increased labor hours from digitization Enabling increased consumer consumption and MSME growth through innovation on new lending models Increase participation & accessibility across development goals Digital financial inclusion can positively impact the livelihood of Nigerians by: Providing financial service products to rural communities and unbanked populations. Enabling digital and financial inclusion of women which drives increased spending on education, healthcare and raised quality of human capital in the economy Leveraging technology to increase coverage extension through pay-per-use and lower cost solutions in education, healthcare, agriculture, etc. M Increased FinTech activity could indirectly impact the economy by: Unlocking new business models beyond financial services (e.g. logistics) Fueling the growth of e-commerce Source: MGI Digital Finance for all 2016, Literature review, team analysis Multiplier effect ■ Increasing job creation and STEM talent pipeline EFINA 64#65Nigeria FinTech Landscape - Impact Assessment FinTechs could add up to ~$3bn through investments into the economy and ~ $1bn in additional revenues to the financial services industry in the long term FinTech have accounted for ~10% of direct investment into Nigeria from 2017-2019 and can contribute pre-COVID-19 estimates of up to $3bn².... FinTech investment in Nigeria USD Mn High 2019 inflow driven by investment to Interswitch $200mn and OPay $170mn 459 ... + with potential impact to increase retail banking revenues by ~$1bn by 2025 Pre-COVID estimates 650 524 Retail banking revenues USD Mn 1,484 3,428 1,161 4,589 379 105 52 2017 2018 2019 2020F 2023F 2025F 1,944 2019 Banking revenue pools BAU growth 2025 Banking revenue pools Additional uplift from fintech 2025 total banking revenue pools potential Payments have the potential to financial survives revenues $1bn driven by FinTech activities While forward funding projections depend on the complex interplay between economic activity, investor sentiment and evolution of the COVID crisis, we expect to see a downward trend in Nigeria, similar to global trends 1. Payments, Savings, Lending (excludes wealth management) 2. Sum of $3bn includes projected figures on chart for years 2020, 2023 and 2025 and figures for 2021-$422mn, 2022- $470mn and 2024-$583mn Source: Nigeria Bureau of Statistics, McKinsey Global Banking Pools, team analysis, EFINA 65#66Nigeria FinTech Landscape - Impact Assessment FinTech activity has the potential to grow financial services revenue pools Corporate Expansion of product offerings Increased payment volumes due to value chain digitization Cannibalization of traditional bank offerings Increased lending through automation of lending processes SME Expansion of accounts & deposits by formalizing informal SMEs Reduced margins e.g. by offering interest on current Increased revenue pool from online payments Digitization of cash collections Reduced margins e.g. on transfers Retail SOURCE: Team Analysis accounts Increased revenue due to higher interest rates + Increased inclusion into the formal credit system Disintermediation through B2B lending Increased investment by SMEs Increased access and adoption of products Reduced premium margins New customers by creating increased access to accounts for BOP Reduced margins on accounts for conventional customers Digitization of cash payments Value add services e.g. expense tracking, advisory etc. Reduced margins on payment fees Increased revenue due to higher interest rates Increased inclusion into the formal credit system Accounts Payments Lending Increased savings mobilization due to ease of use & education Formalization of savings Increased access to wealth products e.g. stocks Reduced overall margins due to higher interests Cannibalization of traditional savings accounts Offshoring of value from foreign investments Savings & Investment Increased access and adoption of products Reduced premium margins Insurance EFINA 66#67Nigeria FinTech Landscape - Impact Assessment FinTech are contributing to the digital financial services opportunity in GDP and job creation across 3 levers A Financial Inclusion $50bn in GDP by including an additional 46mn people into the formal financial system in the next 5-10 years € A a ㅇ B Gender Inclusion 34% increase in Africa's GDP in a scenario where men and women play identical roles in the labour market Digital Financial Services SOURCE: McKinsey Digital Financial Services Report, McKinsey Power of Parity Report C Digital Economy Creation of 3mn new jobs by enabling the $115bn digital economy 12141 Online Banking Personal Account Account Detaile Mobile Payment 67 EFINA Personal Loan Deposites Gamer Baume Bank Vis 1234887 Gamer B#68Nigeria FinTech Landscape - Impact Assessment FinTech penetration will boost human capital development Drive financial inclusion for the ~40% financially excluded population N Increased talent development in tech education e.g. computer science, coding, programming etc. Financial Inclusion Education Foster female adoption of DFS to increase welfare and family productivity as women spend more on food, education and healthcare Provide access to healthcare and health services to individuals including micro-insurance Gender inclusion Public health الار Agriculture Increased access to financing for agriculture bell • Source: MGI Digital Finance for all 2016, Literature review, team analysis Social Impact 68 EFINA#69Nigeria FinTech Landscape - Impact Assessment Nigeria still faces a significant financial inclusion challenge Almost 40% of Nigerians are financially excluded... Size of banked and unbanked population in Nigeria Millions of people Financially excluded Formal other Banked ...and majority of the banked are also underbanked Share of services used by banked population % 2016 2018 Informal only 96.4 Remittances 99.6 Savings with a bank 36.6 40.1 Payments 12.1 14.6 9.4 8.9 Income receipt 8.4 10.0 36.9 39.5 Loans 2016 SOURCE: EfinA Access to Finance 2018 Report 1.3 24.2 22.4 27.7 21.0 1.3 9.7 Banking agents 2.6 3.3 2018 15.5 મી EFINA 69#70Nigeria FinTech Landscape - Impact Assessment પે There are 4 key levers through which FinTech are driving financial inclusion (1/2) Key Levers Access Pricing Description Financial products and services within easy reach of all segments of the population Financial affordability and ability of products to accommodate various income/economic groups FinTech Impact FinTech have increased access through new savings and lending models: Access to Savings Over 1 million customers saving on platforms like Piggyvest & Cowrywise with 60%-70% being first time savers Access to Lending Over 3 million customers with increased access to lending through FinTech such as Carbon and Migo Over N50 billion loans disbursed annually through FinTech such as Carbon and Migo FinTech have increased product affordability through reduced charges and cheaper transfer fees: FinTech tend to be 50%-80% cheaper than traditional players in transfers, bill payments and airtime purchase FinTech are offering 2-3X the interest rates on savings compared to traditional players SOURCE: Company Websites, Press Search EFINA 70#71Nigeria FinTech Landscape - Impact Assessment કોમ There are 4 key levers through which FinTech are driving financial inclusion (2/2) Key Levers Product design/ innovation i Education (perception) Description Design of financial products that cater to the needs of various segments of the population across culture, religion, gender, geography etc Education of consumers on the needs and benefits of financial products and services FinTech Impact ☐ - FinTech have led innovation in 3 out of 5 product areas, spurring imitation from traditional players: Savings & Wealth Management: Disciplined savings models through FinTech like Cowrywise Digitization of Cooperative savings through FinTech like Riby Digitization of Esusu models through FinTech like Bankly Lending Aggregation of smartphone data points to disburse documentation and collateral free loans e.g. through Carbon Payments Online IVRs in various languages e.g. through Softcom Migration of customers to wallets via lifestyle use cases e.g. OPay A few FinTech are making modest efforts at consumer education, with significant room for improvement: Lending: Free credit reports (e.g. on Carbon) educating consumers on credit health Savings: Educating consumers on maintaining financial health e.g. Piggyvest's WAEC score enlightens users on their saving habits and how they can improve SOURCE: Company Websites, Press Search EFINA 71#72Nigeria FinTech Landscape - Impact Assessment Female participation in FinTech remains low in Nigeria and adoption in concentrated in payments and wallet offerings Despite a low number of female-founded companies in Nigeria, 48% of FinTech have women in senior management positions Female founders 22% of top 50 FinTech2 have female co-founders મી FinTech adoption is lower for women 5 in Nigeria relative to men and concentrated in low sophisticated products Female adoption of FinTech for Rationale for low adoption mass and youth, % Accounts/ wallets 35% Women in senior management³ 48% out of top 50 FinTech have women in senior management position Payments Savings 4 (4%) FinTech funding >$1mn Only 2 companies with female co-founders have raised $1mn+ in 2018-2019 Lending 2% $ 59% 2. Determined based on Weetracker and Britter Bridges reported FinTech, team analysis 1. Based on interviews with various stakeholder and team analysis on top 50 FinTech 3. Senior management includes partners and executive positions 4. Publicly announced funding of FinTech in Nigeria 5. Based on 215 customer interviews across Nigeria 6. Use at least one FinTech product 7. Carbon SOURCE: Customer survey, company websites Only 17 out of the top 30 FinTech in Nigeria has designed a product specifically for women Companies do not create products to solve specific women's needs EFINA 72#73Nigeria FinTech Landscape - Impact Assessment Fintech solutions could create a multiplier effect on the economy across several sectors NOT EXHAUSTIVE Areas that could be impacted by increased DFS Twelve distinct ecosystems have been identified Housing Digital content Mobility Education Healthcare Travel & Hospitality B2C Marketplace (e- commerce) B2B Marketplace economy Sharing & Social networ B2B services Public services Wealth and Protection Global Corporate Services In Nigeria, FinTech impact is already observed on a few Travel & Hospitality New online business models leveraging digital payment solutions (e.g. WAKAnow, Hotels.ng) Healthcare Offer businesses and individuals to spread costs of insurance premiums over regular installments (e.g. Reliance HMO) Housing Provide financing for annual fees for e.g. school, memberships or commercial services (e.g. Fibre) Education Create environment that generates more interest in STEM, thus increasing talent pool of computer scientists, developers etc. SOURCE: McKinsey analysis, IHS World Industry Service, McKinsey Digital Finance for All report 73 EFINA#74FinTech have enabled the rapid growth of e-commerce, travel, mobility and agriculture over the last 3 years (1/2) E commerce Travel & Hospitality How Nigerian FinTech have enabled growth ■ Facilitated easy access to accepting online payments by e-commerce merchants e.g. Flutterwave and Paytstack Provides insight on business performance e.g. Paystack Enables growth of e-commerce businesses through working capital financing e.g. Lidya ■ Create solutions to enable sale of airline tickets & hotel bookings online e.g. Quickteller Enable local and international airlines receive payment from online customers e.g. Flutterwave Example of impact ■ Paystack & Flutterwave have: Cut down time to setup online payments from ~ 3 months to 15mins Lidya & Lendigo have issued over 5 thousand loans to small e-commerce merchants Growth in online air travel booking penetration from 0% to 13% over 12 years enabled by digital payment solutions ■ Enabled growth of online. travel merchants e.g. Wakanow,, Travelstart ng Global Examples - Stripe, US: Enables online payment processing for internet businesses Kabbage, US: Offers quick, flexible lending/funding solutions for businesses ■ Monzo, UK: Allows for online and card payments in any country at no charges SOURCE: Company Websites, Press Search EFINA 74#75FinTech have enabled the rapid growth of e-commerce, travel, mobility and agriculture over the last 3 years (2/2) Mobility How Nigerian FinTech have enabled growth ☐ Enabled operations of global ride hailing services e.g. Uber and Bolt through Paystack and Flutterwave's digital payment solutions Enabled penetration of bike-hailing services through digital payments and agent services egg ORide through OPay Impact ■ >9,000 ride hailing drivers in Nigeria enabled through payment solutions Global Examples Gojek - Enables ride hailing through mobile wallet - Over 2 million driver jobs created in Indonesia Agriculture ☐ Facilitated increased funding to the agriculture space through crowdfunding e.g. Farmcrowdy and Thrive Agric Created digital marketplaces to facilitate trade in agro-comodities and manage payments e.g. Agrikore by Cellulant ■ Increased transparency and efficiency in agro- subsidy programs e.g. Cellulant's fertilizer subsidy wallets ■ ~$30 million in loans disbursed to farmers by crowd-sourcing platforms Over 12 million farmers were reached by the fertilizer subsidy wallet Farmdrive, Kenya: ― Enables access to loans for farmers by creating credit scores ■ Farmecco, Australia: - - Captures financial elements of farmers business and generates live reports that help monitor costs and revenues SOURCE: Company Websites, Press Search EFINA 75#76However, significant opportunity still exist to enable solutions within education and health which will cut across all segments, and can help empower the BoP Education Health Global examples of impact SoFi, US: Enables students refinance existing loans 18 billion in refinanced student loans 300,000+ SoFi members have refinanced loans Flywire: Provides tailored end to end global payments solutions for schools - $10 billion in total transaction volume BIMA Provides affordable mobile health and insurance services to underserved individuals - 26 million customers in 15 countries ■ Microensure - Affordable insurance to undeserved groups by bundling with airtime and micro loans >40 million customers mPharma Financing inventory of drugs at pharmacies - 400k patients in 5 African countries SOURCE: Company Websites, Press Search Early progress made in Nigeria Providing end to end financing and payments solutions for schools and parents e.g. Schoolable Enablement of new payment models for low cost school administration with fees in monthly microPayments e.g. Bridge Academy Enablement of new payment models for Health insurance e.g. Reliance HMO allows monthly payments for health insurance Additional opportunities for impact Student financing (short & long term loans) e.g. income sharing agreements End to end payment platform for universities Digital learning platforms with online payments Affordable health insurance for mass & rural dwellers leveraging mobile Vendor managed inventory End to end payment platform for hospitals Payor-Provider payment & management platforms EFINA 76#77Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape <<< oood Impact of FinTechs Recommendations and Implications for Stakeholders Appendix EFINA 77#78Recommendations There are 5 key imperatives for stakeholders in order to capture the potential opportunity in the Nigerian FinTech ecosystem Innovative 01 Regulatory Environment Foster regulations that support innovation Establish regulatory sandbox that allows FinTech test ideas in a controlled environment Set up helpdesk to help FinTechs navigate regulations Set up innovation office/team to update regulations based on sandbox outcomes Targeted efforts towards solving industry wide issues (e.g. "99 paint points Hackathon") Provide access to standardized APIs Key stakeholders CBN, NIBSS,SEC, NAICOM, PENCOM, NCC etc. 02 Digital ID 03 Credit Infrastructure 04 Digital Infrastructure Create pull for digital identity e.g. BVN, NIN, Voters ID etc. ■ Encourage digital ID registration as a prerequisite for receiving donor benefit (e.g. cash transfers, health, food programs etc.) Expand access to infrastructure required for enrollment Accelerate the harmonization of various digital ID systems (NIN, BVN, Voters ID etc.) into centralized system Key stakeholders Development organizations/ Foundations CBN, Partner agencies e.g. Ministries, SANEF, NIBSS, hospitals, schools, Develop central credit infrastructure Enforce reporting compliance to Credit Bureau for all Lenders Task central body to provide data for alternative credit scoring (e.g. payment transaction data) to stimulate MSME lending Key stakeholders Credit Bureaus, Commercial Banks, Lenders, NIBSS 1. Global Standing Instruction will allow lenders to collect default loan repayments from an individual's or company's from any bank across the country Some states have started reviewing the Row charges in the wake of COVID 19 2. Accelerate the deployment of digital infrastructure ■ Cost effective digital access to all customers (e.g. explore the modalities of inclusive pricing for USSD) Drive down cost of smart feature phones by developing partnerships to assemble low cost phones in free-trade zones Drive down cost of data by promoting transparency of regulatory fees around Right of Way (ROW) permits and reduce build-out cost by encouraging infrastructure sharing² Key stakeholders NCC, MOF, Local and State Governments, Telcos 05 Talent Pipeline Grow the talent pipeline Scale up developer training programs through standard curriculum and delivery partnerships with Universities or independent training centers situated close to University campuses Develop apprenticeship programs at scale by partnering with various stakeholders to absorb talent for internships from trained pool Build central talent database of trained developers and promote widely to connect demand with qualified supply Key stakeholders Development organizations/ Foundations, Federal, State and Local Governments, Industry players, Investors 78 EFINA#791: A regulatory sandbox allows innovative firms to test ideas quickly and cost effectively within a safe environment Definition A regulatory sandbox is a controlled environment in which innovative businesses can test their ideas under the guidance/supervision of a regulator Key Elements of a Regulatory Sandbox Waivers Guidance Relaxation of specific legal and regulatory requirements specific to the test Tailored guidance for firms to support implementation of the test Limited authorization Requirements of authorization from regulatory body to get into sandbox and conduct regulated activities. EFINA 79#801: Countries have created different variations of a regulatory sandbox Proposed model for Nigeria Case countries Model 1 Sandbox environment 2 Innovation office Description A regulatory sandbox is a framework set up by a financial sector regulator to allow small scale, live testing of innovations by payment players in a controlled environment Innovation offices engage with, and provide regulatory clarification to, financial services providers that seek to offer innovative products and services 3 Sandbox + Innovation office Implementation of both to drive innovation sandbox and innovation office, Pros + Allows players test financial services and business models with actual customers May be an important tool for developing evidence-based policy Implementation is cheaper than sandboxes Compelling option for capacity- constrained regulators in emerging and developing economies, due to easier establishment Combines benefits of both innovation office and sandbox Cons Complex to set up and costly to run Regulatory questions raised in connection with sandbox tests can be effectively resolved without a live testing environment Neither necessary nor sufficient for promoting financial inclusion Does not allow players test ideas with actual customers May be expensive to implement € SOURCE: UNSGSA Early Lessons on Regulatory Innovations to Enable Inclusive FinTech report Switzerland Norway Germany KUK 80 Singapore India Sweden EFINA#811: To reach full potential, the Nigerian sandbox needs to incorporate these key elements Type Key Components Regulatory Sandbox Waiver ✓ Innovation Sandbox Innovation Office QQ ☑ SOURCE: Expert Interviews, Team Analysis 8 Description Low Medium High Priority Relaxation of legal and regulatory requirements specific to tests Regulator Collaborations CBN collaboration with other regulators e.g. NAICOM, PENCOM API standardization API Access Helpdesk Regulatory review Basic standard for APIs in sandbox to ensure ease of connection for FinTech (could be achieved through NIBSS) Enable access to relevant APIs for firms who are part of the sandbox Play 'midwife' role in assisting and guiding FinTech who wish to test ideas Clear process for updating regulations based on sandbox outcomes EFINA 81#821: The investment required to foster innovation could be significant, but can be achieved if CBN works in collaboration with other stakeholders Banks, Telcos, Government Agencies, Data Providers Sharing of useful data ■ Provide APIs based on mutually beneficial commercial arrangements Development Partners FinTech Regular interfacing with the CBN and other regulators in order to ensure FinTech interests are considered CBN ☐ Waivers Review/Case officers to highlight potential regulatory waivers Innovation Helpdesk: Team dedicated to guiding firms through design and implementation of testing Updated guidelines: Team and clear process in charge of monitoring and updating regulations based on sandbox outcomes Collaboration: Extend invitation to other stakeholders ■ Fund regulatory sandbox support: Innovation helpdesk that guides FinTech on requirements and helps with clarity. ■ Sponsor 'hackathons' to encourage FinTech to solve industry and development problems through innovative ideas Other Regulators E.g. NAICOM collaboration in order for Insurtechs to test ideas and for regulations to be updated as necessary NIBSS ☐ Provide access to standardized APIs through standard platform to enable access to data from financial services and other industry players ■ Define minimum standard for FinTech to commit and manage overall security of sandbox EFINA 82#832: Mandating digital ID as a pre-requisite for accessing social benefits has the potential to create significant pull for the digital ID which could accelerate the update of financial services by all Key components $1100 001 Objectives Create pull for digital ID by driving donor fund Make digital ID compulsory for disbursement to accessing social benefits 0001 individuals with digital IDs Ensure infrastructure for the creation of digital ID is available for consumers Use the service delivery centres as enrolment points Donors Partner agencies ■ Mandate that donor funds and benefits will be tied to ownership of digital ID Examples of benefits include cash transfer programs, agricultural subsidy programs for fertilizers, healthcare benefits vaccines, malaria treatments, HIV, pre/post natal care, food programs at schools, local communities etc. Leverage service delivery points such as health centers, microlending agencies, educational centers etc. as enrollment centers for digital ID Stakeholders Examples include Gates Foundation, DFID, USAID etc. ■ Various ministries and partners Hospitals and health centres ■ Food and agriculture programs SOURCE: Expert interviews, Stakeholder interviews, team analysis Educational institutions EFINA 83#842: Donor could drive digital adoption by setting digital ID as a pre-requisite for accessing funds and benefits ☐ How the digital ID drive میرا will work ■ All donors agree to disburse funds and benefits to individuals with digital ID ■ New agreement shared with partners and communicated nationwide through various channels ◉ Digital ID registration devices deployed at service delivery centers and staff education on registration process ■ Welfare recipients registered at service delivery point before fund/benefit disbursement Digital ID used as tracker subsequent fund disbursement Driving digital ID adoption Donor organization Customers/ Communicate digital ID registration requirement Seek donor funds from delivery point fund recipient Benefit to digital ID Nationwide communication Partner organization ■ Increased digital ID adoption especially with unbanked population ■ Increased transparency in donor fund/ benefit disbursements ■ Increased financial inclusion Service delivery point Complete digital ID registry Fund disbursement SOURCE: Expert interviews, Stakeholder interviews, team analysis EFINA 84#853: To boost retail lending, a shared infrastructure player e.g. NIBSS should develop a central credit infrastructure comprising credit scoring and collections infrastructure m Central credit scoring system Create a alternative credit scoring system that leverages combination of transaction and other customer data (bills, airtime purchases to provide lending products to individuals as SMEs NIBSS transaction data could be the starting point for the credit scoring and could be augmented subsequently by data from credit bureaus, telcos etc. (through a commercial arrangement) Collections infrastructure incorporating (GSI) Develop central loan collection infrastructure that enables customers easily set direct debits on their account for loan repayment Incorporate GSI to allow lenders recover delinquent loans. from customers accounts across banks Central Credit Infrastructure (e.g. through NIBSS) 1. Global Standing Instruction SOURCE: Expert interviews, Stakeholder interviews, team analysis EFINA 85#863: The central credit scoring infrastructure will leverage transaction and customer data to develop credit reports for customers EXAMPLES What's the need today? Today, banks and financial institutions rely on multiple sources to evaluate the creditworthiness of customers and businesses, which is a costly process 血血血 Credit bureaus which currently has > limited scale Private and ΙΠΠ public employers for employment and income verification Set up NIBSS as the "one- stop shop" for credit checking and fraud detection NIBSS Transaction details, frequency, financials history from central switch Credit bureau + Aggregated customer data from different banks - address, financial history, loan amount Banks + Account balance, address information, payment amount and history How the central credit scoring could work 1 NIBSS uses customer data from transaction volumes to build credit score for customers Can be done in Phase 2 NIBSS transaction data Credit bureaus Alternative data sources Utilize innovative software to generate credit scores from customers using customer data from NIBSS central switch 1 1 Central credit infrastructure 2 Customer consent (partner institution side) Customer applies for a loan with financial institution / banks I agree to share my information with third party service providers, to secure additional information that will be useful for evaluating my creditworthiness 3 NIBSS shares customer's credit rating with partner institution Information on the customer run through database and credit report sent to partner (fee is charged for every pull) Credit scoring system 3 2 Customers 2 Lending institutions SOURCE: Expert interviews, Stakeholder interviews, team analysis EFINA 86#873: To build lender confidence, NIBSS could develop a collection infrastructure that incorporates digital direct debit mandates and the GSI ◉ Operationalize credit collection infrastructure in Nigeria ☐ How the collection infrastructure could work Customer request for credit facility through FinTech or financial institution Upon loan approval, customer sets up direct debit through central loan collection infrastructure (NIBSS) for loan repayment Customer provides consent to NIBSS to collect default payment from other bank accounts linked to his/her BVN through GSI system NIBSS collects loan repayments from customer's primary account In the event of loan defaults, lenders recover delinquent loans from other bank accounts through GSI 1. Global Standing Instruction ㅁㅁㅁㅁ NIBSS Customers 1 3 central Loan request and approval Signed consent collection to bank and NIBSS 2 Set up direct debit payment Lending institutions Collection from other 5 banks 4 6 Loan repayment Other NIBSS banks pays delinquent loan Benefit to overall credit infrastructure Create visibility in consumer lending across Nigeria Increase appetite for consumer lending from financial institutions Reduce risk of loan defaults with increased visibility SOURCE: Expert interviews, Stakeholder interviews, team analysis EFINA 87#884: The telecoms industry should make concerted efforts to improve broadband coverage, affordability while driving device penetration Key components Objectives Drive digital coverage across Nigeria by improving broadband infrastructure and access, reducing cost of data and increasing smartphone penetration Improve broadband coverage Reduce the cost of data Drive down price of smart feature phones Designate USSD as critical infrastructure to provide cost effective access to all customers Encourage fiber optic infrastructure sharing from various market players - telcos, internet service providers etc. > Drive down cost of data by promoting pricing transparency and encourage infrastructure sharing > Drive down cost of smart feature phones by developing partnerships to assemble low cost phones in free-trade zones in Nigeria Stakeholders NCC Telcos Ministry of Finance SOURCE: Expert interviews, Stakeholder interviews, team analysis Local and State Gov't Encourage sharing of infrastructure among telcos and internet service providers ■ Accelerate broadband coverage across country Collaborate to share broadband infrastructure. Enable duty-free import of smart feature phone components and assembly in free-trade zones in Nigeria EFINA 88#895: To ensure a sustainable tech talent pipeline, we need to scale up digital training programs and drive apprenticeship A Scale training programs ☐ Fund existing training programs ■ Set up partnerships with universities ☐ Leverage digital training Key stakeholders + B Drive apprenticeship by positioning Nigeria as an outsourcing hub ■ Set up technology centers/hubs. Share success stories Partnerships with big techs Key stakeholders ■ Donors ☐ Training Institutes ■ Universities Donors Big Techs ■ Universities EFINA 89#905: Development partners could support the training of tech talent by scaling up existing programs, partnering with universities and leveraging digital training Ways to Scale Fund existing training programs Set up partnerships between universities and programs Scale up existing digital training Description ◉ ■ Expand capacity of existing programs through funding. - - Create revolving fund to sponsor students to institutes. Direct funds to potential talent in underserved areas e.g. the North Locate training centers on university campuses with existing programs (e.g. private universities) Support curriculum revamp Create industry/academic exchange programmes between industry experts and university lecturers Create conducive digital infrastructure to foster digital training programs: - Partnership with Telcos to create zero rate data Set up free hubs for those with limited access to digital resources DECE Example Partners Decagon COVENANT NESA by MAKERS UNIVERSITY Raising A New Generation Of Leaders BABCOCK UNIVERSITY Andela A Lambda KNOWLEDGE TRUTH SERVICE EFINA 90#91....creating an opportunity for Nigeria to be an outsourcing hub to drive apprenticeship... 5: Nigeria can be positioned as an outsourcing hub for talent to gain access to real life problems across the globe FinTech are unable to absorb all/most local tech talent... 1 - Limited Bandwidth: FinTech are still growing and have limited capacity to take on interns for training ..however, there is growing global demand for talent... 1 million open IT jobs Set up outsourcing hubs 2 Limited Resources: Potential to build a pipeline that is significantly more than what FinTech can absorb $3.8 trillion global IT spending 5 major big tech hubs across Africa Partnerships with global outsourcing companies Tell success stories Partnerships with private players to develop hubs with necessary infrastructure e.g. quality broadband, electricity etc. Potentially create special trade. zone for tech outsourcing Drive rapid uptake by partnering with global tech outsourcing firms like Tech Mahindra to set up shop in Nigeria Create awareness of Nigeria's outsourcing hub to create more demand 1. Google, IBM (2), Microsoft (2) SOURCE: Smithsonian Science Education Center, 2018, Gartner EFINA 91#925: There is an opportunity for development partners to play a coordination role to ensure a sustainable tech talent pipeline Telcos ■Liaise with players to provide adequate digital infrastructure for programs Training Institutes ■ Create funding to expand capacity ■ Direct funding to underserved areas Development Partners - - Funding: Provide funding for existing programs, new digital programs/initiatives Coordination: Liaising with various stakeholders e.g universities, governments, communities to harmonize efforts Universities ■ Foster dialogue between universities and industry to facilitate knowledge sharing Sponsor mentorship programs at universities Developer Communities Encourage mentorship programs within the communities ■Facilitate fellowships at universities State Governments ■Liase with state governments to provide spaces for tech zones to be established ■ Interface to get buy in of global outsourcing players EFINA 92#93Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 93#94The report was developed using a combination of primary and secondary research Interviewees are across 4 stakeholders types Interviews O FinTech Stakeholders & W Influencers Regulators Investors до 10 FinTech players in lending, payments, savings, infrastructure etc. SANEF, Mastercard Foundation, Gates, DFID 4 Industry experts 2 commercial banks CBN, NAICOM, FCPCC 4 VCs Research Global Nigeria Analysis Banking pools Completed research on global FinTech landscape Interviews and surveys with customers across the country Analysis of revenues and FinTech growth using McKinsey's global banking pools Funding analysis Inflow of investment funds in Nigeria - local vs foreign capital#95List of interviews and contributors FinTech VCs Paystack Interswitch OPay Carbon Chaka ■ Cellulant Indicina Cowrywise Piggyvest Decagon DO Banks Regulators Access Bank First Bank CBN ■ NAICOM ■ FCCPC SANEF ■ FIS ■ Greycroft ■ Ventures Platform Others ■ UK FCA ■ Open Banking Nigeria EFINA 95#96Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 96#97Global FinTech Enablers - MAS Singapore Singapore MAS has recently launched their version of a regulatory sandbox in mid-2019 The MAS regulatory sandbox The MAS regulatory sandbox provides a conducive environment for the experimentation of innovative technology where the consequences of a failure can be contained and the overall safety and soundness of the financial system maintained Proposed sandbox criteria TT The solution is technologically innovative * The solution addresses a problem, or brings benefits to consumers and/or industry נדווי The boundary conditions have been clearly defined The sandbox test scenarios and outcomes have been clearly defined The applicant wants to deploy the solution in Singapore on a broader scale + Major foreseeable risks arising from the solution have been assessed and mitigated The exit strategy has been defined in event of solution discontinuation SOURCE: MAS, press search Financial industry sandbox Objective How it works? Criteria * Encourage FinTech experimentation such that innovations can be tested in the market and have a wider chance for adoption Enable FinTech innovation/experimentation in production environment under specific conditions and duration Relax specific legal and regulatory requirements by MAS for the duration of the sandbox Proposed financial service includes new or emerging technology or uses existing technology in an innovative way Proposed financial service addresses a problem or bring benefits to consumers or the industry EFINA 97#98Global FinTech Enablers - MAS Singapore Singapore MAS invited FinTech from around the world to solve 100 industry problem statements Singapore MAS invited FinTech from around the world to solve 100 industry KYC/Identity problem statements ... 8 Reg Tech ☐ Authentication Real time analytics ■ Digital documents Insider trading detection 4 Trade finance Smart contracts Self authentication Central repository 14 ■ Insurance Smart pricing Automated claims processing Customer 12 engagement Innovative digital banks Aggregated savings platform 7 Capital markets Transparent distribution pricing Efficient transaction settlement C: ≫ through a detailed process.... Teams were invited to 9 Generals Applications submit their ideas and proposals ■ Safe data sharing Automated reports ■ 11 Payments 20 teams shortlisted to join 10 week hackcelerator Shortlisting Present ideas and solutions on demo day ■ Payments for low value Presentation Cross-platform payments $ D 5 Financial literacy Real time analytics ■ Insider trading detection 10 Financial inclusion/SMES Digital documents Central repository transactions Implementation support Awards, guidance and mentorship provided as well as connections to Singapore FinTech ecosystem EFINA 98#99Global FinTech Enablers - HKMA Hong Kong The Hong Kong Monetary Authority has launched a number of initiatives to transition into what they call a New Era of Smart Banking FPS supports the use of mobile phone numbers or email addresses for payments in HKD or RMB, anytime and anywhere Both banks and Stored Value Facilities (SVF) can participate Aim to create a common QR code standard, which would promote the wider use of mobile retail payments and greater convenience to customers and merchants. FSS 2.0 will have three new features: - A FinTech Supervisory Chatroom to provide speedy feedback to banks and tech firms Tech firms have direct access to the sandbox by seeking feedback from the Chatroom without necessarily going through a bank; The sandboxes of the HKMA, the SFC and the Insurance Authority will be linked for a single point of entry. New task force within the HKMA to minimise regulatory frictions in customers' digital experience Topics include remote on- boarding, online finance and online wealth management. 1 2 3 Faster Payments System (FPS) Enhanced FinTech Supervisory Sandbox (FSS) 2.0 Promotion of Virtual Banking The HKMA has allowed the entrance of digital banks into the Hong Kong economy Together with banking industry will review and amend the Guide to Authorization of Virtual Banks issued in 2000 Development of an Open API policy framework which will: Improve banking sector competitiveness Banking Made Easy initiative Open Application Programming Interface (API) Closer cross- tion 4 Encourage FS companies to provide innovative services that improve customer experience Keep up with worldwide innovation 5 Enhanced border coll bo research and talent development The HKMA will aim to build international bridges in order to further develop FinTech Initiatives include: - Cooperating with the city of Shenzhen on FinTech and digital banking topics A joint effort with Singapore to develop a trade finance solution using DLT Already partnering with high-tech companies to offer internships for Hong Kong students Conducting research and publishing whitepapers on FinTech and technology with the potential to help banking, such as DLT SOURCE: Hong Kong Monetary Authority EFINA 99#100Global FinTech Enablers - Open Banking Open Banking/ PSD2 is now a reality in various countries, leading to diverse product offerings from all types of industry players. Present in 36 markets & products that account for ~90% of global revenue pools Stage of adoption Stage 3 FinTech enabled by PSD2/Open Banking YOLT Yolt enables users combine their current accounts, credit cards and pensions in one view, reaching 500k customers in ~1 year since launch Stage 2 Grant licenses Stage 1 Transpose to national law Industry consultation, draft regulation Revolut MAL ITA BEL *HKG FIN HUN FRA USA SPA IND IRL DEN CAN NED JAP CZE SWE MEX NOR AUS GER UK Regulator-led CHN KOR TWN RSA ARG THA + SWI IDN UAE BRA SIN TUR RUS SOURCE: McKinsey, press search Revolut app enables users to track their Revolut transactions connect external bank accounts to the app Market-led raisin. Raisin's open banking partnership with Santander means that Santander customers can authorize the sharing of their data with Raisin leading to the registration process for Santander customers to access Raisin's products through the "Santander Connect" button will be easy and simple EFINA 100#101Global FinTech Enablers - Global partnerships Dubai's DFSA and Singapore's MAS entered into an agreement to foster innovation in financial services of both markets ** Context Objectives How it works The Dubai Financial Services Authority (DFSA) and the Monetary Authority of Singapore (MAS) entered into an agreement that provides a framework for cooperation between the innovation teams of each authority, allowing referrals of innovative businesses between the two authorities. Deliver new and enhance financial services to manage risks better, reduce costs and increase efficiency Encourage innovation in the financial services sectors and FinTech ecosystems of both markets. The sharing of information on financial services innovation in both markets Jointly working on the innovation projects on the application of key technological trends such as APIs, Block chain, Big data and distributed ledgers SOURCE: MAS, press search EFINA 101#102Global FinTech Enablers - Global partnerships The Global Financial Innovation network provides an avenue for innovative firms to interact with regulators, helping them navigate various jurisdictions as they look to expand and test ideas Context Objectives How it works The Global Financial Innovation Network (GFIN) was formally launched in January 2019 by an international group of financial regulators and related organisations, including the FCA. It built on the FCA's earlier proposal to create a global sandbox To act as a network of regulators collaborate that can share experiences of innovation in various markets, including emerging technologies and business models, and to provide accessible regulatory contact information for firms. To provide a forum for joint RegTech work and collaborative knowledge, sharing lessons learned To provide firms with an environment in which they can test cross border solutions A pilot for firms wishing to test innovative products, services or business models across more than one jurisdiction Creation of a new framework for co-operation between various financial services regulators on innovation related topics, sharing different experiences and approaches. SOURCE: GFIN, UK FCA EFINA 102#103Global FinTech Enablers - Incentive programs UK The UK has increased funding to FinTech by creating a seed investment scheme that incentivizes local investors The UK offers great benefits to investors who invest in small and early stage startups... Context ■ The Seed Enterprise Investment Scheme (SEIS) offers great tax efficient benefits to investors in return for investment in small and early stage startup businesses in the UK ... contributing to increased FinTech investment in the UK and London leading overall FinTech investment in Europe with $2.11bn investment VC-backed investment in UK FinTech USD billion 4.0 3.5 Objectives The scheme was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship 3.0 2.5 2.0 3.6 2.1 1.8 How it works ■ Investors can place a maximum of £100,000 in a single tax year, which can be spread over a number of companies The company must be no more than two years old 1.5 1.0 1.2 0.8 0.7 0.7 ■ Investors can receive up to 50% tax relief in the tax year the investment is made, regardless of their marginal rate 0.5 0.2 О 2012 13 14 15 16 17 2018 Q3 2019 SOURCE: SEIS Website, Pitchbook, Crunchbase, Press Search 103 EFINA#104Global FinTech Enablers -Infrastructure India India has created a technology stack which various technology infrastructure that creates an enabling environment for financial services The India Stack India Stack is a set of APIs that allows governments, businesses, startups and developers to utilise an unique digital Infrastructure to solve India's hard problems towards presence-less, paperless, and cashless service delivery India Stack provides 4 distinct technology layers Presenceless layer AADHAAR Where a universal biometric digital identify allows people to participate in any service from anywhere in the country The Aadhaar which is a 12 digit unique identification number i.e. biometric digital identity that allows Indians to participate in services from anywhere in the country Cashless layer UPI Where a single interface to all the country's bank accounts and wallets to democratize payments NPCI launches Unified Payments Interface, the most advanced public payments system in the world to revolutionize digital payments in India MED PARENTSINCE Paperless layer AADHAAR e-KYC Where digital records move with an individual's digital identity, eliminating the need for massive amount of paper collection and storage UIDAI launched eKYC which allows businesses to perform Know Your Customer verification process digitally using Biometric or Mobile OTP DigiLocker CCA launches eSign as an open API to facilitate an Aadhaar holder to digitally sign a document and MeitY launches DigiLocker, a platform for issuance and verification of documents & certificates in a digital way, thus eliminating the use of physical documents A Consent layer Which allows data to move freely and securely to democratize the market for data All technology is built on a set of APIs which allows for safe sharing of data EFINA 104#105Global FinTech Enablers -Talent India IBM India runs a Career Education Program in partnership with universities to develop tech talent Context How it works Benefits IBM collaborates with universities in India and South Asia to offer degree programs that are jointly developed, marketed and certified to make sure the students have the best from the both the worlds both from an Industry and Academic standpoint IBM works with universities/colleges and also with authorized career education partners They set up software capability labs and certificate/degree programs with these universities/colleges Creation of an innovative curriculum jointly developed with IBM on industry specializations, based on the skills requirements of different industries A chance for students to learn from the Industry Faculty of IBM who teach using live cases. Students get professional certifications from IBM Improve the career prospects with the best companies SOURCE: Company Website EFINA 105#106Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 106#107BIMA company profile Username Password IFFCO-TOKO Login Forgot ord Company Description ■ Offers affordable life, personal accident and hospitalization insurance products for underbanked customers Agents sell the insurance and health service products to low income customers personally and provide education for them about the benefits of being insured and financially secure Customers only need a mobile phone to use the service: after an easy registration with the help of an agent, they can select, pay and renew the selected policies via the tool In the case of an accident or illness, clients have to collect the necessary documents and claim their compensation by calling the Bima hotline Additionally Bima offers a mobile health service, where customers can ask for doctors' advice via phone whenever they or their family member get sick Bima partners with microfinance institutions and mobile operators enabling them to enter the insurance market and manages everything for them from product design to distribution to claims' administration What makes them distinctive Business model BIMA Enables quick and seamless integration into partners' existing IT infrastructure providing flexibility in incorporating new products and business models Pays valid claims within 72 hours The team of 3500 trained agents develops high product awareness and customer engagement with educating underbanked customers who have limited knowledge on insurances Revenue model Commission Details Bima's life insurance is sold in 3, 6 or 12 months packages, costing $1.4, $2.8 or $5.6 Charges $3.85 for a one-year health hotline subscription (unlimited doctor consultation) GrameenKootaⓇ financial services Similar solutions Fusion MICROENSURE Microfinance BOUGHT BYMANY oradian SOURCE: McKinsey Panorama EFINA 107#108BIMA Impact As of December 2016 Bima has: 口 Jo TTI Reached 24 million customers BIMA Winner of Mastercard Foundation Global Award for "Clients at the Centre' 2015 ■ Winner of Mondato Asia's Digital Finance and Social Impact award 2015 ■ Nominated as "The Insurance Company or Initiative of 2015" by African Business Awards $ Payed out Quantitative achievements K Has ~500,000 and 50% of them are active users $3 million in claims Qualitative achievements new customers monthly $ Operated in 15 countries in SOURCE: McKinsey Panorama 3 continents 3500 agents 000 Employs 3500 Đ EFINA 108#109NUBANK company profile 1234 4321 5670 2076 nu bank M Company Description ☐ Nubank consists of a bank account, physical MasterCard and a mobile PFM application with various built-in features; Allows users to create budgets and limits, track their transactions, balances, and invoices in real-time with automatic categorization Users can filter for their past purchases and also customize transactions by adding personalized pictures or tags Nubank offers reward points after every purchase through the Nubank card, where the points become credit in the customer's bill, so the reward points can be redeemed to decrease or erase the price of some purchase (e.g. Netflix, Uber, Amazon, iFood, Evino, MaxMilhas, music streaming services and any transaction in hotels and airlines) As part of their credit services, customers can apply for personal loans to finance their invoices Nubank uses risk assessment based on 1,000-3,000 variables to decide which application to accept AccessBio, a new facial biometrics feature that prevents identity fraud, was released in 2018 What makes them distinctive Real-time categorization for holistic financial overview which supports well informed decision making Lower overheads allow Nubank to charge one of the lowest interest rates in Brazil Geolocation empowers users to connect specific transactions to real-life locations Nubank Rewards program is based on customer loyalty Revenue model Commission " Freemium Commission Mobile app Business model Details Similar solutions Has a fixed rate of R$ 6.50 per service Uses foreign exchange with a value of the PTAX dollar sale plus a margin of 4% when people buy from abroad Interest rates for loans start at 7.75% per month Moven spend, save & live smarter WeBank N26 Revolut fidor BANK SOURCE: McKinsey Panorama EFINA 109#110NUBANK Impact Quantitative achievements SOURCE: McKinsey Panorama Generated USD 170.5 mn total revenue in 2017 Valued at USD 4 bn (as of October 2018) Customers have saved up to in maintenance and USD 78.14 transfer fees ID Serves 5 mn credit card holders, and it has 2.5 mn customers M a with a digital account with 10,000 testing the new debit card services Over 16 mn people requested the Free of charge credit card so far (as of March 2019) Qualitative achievements ny bank Became the first Latin American company to win the Marketers That Matter Award joining Google, Netflix, GoPro, and Visa on the list of winners Backed by DST Global, Sequoia Capital, Goldman Sachs, Founders Fund, Tiger Global Management, Kaszek Ventures, Tencent Headquarter is located in Sao. Paulo, Brazil but it also operates an engineering office in Berlin, Germany 110 EFINA#111Adyen company profile AC adyan 01:06 € 15.00 DYWSL 3/18/2015 Transaction processing Cancal < O ☐ Enables businesses worldwide to process payments online, mobile and POS with customers paying in their local Company Description ☐ currencies Adyen offers secure online payment options: Hosted Payment Pages allows handling payments on Adyen's servers via a single technical and administrative connection Easy Encryption Solution enables online payments on businesses' own payment pages while data is encrypted in the shoppers' browser POS terminals, with real-time data and analytics, and simple integration to all sales channels through APIs MarketPay solution for global, high-volume marketplaces, with easy sub-merchant onboarding, split payments and fast payouts Global Acquiring Network provides an integrated approach that helps to maximize authorization rates and offers competitive pricing Built-in automated risk management and fraud detection system, and cross-channel consumer insights SOURCE: McKinsey Panorama adyen What makes them distinctive Has a European banking license so they are able to settle funds faster without relying on external banks Provides easy integration and implementation for businesses Full PCI Level 1 Compliance to ensure high-level security Reporting functionality supports strategic decisions Business model Revenue model Commission Details Pricing consist of two components: - Processing fee: fixed fee - maximum €0.10 ($0.11) - per transaction Payment method commission: fixed or variant amount; for Visa and MasterCard billed using Interchange++ pricing model Charges for extra services stripe Intuit Swipely Similar solutions Paysafe iZettle EFINA 111#112Adyen Impact Quantitative achievements SOURCE: McKinsey Panorama €159 bn in processed volume in 2018 1 €1.6 bn gross and €349 mn net revenue in 2018 Listed on Euronext with a market cap of €22 bn Accepts 150+ Transaction currencies and 250+ payment methods 20 Offices around the world Qualitative achievements adyen Several leading companies use Adyen's platform including Uber, Spotify, Groupon, Evernote, eBay, TransferWise, Linkedin, Booking.com, Mango, KLM, etc. ■ Monitored by Trustwave, ASV, Dutch Central Bank and QSA for the Payment Card Industry Security Standards Council ☐ Partnership with payments processor Cellulant to expand into Africa and reach 220 mn new clients Obtained European Banking License in July 2017 Ranked #16 on 2018 CNBC Disruptor 50 list The solution is fully PSD2 compliant 112 EFINA#113Paytm company profile paytm L 啞 A M Company Description SOURCE: McKinsey Panorama Paytm started by offering mobile recharge and utility bill payments and expanded to offer a full marketplace to consumers, available on web or mobile It is also one of the largest online payment gateways in India for various companies within e-commerce, food and travel industries For retail customers it offers a digital wallet and credit card services: Paytm's digital wallet is enabling to easily pay to merchants who are are only paid when the customer received the ordered item in satisfactory condition, and also offers instant P2P money transfer Paytm First Card is a VISA credit card offering cashback on purchases (in partnership with Citibank) Paytm offers for merchants: Different ways to collect payments including gateways (web or mobile), QR code based and subscription payment solutions Paytm Smart Retail offers hardware and software solutions for in-store POS systems, incl. portable or full- service POS terminals, and marketing, reporting, loyalty, inventory management services Employee payment solutions like tax-free meal allowance and cash disburse Also launched a mobile-first digital bank for individuals, Paytm Payments Bank, providing current and savings accounts, debit card, mobile wallet, cashback and access to cash at more than 200,000 ATMs across India What makes them distinctive Business model Similar solutions Reduces user drop offs from merchant sites, wallet can have 50% conversion in some online sites Simple and convenient: with a single click, the user sees his available wallet balance & saved cards too and does the payment, SMEs can set up their operations to receive payments through Paytm within minutes Sellers have pricing options and can access rich customer insights based on analytics Revenue model Commission Details Merchants pay a share of the transaction value as a fee for Paytm for every transaction on the platform Fees vary between product categories Paytm Payments Bank accounts have no fee on online transactions, no minimum balance, free virtual debit card and charge 1% per domestic money transfers Paytm Smart Retail POS system costs ₹999/month ($143) and loyalty and CRM add- on costs ₹999/month ($143) Paytm First Card has an annual fee of $500. There is no fee if the user spends more than 50,000 in a year GrameenKootaⓇ financial services PayPal Fusion Microfinance Mobikwik MICROENSURE RXNİ BOUGHTPAY BYMANY Razorpay онфу 113 EFINA#114Paytm Impact Quantitative achievements Over 7 million online merchants sell through Paytm and 850,000 Offline merchants accept it Around 260 million million people across India have Paytm mobile wallet accounts who make 5 million transactions daily Qualitative achievements 40 million Savings customers and other 60 million customers are expected to join the next year (as of March 2019) As of August 2018, Paytm is valued at ◉ paytm Expanded to Canada and has 100,000 Canadian customers as of February 2018 Service approved by the Reserve Bank of India ■ The company claims they are the most trusted consumer payments brand in India ■Its partners include Airtel, Vodafone, Tata Sky and BSNL SOURCE: McKinsey Panorama $10 bn EFINA 114#115Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech Enablers Additional recommendations Recommendations for EFINA EFINA 115#116Ahmed - BOP segment 36 years, Married, 3 children Illustrative ■ Subsistence farmer living in Jos, Nigeria ☐ Cultivates different crops throughout the year - including tomatoes, onions, potatoes, maize and yam for personal consumption and commercial sales Primary school education, can read and write basic English and Hausa Income <N200K p.a. Low Tech knowledge Devices SOURCE: Customer interviews (n=215), team analysis Lifestyle overview Inherited 2 acres of land from parents, and uses it for farming activities Lives in a mud house, with thatched roof Wife sells firewood, and uses grinding machine in the market to support family Spends most of his 'non-farming' time listening to the radio – enjoys listening to the governor, talking about agriculture. He also enjoys visiting his relatives Financial goals Farm expansion to increase yield using farm inputs such as chemicals, equipment and seeds Improve the quality of his house change roofing sheets, from thatch to zinc Send his children to good affordable schools Current banking Uses solely cash for his personal and business transactions Uses Has no bank accounts brother's account occasionally, when he needs to send or receive money Needs Education on financial literacy Access to credit facilities for his farm McKinsey & Company 116#117Deep dive -Ahmed's pain points from the financial sector WIP Accounts ■ Pain points Long travel distance to and from the bank ■Low financial literacy, so unaware of financial services options available to him at the bank ■ Poor understanding of charges, such as the ATM maintenance charge, and other hidden charges ■ Issues are resolved at a slow pace Quotes 6655 “ 55 There are no banks in the village. All the banks are in the city, which is far from here" My brother always complains about the charges he gets from his bank - he doesn't understand what they mean SOURCE: Customer interviews (n=215), team analysis 117 EFINA#118Emeka - Informal mass 42 years, Married, 3 children Illustrative ☐ Small scale business owner in the informal trading sector (e.g., sells fabircs and second- hand clothes in markets in Lagos) ■Religious leader in local church ■ Looking to make 'enough' money to support his family ☐ Has been operating his kiosk for 20 years Income Low Tech knowledge <N 1M p.a. + Lifestyle overview Trader in Yaba market, Lagos, and lives in a rented two apartment in Akoka, Lagos Runs a makeshift shop where he sells secondhand clothes to customers at the market Goes for family and religious meetings, frequently in his hometown Financial goals Current banking Earn enough money to provide basic necessities for his family, such as food and clothing Send his children to ▪ good affordable schools Has a single GTB Bank savings account, that he uses for personal and business transactions Makes use of USSD and mobile banking for his business transactions ■ Uses a trusted agent close to his house, to send money to his relatives in his hometown Needs Access to credit facilities for: his clothing business expansion, and payment of children's school fees Devices SOURCE: Customer interviews (n=215), team analysis McKinsey & Company 118#119Deep dive -Emeka's pain points from the financial sector Accounts Savings Loans Pain points ■Lack of clarity of bank charges including ATM maintenance charge, account charges Poor security of: - - Bank's mobile app, making it accessible to thieves Customer's information, making them prone to scammers Quotes 6655 6699 66 99 I don't understand what all these charges mean, and why I have to pay them The bank staff are so rude. If I have my way, won't go to the branches again Last year, my phone got stolen, and money was transferred from my bank account No targeted savings platforms for children tuition, rent Low interest rates, causing low returns on savings High collateral requirement for loans High payback interest rates SOURCE: Customer interviews (n=215), team analysis 6699 6695 Better interest rates, would lead to better savings for me The requirement for loan is too much. I prefer to borrow from family members. EFINA 119#120Nasir - Formal mass 37 year old, married with 2 children Illustrative ■ Administrator at local secondary school in Sabo, Lagos Worked in various clerical position for 10 years following his undergraduate education ■Medium knowledge of technology Income <N 1M p.a. Medium Tech knowledge + Lifestyle overview Works as an office clerk in Sabo, Lagos ■ Resides in a rented two bedroom apartment in Ikeja Supports family dependents, especially parents Current banking Financial goals Improve savings culture Uses a single First Bank savings account, for his savings Uses cards and mobile banking for bill payments, and other personal transactions ■ Uses a trusted agent close to his house, to send money to his parents and other relatives in his hometown Needs Education on various savings platforms, to: - improve disciplined savings Devices SOURCE: Customer interviews (n=215), team analysis McKinsey & Company 120#121Deep dive -Nasir's pain points from the financial sector WIP Quotes Pain points Accounts ■ Poor customer experience on mobile banking apps 6655 Savings Loans Long queues at bank and long wait time on call centers Slow issue resolution time frame ■Lack of financial discipline to save studiously every month High collateral requirement for loans ■ High payback interest rates SOURCE: Customer interviews (n=215), team analysis ララ 6655 Their customer service was so bad, I would have opened a new bank account (in another bank), if I had the time I don't use my app anymore, because it has refused to work 記】 I would like to be saving more but sometimes the responsibilities are too much and before you know it, most of the money is gone I had friends that borrowed from banks, and paid with an arm and a leg, when it was time to pay back S) EՒInA#122Anita - Middle 32 years, Married, 1 child ☐ ☐ ■ ☐ Sales manager at FMCG company based in Lagos Lives in Lekki phase 2 in rented a 2 bedroom rented apartment Lives in dual income household where her husband contributes to 80% of domestic expenses Focused on savings, with occasional investment Income <N 5M p.a. High Tech knowledge Devices SOURCE: Customer interviews (n=215), team analysis + Illustrative Lifestyle overview ☐ Sales manager at snacking company in Lekki, Lagos Runs a side business as a cosmetics sales agent on Instagram Resides in a rented two bedroom apartment in Lekki phase 2 Anita enjoys spending time with her family Financial goals ■ Improve savings culture Send her child to good private schools Expand Instagram business and open boutique in Lekki Current banking ☐ Has two accounts with Zenith and Access Banks - the Access account is her savings account, while Zenith is a joint account with her husband Uses mobile banking to pay for monthly bills and shop online Needs ■ Education on good savings and investment platforms, that offer good interest rates Access to credit facilities, to enable her: Grow her side business Purchase a good car McKinsey & Company 122#123Deep dive -Anita's pain points from the financial sector Pain points Accounts ■Lack of transparency on bank charges ■ Limited interaction with RM to determine next best product/service to use Savings ■Low returns on savings Savings account usage similar to current account Loans High interest rate on loans Long application process for credit facilities Quotes 6655 GG 55 66 99 6635 I don't trust the charges I get from the bank. I think most of them are suspicious My RM has never told me about the different products the bank offers so I just use other platforms I use my savings account card for my daily transactions so it does not even feel like a savings account Loan application is very stressful. They ask for too many documents and the high interest rates. are too high SOURCE: Customer interviews (n=215), team analysis EFINA 123#124Wande - Youth 23 years, Single ☐ Early graduate of University of Ibadan ☐ Currently completing her NYSC in Calabar ■ Has a moderate knowledge of technology Limited disposable income Income <N 1M p.a. Medium-High Tech knowledge Devices SOURCE: Customer interviews (n=215), team analysis + Illustrative Lifestyle overview Teaching at local primary school in Calabar and lives with fellow NYSC colleagues in dormitories Has a side business selling hair products through Whatsapp and Instagram ■ Hunts for/ enjoys bonuses, discounted promos, and other freebies Financial goals Develop savings discipline and culture Manage and track monthly financial transactions Current banking Has an Access Bank account that she opened during her admission process, for personal transactions Also, makes use of USSD and mobile banking for her personal transactions Uses e-wallets for services where she enjoys discounts - Shopping Ride hailing Food ordering, Saves monthly on Piggyvest Needs Financial services education on benefits of CASA McKinsey & Company 124#125Deep dive -Julie's pain points from the financial sector Accounts Savings Pain points ■ SMS, intra-bank transfer charges, and also hidden charges ■Lack of clarity on bank fees and charges e.g. card maintenance fee, Slow and unreliable issue resolution Daily transaction limit - alternatives/ exemptions for emergencies ■ Lack of targeted savings options, for both long term and short term plans ■Low interest rates on savings products SOURCE: Customer interviews (n=215), team analysis Quotes 6655 ララ I don't know why I am charged for SMS, when the transaction detail gets sent to my email We need to be educated on what ATM maintenance charge means, and why we have to pay it 6655 There are no available platforms savings goals, and the interest rates are low 125 EFINA#126Fatima - Affluent 30 years, Married, 1 child Illustrative ☐ Middle manager at Oil and gas company in Lagos Lives in Lekki phase 1 in a 4 bedroom condo she purchased with her husband High level of knowledge in technology - tech savvy Income >N5M p.a. High Tech knowledge Devices Lifestyle overview + ☐ Young professional, working in the banking sector Possesses a significant amount of disposable income, and is more investment oriented Lives in Victoria Island - a highbrow residential area in Lagos Fatima loves exploring art, with her friends on the weekend Financial goals Current banking Diversify investment portfolio (local and international) . Enroll her child in a private school and save for international college education. ■ Take family vacation abroad at least once a year Has multiple accounts with Zenith, GTB, Access and Stanbic Bank Her salaried account in with Access account and she uses the other two for savings/personal transactions Predominantly uses cards and mobile banking for 90% of payments including bills Uses a variety of FinTech products for savings and investments ☐ ■ Needs Access to investment options that match her risk profile within and outside Nigeria that Access to banking services abroad including foreign mortgages in the UK or US ■ Insurance for various aspects of Fatima's life including life insurance SOURCE: Customer interviews (n=215), team analysis McKinsey & Company 126#127Deep dive -Fatima's pain points from the financial sector Accounts Pain points ■ Stressful online shopping and bill payment process ■ Occasional card failure, in some parts of the world. ☐ Daily transaction limit - should be set by customers. Quotes 6655 55 Savings Stress of paperwork documentation during loan application, and mortgages 6695 I want my online shopping to be seamless. I don't want to stare at my screen waiting for an OTP The customers should be able to adjust their daily transaction limit, like I do with my Bank Of America account. Services should suit the customers I want to be able to apply for loans, without filling out a lot of paperwork High payback interest on loans Wealth manage- ment Limited access to investment options - domestic and international 66 99 SOURCE: Customer interviews (n=215), team analysis I want the news of investment options, both within and outside the country EFINA 127#128Bisi - SME owner 45 years, Married, 4 children ☐ Mini-market owner in downtown Abia Illustrative ■ Interested in business expansion opportunities Works in medium cities, and resides in decent areas of these cities Income Lifestyle overview ☐ ~N 12M p.a. ■ Medium Tech knowledge Owns a mini market where she sell food supplies and household items Lives in a 3 bedroom family compound with her husband, children and 2 cousins + Anita loves spending time with family Financial goals Expand business to fully-fledged supermarket Pay for eldest child's university education Send younger children to good boarding schools Current banking Has two bank accounts - GTB and Access Bank, that she uses for personal and banking transactions, respectively Uses mobile banking to buy airtime/ data, transfer money and shop online Needs Access to credit facilities for business expansion Education on various insurance options, as cover for her business High interest yielding savings account Devices SOURCE: Customer interviews (n=215), team analysis McKinsey & Company 128#129Deep dive -Bisi's pain points from the financial sector Pain points Accounts Inability to access forex with bank Difficulty with cross border payment with foreign suppliers Daily transaction limits which inhibit bulk buying Quotes 6655 " I always exceed the limit on my daily transactions. I don't know if there's is a way it can be adjusted I can't send money directly to my suppliers so we now have to find other ways to get them their money through Western Union or sometimes through our informal networks Savings ■Low returns on savings, due to low interest rates 66 99 Lower savings rates, so minimal loyalty to banks for savings Loans ■ Tedious loan application process with requirements for collaterals High interest rates for repayments 6655 SOURCE: Customer interviews (n=215), team analysis The interest rates on my savings is so low. I'll switch if I see a bank that can give me a higher rate I have heard of bad tales from those that took bank loans from the stress of meeting the requirements, to the pains of paying high interest on the loans, and because of this, I don't think I will ever take a bank loan EFINA 129#130Chijioke - Affluent Senior 62 years, Married, 4 children ☐ Retired CFO of leading accounting firm Illustrative ◉ Lives in Ikoyi with wife and gets occasional visits from grandchildren Has medium level knowledge of technology ■Financial services product usage driven primarily by convenience Income >N 20M p.a. Medium Tech knowledge Devices + Lifestyle overview ☐ Wife runs a tailoring shop where she caters to high-end clientele in Lagos and Abuja Serves on the board of multiple organizations in Nigeria Travels bi-annually to visit children abroad Financial goals Financial security for his children Send his children to good universities in the country Manage and diversify investments locally and abroad Current banking ■ Has multiple bank accounts in Nigeria and abroad. In Nigeria, he has a First Bank account which he uses to pay for his children's expenses in the UK Uses cards for most of his financial transactions and online banking for managing foreign accounts Needs Private banking services that allow him to invest and manage investments abroad including mortgage and property management Access to premium credit cards and bespoke services for foreign transactions and travels SOURCE: Customer interviews (n=215), team analysis McKinsey & Company 130#131Deep dive -Chijioke's pain points from the financial sector Accounts Wealth manage- ment Pain points ■ International money transfer between banks challenging with transaction size limits and tedious paper work Inconvenience caused by non-functional bank app Lack of proactivity from RMs to determine next best product Slow response to complaints made through remote channels like phone Absence of management guidance for his investment Limited information on investment diversification from bank Limited visibility into investment performance - no single dashboard to track finances and expenses Quotes 6655 55 6699 66 99 There should be a form of control on accounts, but this control should be set by the customers I have to go to their office, even after giving them a call, before my issues are resolved I will like to be able to view all my accounts on one platform I want to have an RM that can present various investment options to me, not me calling them all the time SOURCE: Customer interviews (n=215), team analysis EFINA 131#132Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 132#133Use cases and impact of fintech in Lagos Profile of Lagos¹ Use of fintech in Lagos Use Cash in cash out Payments Description Send and receive money: for example, people are able to send money to family and friends in rural areas through an agent E-wallet service enabling deposit and withdrawals through an app or agent Payment of goods and services using USSD and other digital channels to pay for food delivery, Uber, Taxify, airtime and bills Use of app to transfer funds locally and internationally Access to credit facilities for individuals Less stringent and faster application process Budgeting tools and flexible savings products on a single platform mostly used by millennials Lending Lagos is the commercial, financial and maritime nerve centre of the nation with an energetic start up and tech community Saving • State with the highest Internally Generated Revenue in the nation 88% of the population own a digital asset Presence of young professionals with Investing economic power Strong presence of recreation activities Business Services APIs, invoicing and payouts for merchants, start ups and MSMEs Access to local and global stock markets as well as flexible micro investment options on a single platform mostly used by millennials Players paga your cash, anywhere, anytime Non-exhaustive →Kudi GTBank paystack FlutterwaveⓇ POPay ✓ carbon migorenmoney → piggyvest cowrywise Wealth.ng piggyvest paystack Interswitch FlutterwaveⓇ Impact Increased financial inclusion 1. Profile of Lagos relative to other regions in Nigeria Source: Lagos Business School Digital Financial Service Lab, Team Analysis Growth of e-commerce Democratisation of investment Increased efficiency and access to loans for MSMEs EFINA 133#134Use cases and impact of fintech in South-West Nigeria² Use of fintech in the South West Use Description Cash in cash out Payments Non-exhaustive Send and receive money: students are able to receive money sent from family through an agent E-wallet service enabling deposit and withdrawals through an app or agent Facilitating P2P transfers between suppliers and farmers Payment for goods, transportation, airtime and bills Use of e-wallet to disburse government subsidies to farmers Players paga Opay GTBank your cash, anywhere, anytime OPay Crowdfunding platforms pool funds from investors to fund small scale farmers and cellulant provide insurance coverage Interswitch Quickteller farmcrwdy life is mobile thrive agric Profile of South-West Nigeria' Economic activities include agriculture and tourism Access to financing • The South West is the academic hub of the nation Saving Budgeting tools and savings products on a single platform mostly used by women and young people piggyvest cowrywise 88% of the population own a digital asset Presence of young professionals with Investing Access to local and global stock markets as well as unconventional investment opportunities on a single platform mostly used by millennials Wealth.ng → piggyvest economic power Only about 11% of the unbanked population in Nigeria is in the South West Impact Increased financial inclusion anh 1. Profile of South-West relative to other regions in Nigeria 2. Excluding Lagos State Source: Lagos Business School Digital Financial Service Lab; Team analysis Job creation Increased access to finance and input for farmers 134 EFINA#135Use cases and impact of fintech in South-East Nigeria Profile of South East Nigeria' Diverse commercial activity - known for trading and automobile assembly Home to one of the most advanced informal apprenticeship and entrepreneurial programs in the world Home to N130 bn shoe industry Home to Nnewi, the city with the highest number of billionaires, in Nigeria 87% of the population own a digital asset Use of fintech in the South-East Use Cash in cash out Payments Access to financing Saving Business Services ..... Description Traders are able to deposit funds into and withdraw funds from their account through an agent Payment to suppliers and traders using USSD and other digital channels Access to credit facilities with less stringent requirements in order to lend against turnover for trade Budgeting tools and savings products on a single platform primarily used by women and young people APIs and invoicing for merchants Players paga your cash, anywhere, anytime Non-exhaustive POPay GTBank OPay Kudi Quickteller 7 carbon migorenmoney piggyvest cowrywise paystack Interswitch ။ FlutterwaveⓇ Impact Increased financial inclusion 1. Profile of South East Nigeria relative to other regions in Nigeria Source: Lagos Business School Digital Financial Service Lab; Forbes Africa; businessamlive.com; Team analysis Democratisation of savings Increased efficiency and access to finance for MSMEs 135 EFINA#136Use cases and impact of fintech in South-South Nigeria Use of fintech in the South-South Use Cash in cash out Payments Description People in remote areas are able to deposit and withdraw funds from their account through an agent Payment using USSD and other digital channels, for example, for goods, transportation, airtime and bills Players paga your cash, anywhere, anytime Profile of South-South Nigeria' • Crude oil production is the primary economic activity - Other economic activities include farming, fishing and mining Export hub of Nigeria Non-exhaustive OPay GTBank . Access to financing Access to credit facilities for individuals, such as miners and artisans. Less stringent requirements and easy access OPay Kudi Quickteller carbon migorenmoney Saving Budgeting tools and savings products on a single platform predominantly used by women and young people piggyvest cowrywise Access to local and global stock markets as well as unconventional investment opportunities on a single platform mostly used by millennials piggyvest cowrywise 86% of the population own a digital asset Presence of young professionals with economic power in cities such as Port Harcourt Investing Presence of recreation activities Impact Increased financial inclusion • Business Services 1. Profile of South-South Nigeria relative to other regions in Nigeria Source: Lagos Business School Digital Financial Service Lab, Team Analysis, National Bureau of Statistics APIs and invoicing for merchants Democratisation of savings and investment_ In Interswitch paystack FlutterwaveⓇ Increased efficiency and access to loans for MSMEs EFINA 136#137Use cases and impact of fintech in Northern Nigeria² Profile of Northern Nigeria' Agriculture is the primary economic activity; most farmers are subsistence farmers Use of fintech in the North Use Cash in cash out Description People in remote areas are able to deposit and withdraw funds from their account through an agent Players Non-exhaustive paga Opay your cash, anywhere, anytime GTBank Payments Low economic activity and high poverty levels due to insecurity and insurgency Lowest primary school enrolment, attendance Access to financing and completion rates in the country Lowest digital penetration in the nation Home to 70% of Nigeria's unbanked population Facilitating P2P transfers to pay for equipment, raw materials and agriculture produce OPay Kudi Quickteller Access to credit facilities with less stringent requirements for individuals Use of e-wallet to disburse government subsidies to farmers Crowdfunding platforms pool funds from investors to fund small scale farmers and provide insurance coverage Budgeting tools and savings products on a single platform primarily used by cellulant* life is mobile thrive caric farmcr wdy piggyvest cowrywise women Saving Impact Increased financial inclusion ప Increased access to finance and input for farmers 1. Profile of Northern Nigeria relative to other regions in Nigeria 2. Excluding major cities such as Abuja, Kano and Kaduna Source: Lagos Business School Digital Financial Service Lab, Multiple Indicator Cluster Survey Nigeria 2016-2017, Team Analysis D Empowerment of women Tol 137 EFINA#138OPay company profile Balance 0 BACANCY 466100 #4500 #4926.00 RECEIVE MONEY ADD MONEY Take control of your personal economy with OPay The freedom and security of paying for goods. earning cash, and topping up your personal accounts is in your hands. Total Download app Airtime Alco- Ary stats 0 August 201 " Ag820 -170.00 Mobile date Augme 1000.00 Transfor Top up Send money OFoodHome Partners Testimonials Security Product offering Transportation - okada and marwa Wallet payment, money transfer - Food delivery order food from local restaurants near you Mass customers Youth Customer segment SME Company Description Value proposition ☐ OPay is a one-stop mobile-based platform for payment, transportation, food & grocery delivery, and other important services in your everyday life. Established in 2018 as a part of Opera In 2019, OPay raised $120 million in a Series B round led mainly by Chinese investors Run heavily-subsidized promotions to edge out other players in Nigeria's competitive bike-hailing space Technology leveraged Distribution model ☐ What makes them distinctive ■ First mover advantage of formalizing 'okada' ■ Financial inclusion Asset finance e.g. mobile phone to Oride employees SOURCE: OPay website; press articles ■ API Big Data Advanced Analytics B2C, P2P ■ Mobile Channels ■ ■ Agents APIs Available via web version IOS and Android Competitors G Kudi P OPay EFINA 138#139OPay achievements Quantitative achievements $ ~$170M raised over 2 funding rounds 1M+ app across the country downloads from active users of OPay 4~2000 ORide drivers currently operating across the country ✓ 150,000+ agents currently signed up on the OPay platform $10M worth of transaction, carried out per day on the OPay platform SOURCE: OPay website; press articles Qualitative achievements OPay has been able to: ■ Drive financial inclusion and support the informal sector with ample opportunity for growth ■ Use discounts to attract new users and is now a serious competitor to older startups Significantly affect the digital- finance in Nigeria, which could lead to Nigeria surpassing Kenya as Africa's digital payments leader 139 EFINA#140OPay user experience: Wallet usage Ride hailing Various products/ services offered on the OPay platform Home Your balance: 47,438.20 Hide ← ator mited A E Corporation e O Ikoyi Passport Office High Court of Lagos State Obalonde H Any Odo St Einst Bank transfer Add money Electricity Easycash uditorium Betting TV Airtime o 4 ORide D B OFood G Tafawa Balewa Square Google Military Hospital Mobile data You have arrived at your destination Order id: 88653793 FKJ-152FW sliver TOYOTA COROLLA NWANDO IFEANYI CHRISTIAN OCar 4.9 27 Orders GET N50 Invite your firends and get N50 bonus in your wallet! GET N50 Invite you get N50 b wallet! = Home Transfor Balance Support Account OPay wallet allows users to do transactions, transfers, food order and ride hailing on a single app Voucher Only for online payment LTE Nigeriandmmigration Service Lagas St. Gregory's College = Discounted cost for OPay payment, to incentivize customers to use the wallets for ateis nited 10:26 High Court of Lagos State uditorium B Tafawa Balewa Square Google Military Hospital H 回 Copinion o DOLTE ESTATE Nigerian Immigration. Service Lagos 日日 Ikoyi Passport Office Oblonde H St. Gregory's College You don't have enough Balance. Please add money to yo Balance with 1122 Pay using Balance NO Options showing various payment methods #1,122 Fare detail Pay with OPay 1122 Unable Please pay the driver with cash it you are unable to pay with ORide or OPay Cash payment N1122 Harbour Point L payment OWealth Cashback Debit card (2347) #D NO Top-up button wallet Payment will be automatocally processed after successfully adding monor withdrawing from Owealth for your Balance top up 140 EFINA#141Flutterwave company profile Flutterwave" DOCUMEMENSION COPPUNTY PRODUCTS SOLITIONS Pay and get paid across africa Process payments to & from Africa with one AP EAT STARTED Digital payment infrastructure for Africa allowing convenient and secure payments via any channel Product and solution offerings FlutterwaveⓇ Virtual card create and manage virtual cards for online and offline payments Moneywave-disburse funds via an API to bank accounts ■ Barter - expense management, cards, bills and travel Thrivesend consumer funds transfer in Nigeria Invoice-create professional invoices and track payments Payment links create and send payment links to customers without website Big Data/Advanced Analytics. Cloud ΑΡΙ Company Description Allows businesses to make and accept payments anywhere in Africa Technology leveraged Value proposition Drives growth for banks and businesses across Africa through digital payment technology Debit and Credit Cards M-Pesa Payment Bank Account ■ Visa QR channels ■ Mobile Money ■ POS Bank Transfer ■ USSD Single platform that lets merchants sell to Channels ■Cards (routed through the Mastercard payment gateway) Bank accounts and mobile money accounts What makes them distinctive customers globally—online, in-person, anywhere in the world SOURCE: Flutterwave website; press articles □ Square gravity Competitors PAYMENTS Paystack® EFINA 141#142Flutterwave achievements Quantitative achievements $ $55.4M $2.5 bn raised in 10 rounds of funding. in payments processed across 100M transaction 50 partners in Africa 350 currencies in 30 African countries 51200+ Developers building on Flutterwave SOURCE: Flutterwave website; press articles FlutterwaveⓇ Qualitative achievements ■Flutterwave is now integrated with Alipay so this gives all Flutterwave merchants access to over 1 billion Alipay users ■ Enable payments across the continent, reducing cost of cross border payments EFINA 142#143Paga company profile 34 do #1,316,795.00 pay be machor widow.ook IN BOXE *Ind oper 3710 9:00 G W 三 poga free <-3359:00 509 fund . your paga account od 2 pag fruta post hards deține ut bonk podacation Company Description Value proposition ■ 30259 paga paga find agent Qeast for ogens Ophomasto Cooge Product offering Put the power in your hands Download the Paga App for Android now! GET IT ON Google play Paga is a mobile payment company, that enables people to digitally send and receive money, thus creating simple financial access for everyone. The company was established in 2009 to leverage the ubiquity of mobile phones to bring financial access to all Africans Delivers innovative and universal access to financial services with the goal of reducing the financial excluded population What makes them distinctive Paga leveraged ubiquity of mobile phones to create a cashless payment and money transfer solution for the large unbanked population SOURCE: Paga website; press articles paga your cash, anywhere, anytime Wallet payment, money transfer Merchant services - allows businesses to collect payment from customers Remittances International money transfer into Nigeria Mass customers Youth Customer segment SME Middle Technology leveraged ■ API Big Data Advanced Analytics Distribution model C2B, P2P Mobile Channels Agents USSD Available via web version IOS and Android Competitors Bankly Interswitch → → Kudi EFINA 143#144Paga achievements Quantitative achievements $ ~$32M raised over 3 rounds D ~15M active customers across the country 24,000+ agents currently signed up on the Paga platform $4.6B worth of transaction and processed across 72M transaction Qualitative achievements Paga has been able to: ■ Drive financial inclusion by partnering with the government to form the Shared Agent Network Facility (SANEF)in Nigeria ■ Form strategic partnerships with international companies to offer additional services that drives financial inclusion SOURCE: Paga Website website; press articles, global innovation fund 144 EFINA#145Paystack company profile Pay for Order TunsPress DASHBOARD Q Search for something New Use Docs Support Sign Out Plugins and libraries ☐ Paystack dashboards И NON 100 0000 0000 0000 0000 Shola Akinlade Paystack TRANSACTIONS Transactions 晶 43,076.45 CUSTOMERS 2177 W OF June 28, 3016 MM/YY 9100.30 Pay NUN 100 120 TOTAL INCOME (NGN) TRANSACTIONS PAYMENT PAGES Successful Transactions Created between Stan Date & End Dat TEST MODE LIVE MODE 23,076.45 PENDING TRANSFERS INGN) Date A EXPORT SUBSCRIPTIONS Debit Ct Card Status Reference Transaction Information Test Card VISA SETTINGE CART ALOUTTH PaystackDemo504 4123 4501 3100161 NGN 100.00 from [email protected] Feb 21, 2016 8:53:34 AM battur s 01/20 Success PaystackDemo120 NGN 1,000.00 from [email protected] Feb 21, 2016 8:44:15 AM Send us an email Success PaystackDemo36 NGN 100.00 from [email protected] Company Description Paystack Feb 19, 2016 7:11:34 AM Paystack is a leading online payments provider in Nigeria with a focus on SMEs. Paystack began operations in 2015, and operates with team of 72 between Lagos and San Francisco Product offering Customer segment ☐ Payment and subscription Accounting integration Payouts and invoicing Entrepreneurs Corporates SME International companies ΑΡΙ Technology leveraged " Big Data Advanced Analytics ■ Content management systems ப Data science Value proposition What makes them distinctive ☐ SOURCE: Paystack website; press articles Easiest channel for Nigerian and African SME merchants to receive electronic payments via any channel Paystack ensures that payment for merchant is fast, seamless and easy, with a 24 hour settlement promise Paystack Distribution model Channels ■ C2B, B2G Bank accounts Mobile Money Competitors □ Square ■Cards (routed through the Mastercard payment gateway) gravity PAYMENTS FlutterwaveⓇ EFINA 145#146Paystack achievements Quantitative achievements $ ~$9.4M raised over 3 rounds $27.5M worth of transaction processed monthly 25,000+ merchants currently signed up on the Paystack platform Qualitative achievements Paystack has been able to: ■ Drive financial inclusion by allowing businesses without complete registration also receive online payments Promote trust in the financial system by including automated fraud monitoring systems on their platforms D ~2.9M payments collected monthly 1. As at October 2019 SOURCE: Paystack Website website; press articles 146 EFINA#147Cellulant Mobile Wallet 11:25 Hello. What do you want to do today? Add Money to Wallet Card, Internet Banking. Agent Buy Ate, SMS, CRBT Cellulant company profile cellulant Welcome to OneTap Payments service. Please select a service: 1. AIRTIME 2. Prepaid Electricity 3. DSTV 4. TELONE 11:25 Pay Cellulant Company Description Value proposition CANCEL SEND Agric Inputs DSTV, PHON Transfer Money To Family Friends Bank & Wallet Redeem Money Send and Redeem Cash Voucher GES Menu GES Farmers Transactions Cellulant is a company that provides a digital payment platform to consumers, retailers, merchants, banks, mobile network operators, and governments.. Established in 2014, it offers consumer payments, payment collection, digital banking, digital financial empowerment, and other services Cellulant is building a financial inclusion ecosystem leveraging niche markets around government subsidies Product offering Customer segment cellulant life is mobile AgriKore connects stakeholders and service providers to farmers and the unbanked Tingg cashless payment solution that enables easy, convenient payments to merchants Retailers Mass consumers Merchants Government ■ API Technology leveraged Distribution model C2B. G2C Mobile Channels Agents USSD Available via web version IOS and Android What makes them distinctive SOURCE: Cellulant website; press articles Celluant has been able to merge fintech and agriculture services on one platform Competitors Interswitch kora Paystack EFINA 147#148Cellulant achievements Quantitative achievements $ K ~$54.5M raised over 2 rounds Presence in 12 Sub Saharan Countries 4M+ farmers benefit every year from subsidy program $1B worth of agro input processed yearly Qualitative achievements Cellulant has been able to: ■ Drive economic growth in Nigeria, by providing job opportunities within the agriculture sector for Nigerian youths Drive financial inclusion through its growth Enhancement Support (GES) Scheme. The Nigerian government was able to register 14.5 million. farmers through the scheme SOURCE: Cellulant Website website; press articles 148 EFINA#149Carbon company profile WASVANEM Стра XILM NOBE ПЕННА Eqncapou 19 Select Cable TV biller .. 20uq wouGh pure q wopie Search for a billen TOP CABLE TV'S SE DSTV subscription WVKE БУАШЕЙ WVB 31 5018 #1'200'00 ИЕХА ГОМИ ВЕБМАЖЕЙ КОЛЬ ГОМИ AONE MYTTEL 200'502'00 Majes pajauce Ноше Company Description AIEM WOKE GOB GoTV subscription We go DIBSN BED Value proposition OTHER CABLE TV'S IrokoTV subscription act African Cable Television (ACTV) XWESE Kwese TV Linda Ikeji TV Your loan ☐ Loan pending Your application is currently being processed, Product offering You will receive a loan decision shortly. Loan amount N7,500 Application date Feb 23, 2019 Processing Loan history View previous loans you have taken Help View responses to some common questions Carbon is a digital financial services platform that specializes in consumer lending. ■ Carbon empowers individuals by providing them access to credit, simple payments solutions, high- yield investment opportunities and easy-to-use tools for personal financial management Carbon is simplifying consumer lending by using a specialized platform that enables quick access to financial products Customer segment Technology leveraged ☐ Loans up to NIM, no collateral, no guarantor Payments easy payments to 500+ billers Investments up to 15.5% interest with N50k - NIOM investment Individuals Corporates SME ■ API Analytics and Business Intelligence ■ Content management systems Distribution model C2B, B2C Web Channels ■Mobile Applications What makes them distinctive ☐ Single integrated app (android) ■Low transaction fees SOURCE: Carbon website; press articles Competitors ZEDVANCE ^ Lydia A AELLA CREDIT carbon EFINA 149#150Carbon achievements Quantitative achievements ③~$10.8M raised in total funding g $35.6Mn D Loan amount disbursed ~480k+ number of loans disbursed $8.45Mn Bill payments value ~547k+ bill payments volume Qualitative achievements Carbon has been able to: ■ Drive financial inclusion by simplifying the credit process to make loans available for the retail segment in only 5 minutes ■ Partner with credit bureaus to make credit checks accessible for everyone SOURCE: Carbon Website website; press articles 150 EFINA#151Piggy Vest company profile Company Description Transfer from Flex Value proposition What makes them distinctive To my Phozyt 4.30 Product offering N30,203.52 Grats 99007426 PiggyVest is the first online "Savings & Investment" app in West Africa. It first launched as in January 2016 as a savings-only platform. ■In 2019, PiggyVest then began to offer direct investments opportunities to users in addition to savings. Piggy Vest is on a mission to give everyone the power to better manage & grow their own finances SOURCE: Piggyvest website; press articles Making investments easy for customers by providing opportunity to invest tiny & affordable chunks and still enjoy the same return rates in amazing opportunities. Customer segment ■ Technology leveraged Savings at attractive interest rates Investment opportunities Health insurance Individuals Corporates SME Youths ■ API Google Analytics Google Tag manager G Suite Channels Web ■Mobile Applications smartypig piggyvest Competitors RIBY CowryWise SmartSaver.ng EFINA 151#152Piggy Vest achievements Quantitative achievements ③~$1.2M funding D P ~2.8M securely saved raised over 2 rounds every month 350,000+ Users currently signed up on the PiggVest platform 100,000+ downloads of mobile application on play store Qualitative achievements Pigg Vest has been able to: ■ Increase savings rate in the country by providing innovative ways for people to save ■ Partner with health insurers to provide affordable health insurance to young Nigerians SOURCE: Piggyvest Website website; press articles EFINA 152#153Renmoney company profile RenMoney „simple money st RenMoney YOUR PERSONAL FINANCE MATTERS Book Your Finance With Our Simpl Mosey Solutione e 0 e D RenMoney Product offering Loans: Borrow up to Nóm Investment opportunities with yields of up to 13% p.a Target savings Individuals Corporates E Feed Depose Target Savings Facebook Company Description Value proposition What makes them distinctive CASH LOAN ☐ □ CHHAT Renmoney is a consumer finance organization that started in 2012 with an expertise in the provision of simple money solutions Renmoney provides loans that are flexible and spread over 12 months, without requiring collateral or guarantors Renmoney has a focus on the unmet consumer financial needs of the ordinary Nigerian consumer, with more ore emphasis on its unsecured loan product They leverage both traditional, digital and alternate media platforms to consistently address the unmet demand of customer finance in Nigeria SOURCE: Renmoney website; press articles Customer segment Technology leveraged SME Youths ■ API ■ Channels ■ Cloud technology Web Branch Network Agents Contact centers Competitors MKOBO O Lidya RenMoney ONEFI EFINA 153#154RenMoney achievements Quantitative achievements $ D P ~$470M raised in fixed deposit inflows ~$140M disbursed as loans to customers 200,000+ Loans provided to individuals and small business in Nigeria 140,000+ downloads platform customers on renmoney Qualitative achievements Renmoney has been able to: ■ Increase financial inclusion by providing easily accessible consumer finance lending to the financial excluded Nigerians SOURCE: Renmoney Website website; press articles EFINA 154#155Migo company profile migo The power of Yes! Contact Us Get Migo Direct consumer loans Indirect loans; loans to companies customers Product offering ☐ Credit scoring Migo for you Pay with Migo Company Description Migo Migo for business Accept Migo payments Migo is a cloud-based platform that enables companies to offer credit to their customers, augmenting traditional bank and payment card infrastructure. Companies integrate Migo in their apps and Migo underwrites customers to provide them with a digital account and credit line. Customer segment Value proposition What makes them distinctive SOURCE: Migo website; press articles Individuals Corporates SME ■ API Technology leveraged Cloud technology ■Machine learning Low interest rate loans to consumers with a swift application process and flexible tenure with no documentation required Channels Migo is reinventing the way people access and use credit ■ Web ■ Mobile application Competitors RenMoney carbon migo ONEFI EFINA 155#156Migo achievements Quantitative achievements ③~$20M funding raised in one round D ~$100M disbursed as loans to customers 3M + Loans provided to individuals and small business in Nigeria P 1M+ customers have been offered loans on the migo platform SOURCE: Migo website website; press articles Qualitative achievements Migo has been able to: ■ Drive commerce around the world. by injecting liquidity into the last- mile retail sector EFINA 156#157Interswitch company profile == Quickteller Cards © N3,256,789,999.00 Quick Services Webpay Quickteller MasterCard Naira Debit Email Password Keep me signed in CARD PN Login Sport Bet Trasport & Tall Cable TV Whena Logic Limited N 1,000.00 Product offering Interswitch → Payment and subscription ■ Micro loans Revenue collection Fraud management system Individuals Corporates Cancel Customer segment SME EXPERIENCE SHOPPING LIKE NEVER BEFORE Forgot password? Continue without login New user? sign up now Company Description ■ Value proposition What makes them distinctive Norton Pay Safetoken Cupright entwich Listed Interswitch is an Africa-focused integrated digital payments and commerce company that facilitates the electronic circulation of money The company started operations in 2002 as a transaction switching and electronic payments processing company that builds and manages payment infrastructure Interswitch helps customers reduce costs, increase revenues, tighten security, expand product offerings, and improve service levels on technology. First mover advantage of disrupting the traditional cash-based payments value chain in Nigeria by introducing electronic payments processing and switching services SOURCE: Interswitch website; press articles ΑΡΙ Technology leveraged " Big Data Advanced Analytics ■ Content management systems ப Data science Distribution model ■C2B, B2C, ■ Bank accounts Cards Channels ■ Mobile Money ■ Agent network paga Competitors Paystack FlutterwaveⓇ your cash, anywhere, anytime EFINA 157#158Interswitch achievements Quantitative achievements $ ~ $1Bn company valuation Operates in 23 African countries 20,000+ agents currently signed up on the interswitch platform $4.6Bn worth of transactions monthly processed across 42M transactions Qualitative achievements Interswitch has been able to: ■ Drive financial inclusion by investing in agent networks to bridge the gap between the banked and unbanked Increase access to financial services by providing agent network in 29 out of 36 states in Nigeria SOURCE: Interswitch website; press articles 158 EFINA#159Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 159#160Impact of FinTech - Access FinTechs have made significant progress on pricing, access and innovation but there are still gaps on education and on accounts and insurance Order of Importance 2 3 Levers Pricing Access هي P eyowo palmpay >>Ray Futterwave' paga your cash, anywhere, anytime paga Ρ OPay Paystack 110 piggyvest CowryWise cellulant Kudi life is mobile RISE Wealth.ng piggyvest Inno- vation ρ OPay eyowo trove investing, simplified. chaka branch carbon K kuda. Reliance MO RIBY branch carbon Bankly K kuda. CowryWise Reliance HMO Educa- tion 110 P piggyvest branch OPay CowryWise carbon Products Payments Savings &Investment Lending Accounts Insurance EFINA 160#161Impact of FinTech - Pricing FinTechs tend to be up to 50%-80% cheaper than banks on transaction fees and offer 2-3X traditional interest rate on savings Product Payments Traditional Players N10-N50 transfer fees FinTech N10 transfer fees Bill payments at N100 Bill payments at NO No charge for Airtime Savings 4%-5% interest rate p.a Accounts N50 quarterly card maintenance fee on savings accounts. Cashback upon airtime recharge 10%-15% interest rate p.a. No card maintenance fee There are still opportunities for FinTech to improve pricing particularly in lending: ☐ ☐ Current lending APRs range between 50% to 360% vs 16% to 30% for traditional players largely driven by FinTech high cost of funds & risk profile of the underserved Lack of any Islamic finance product excludes a segment of the population operating on Islamic principles SOURCE: Company Website, Press Search EFINA 161#162Impact of FinTech - Innovation FinTechs have innovated in different product areas across pricing, product and delivery models Innovation Area Product Description Product Areas Examples Development of new products or changes to existing products that cater to the needs of the financially excluded Payments Platforms that offer key use cases for customer across transport, food etc. Easy to use stored value wallets ■ Transactions in languages people understand e.g. OPay in Hausa and Eyowo in Yoruba Players Ρ P: paga OPay your cash, anywhere, anytime eyowo Lending ■ Instant, unsecured loans requiring minimal documentation or collateral Savings ■ Automated discipline savings products for middle class youth Wealth Management Savings ▪ Access to trade in global stock markets ◉ Cheaper insurance fees in monthly payments Cashback on early loan repayments Leveraging smartphone distribution to aggregate data points in order to assess risk Digitization of cooperative savings Cash digitization by agents branch carbon 10) piggyvest CowryWise RISE chaka Reliance IMO carbon carbon branch GRIBY Bankly Pricing Development of pricing strategies Insurance that allows most income groups to use available products Lending ■ Delivery Models Development of new ways to deliver Lending already existing products in a way that reached previously excluded groups SOURCE: Company Website, Press Search EFINA 162#163Impact of FinTech - gender inclusion Low female participation in FinTech is driven by under-representation in finance and tech and lack of diversity in VC industry There are 5 key drivers to increase female participation in FinTech 1 Increase STEM pipeline 2 Introduce regulatory policies to drive gender diversity 3 Increase funding for female driven FinTech 4 Drive sponsorship and mentorship among women in FinTech 5 Increase role modeling and share success stories SOURCE: Company websites, team analysis Educating and encouraging young women to pursue careers in STEM by breaking down social barriers and stereotypes Initiatives include scholarships, conferences to raise awareness, STEM funds/grants, Workplace sponsorship Increasing diversity through regulatory policies (government or self-imposed) will enable companies make conscious decisions to drive gender equality in the workplace Create more female focused VC funds to drive adoption Allocate more donor funds/grants to female-run FinTech to drive adoption Organize conferences and structured networking events to connect women in FinTech with successful players in the industry Develop online series, webinars etc. where women in FinTech share success stories with up and coming entrepreneurs Develop partnerships with women enabled businesses to foster collaborate and role modeling Examples 米 ■ Tech Women mentorship program for women in collaboration with the U.S. Department of State's Bureau of Educational and Cultural Affairs Mastercard Girls4tech program Exxon Mobil's Women interest network, Edufun Technik STEM Hub etc. CBN mandated commercial banks to appoint 30% women to their boards The Female Founders Fund, a ~ $30m fund focuses on investing in early stage female led startups Janngo Capital - is a female-led venture capital fund focused on African women founders Alitheia Capital - launched a gender fund targeting female entrepreneurs Women in FinTech Global initiative promotes collaboration between female FinTech leaders and create an unrivalled environment for mentorship Africa Women in FinTech conference aims to connect female African entrepreneurs across the continent to foster collaboration and innovation Innovate finance's Talent and Skills program spotlights the in tech industry and inspires young women to pursue careers in FinTech She leads Africa connects women entrepreneurs with market leaders to drive innovation in women-owned businesses EFINA 163#164Impact of FinTech - gender inclusion Case Study: Pafupi Savings in Malawi developed a savings. product designed specifically to meet women's needs. Malawian women had a huge unmet need with savings Context ~6M out of 7.5M population in Malawi were unbanked in 2014 Only 27% of rural communities had access to bank accounts However, women were the household financial managers and savers, prioritizing how earned money is allocated Women began to set-up informal savings club in rural communities to drive saving NBS partnered with MicroLead program and Women's World Banking to understand the needs of rural Malawian women and design a savings account NBS created Pafupi Saving accounts with 5 key elements based on women's needs Bring bank to local community Agents visited rural communities and with mobile phones, opened savings accounts in under 10 minutes Offer convenience and security Recruiting local shopkeepers as fixed bank agents in the community removed cost of transportation to bank and provide security of savings Help women save regardless of income ■ Enabled women to make small deposits and withdrawals at local NBS bank agent and ATM No monthly charges and interest accrued on balances Educate new savers Financial education messages tailored to local context, group education sessions conducted financial planning, goal setting etc. Empower women ☐ Savings account is first point of access to formal economy for many women Savings profile financial security and possibility for access to loans and other bank offerings SOURCE: UNCDF MicroLead Partner Case Study Series - Pafupi savings: Expanding Financial Inclusion to Rural Women Impact to date Reached target rural women, 76% of whom were previously unbanked >200k Pafupi accounts by Dec 2018 Strengthened financial education and empowered women with increased financial stability EFINA 164#165Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix ☐ Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ☐ Enablers Additional recommendations Recommendations for EFINA EFINA 165#166Despite the progress made in the Nigerian FinTech ecosystem, there are still gaps that stakeholders need to make concerted efforts to address (1/9) 1 Regulator - Policies Progress Shift to electronic payments through e.g. cashless policy has enabled the growth in areas like online payments as merchants shift to electronic channels - ■ Licensing of Payment Service. Providers (PSPs) to operate properly under regulatory guidelines PSP licensing enabled many players with limited capital to enter the payment processing space ■ National Financial Inclusion Strategy (NFIS) has led to the push and growth in agency banking Current gaps Frequent policy changes /misalignment Frequent change in policies & guidelines by regulators & Limited synergies between policies. e.g. cashless policy vs additional levies on electronic payments Delayed implementation of proposed guidelines e.g. proposed tiered PSP licensing is still a circular Constraining licensing & regulatory regime ■ A number of restrictive policies e.g. cap on agent banking pricing, limits on USSD transactions Multiple and sometimes expensive licensing required to carry out several activities e.g. PTSPS ■ No process/framework in place to update outdated regulations Opportunities =0 CBN to ensure implementation of regulatory sandbox that allows FinTech to develop and test solutions within an enabling environment and support scale through these components: Setting out specific sandbox criteria Using a cohort based model for companies to test ■ Relaxation of specific regulatory requirements ■ Tailored authorization process of companies that wish to test innovations ◉ Guidance/Case officer for FinTech to support design & implementation of test Extended sandbox services to other areas such as Insurance ■ Monitor and update regulations that foster competition, innovation and protection based on sandbox outcomes SOURCE: Expert Interviews, Press Search EFINA 166#167Despite the progress made in the Nigerian FinTech ecosystem, there are that stakeholders need to make concerted efforts to address (2/9) Progress 1 Regulator - Policies Current gaps & Limited regulatory framework for other FinTech areas such as insurance & wealth management ■ Restrictive guidelines in sectors such as Insurance has limited innovation ■ Sectors like wealth management remain unregulated e.g. crowdfunding and digital asset management ■ Unclear implementation guidelines for existing frameworks like micro- pension Limited effectiveness and visibility on consumer protection guidelines Opportunities still gaps =0 Develop innovation friendly guidelines FinTech body/association that interfaces with relevant bodies/stakeholders e.g NAICOM on behalf of FinTech to ensure guidelines are updated as necessary and per sandbox test period outcomes ■ Review agent banking prices to reflect various market realities/outcomes Implementation effective and visible consumer protection guidelines ■ Creation of targeted campaigns that raise awareness of relevant consumer protection policies e.g. visible warning list on investments etc. on the CBN/CPC website and resource bank that provides materials for sharing within personal networks ■ Creation of a financial ombudsman service by CBN that enables easy resolution of financial complaints for customers SOURCE: Expert Interviews, Press Search EFINA 167#168Despite the progress made in the Nigerian FinTech ecosystem, there are that stakeholders need to make concerted efforts to address (3/9) 2 Regulator- Market Structure & Competition 品 Progress ■ SOURCE: Expert Interviews, Press Search Opening up of critical payment APIs such as NIP and the Mastercard Payment Gateway enabled many payment players like Flutterwave & Paystack to build innovative payment solutions This payment solutions in turn enabled lending & savings players to easily serve their customers through instant payouts and collections Current gaps & Limited Sharing of useful Customer Data between FinTech and other ecosystem players e.g. banks, telcos No standardization of APIs across players Difficulty in integrating with players' APIs seamlessly due to various API standards No incentives for players to share useful customer data with FinTech Expensive and difficult to obtain licenses that are barriers to entry for FinTech Similar license requirements for FinTech and Banks which does not necessarily match the scale of activity of FinTech Opportunities Data Sharing Framework still gaps Support for API standardization by relevant stakeholders e.g. CBN, NIBSS Regulation that enables customer ownership of data sharing authorization e.g. through open banking Market opportunity for data aggregator ■ 2== Opportunity for market player to be data aggregator in which FinTech could plug into to get relevant customer data This helps to reduce cost and time to market for FinTech Opportunity for banks, telcos & FinTech to differentiate based on open APIs and data sharing Banks, Telcos & FinTech can make their platforms more valuable to customers by allowing customers share their data with other platforms who can build value add services leveraging the data e.g. financial wellness advisory etc. Ease of obtaining licenses Unbundling expensive licenses into smaller parts that are more affordable for FinTech e.g. licenses around digital banking, lending, asset management, insurance etc 168 EFINA#169Despite the progress made in the Nigerian FinTech ecosystem, there are still gaps that stakeholders need to make concerted efforts to address (4/9) 3 Regulator- Infrastructure Progress Mobile phone penetration of 87% of the population i.e. 170 million mobile subscribers leading to democratization of access BVN policy created a digital identity that enabled FinTech properly identify users and signup users remotely - NIP by NIBSS enables online real time payments significant reach as NIP accounts for 70% of ~ 120 million monthly transactions processed by NIBSS Flutterwave, a B2B FinTech was the first company to offer instant settlement to merchants once NIBSS allowed for this Current gaps & Lack of widely used Digital ID While there are many different identity systems, there is under penetration of a reliable digital ID e.g. only 40 million accounts are currently linked with BVN (most reliable ID system) There are many different identity systems with various data collection standards making reliability an issue Broadband coverage " Limited data affordability. E.g. Data prices of some providers have remained the same for about 3 years Cost to serve of Network providers is high due to cost of laying Fibre cables etc. Suboptimal coverage and where there is coverage, quality is often poor Inadequate Credit Data Infrastructure Lack of central credit data repository Lack of national asset register to enable asset finance ■ NIBSS Global Standing Instruction (GSI) still in progress Opportunities Creation of reliable widely used Digital ID ■ NIMC to incentivise those in underserved areas to get digital IDs by providing rewards for enrolment or making it a condition for certain services e.g. registering a mobile sim Adopt common standards of capturing data across all identity systems e.g. BVN, NIN etc. to ensure reliability in using any of the IDs Fasttrack broadband coverage & quality ■ ■ Allow for shared fibre infrastructure between Telcos and network providers Explore concessions of specific geographies to different providers Provide incentives for Telcos to expand to rural areas Reduce cost to serve in undeserved areas for Telcos Standardization of credit infrastructure through: ◉ Creation of central credit data repository by CBN. E.g. central credit register by the Bank of Ireland Creation of national asset register Implementation of proposed GSI ■ SOURCE: Expert Interviews, Press Search EFINA 169#170Despite the progress made in the Nigerian FinTech ecosystem, there are still that stakeholders need to make concerted efforts to address (5/9) Progress 3 Regulator- Infrastructure Current gaps Device Infrastructure & ■ As at Q3 2018, there were ~53 million smartphone connections, representing a penetration of 36% which is still low Shared agent infrastructure is still in infancy ■Not yet been implemented and will only allow for interoperable account opening Opportunities Improve device penetration : gaps Possible collaboration between major stakeholders e.g. telcos, big tech, FinTech to bulk order low price point phones to further drop prices ■ Enable device financing ■ Enabling secondary market i.e. used phones Reducing taxes and tariffs on phones SANEF to fast track implementation of shared agent infrastructure SOURCE: Expert Interviews, Press Search 170 EFINA#171Despite the progress made in the Nigerian FinTech ecosystem, there are still gaps that stakeholders need to make concerted efforts to address (6/9) 4 Global Connect- ions Progress Google Launchpad Accelerator Programme Currently in its 4th class, with 4 out of 6 Nigerian startups in its 4th cohort, being FinTech Y combinator- 13 out of 28 African startups in the Y combinator program over the last 10 years, have been Nigerian 7 out of the 10 African startups in 2017 were Nigerian with >50% being FinTech Strategic investments between Asian and US investors and Nigerian FinTech Current gaps Lack of formal avenues for FinTech to exchange information: No formal avenues for FinTech to navigate regulatory framework of other jurisdictions & No formal cross border avenues to share crucial learnings between local and international FinTech which are necessary for i)FinTech to scale and ii) create impact along certain dimensions e.g. Financial inclusion locally Lack of formal avenues for regulator alliances: No formal channels for regulators to learn from each other and apply key learnings to local market Opportunities CBN to foster collaboration with other regulators and ecosystems e.g the Global Financial Innovation Council in order to: ☐ Encourage skill building and development of local FinTech through teachings via workshops, online courses etc. Drive knowledge sharing through sharing of experiences and approaches Expand capacity by combining resources to work on joint projects Reduce costs and improve efficiency for Nigerian FinTech CBN to play potential lead role in regulator innovation network of for e.g. African countries innovation network To share key learnings from the Nigerian FinTech landscape with other countries ■ To encourage skill building Coordination of Exchange Programmes: Founders, entrepreneurs, managers, developers exchange programmes etc. where they can share experiences & build skills Particularly programmes with other countries e.g. India, Indonesia that have navigated Financial Inclusion in order to learn and apply key insights 1. Monetary Authority of Singapore 2. Dubai Financial Services Authority SOURCE: Expert Interviews, Press Search EFINA 171#172Despite the progress made in the Nigerian FinTech ecosystem, there are that stakeholders need to make concerted efforts to address (7/9) 5 Funding Progress ■Increased inflow of foreign capital in Nigeria, with over $400mn invested in FinTech players over the last 3 years focused on early and growth stage players Large ticket investments in 2019 include Interswitch ($200mn), OPay ($170mn) and Palm Pay ($40mn) Current gaps Limited local participation ☐ ☐ & Opportunities Limited number of tech focused VCs LPs are mostly foreign (most Nigerian investors have not fully embraced tech investing) Lack of education about the VC asset class Underdeveloped early stage investment ecosystem ■ Only few angel networks exist Many incubators/accelerators have slowed down Capability Gaps Many founders have limited work experience ■ A result of this is governance, controls and reporting tend to be suboptimal Support industries like tech law have not taken off still gaps Introducing incentives that encourage local investment E.g. Tax benefits/relief on certain amounts invested Education (e.g. through success stories) on what it takes to invest in FinTech: On the risk/return in this asset class compared to others Fostering provision of essential services to FinTech through for example: Sponsored capability building workshops on reporting etc. ■ Subsidized legal and other professional services SOURCE: Expert Interviews, Press Search EFINA 172#173Despite the progress made in the Nigerian FinTech ecosystem, there are that stakeholders need to make concerted efforts to address (8/9) still gaps 6 Talent 00 44 Progress Private developer institution trainings e.g. Andela, Decagon -The Andela Learning community has supported over 23,500 learners, produced over 12,000 graduates across 17 countries in Africa including Nigeria The Lambda school Africa Pilot provides a chance to be hired by a participating company e.g. PayStack, Cowrywise after the programme HNG has run 5 batches of internships with a total of 15,000 interns trained since the first batch Current gaps & Opportunities Education Inadequate academic and industry resources to develop sustainable tech talent pipeline: ☐ ☐ Limited number of internship programmes within FinTech to develop a sustainable talent pipeline Sub standard university curriculum Limited private institutions training. Only a few such as Andela, Decagon Redesign tech computer science and other tech related curriculum in universities with focus on relevance for Nigeria's ecosystem Explore potential partnerships between universities and Tech institutions/training schools to lecture students Development partners to encourage tech visiting scholars at key universities Encourage strategic location of Tech/FinTech companies around key universities to create tech talent hub e.g. Bangalore Design alternative degrees e.g. Associate degrees. which are shorter in duration and allows students to start learning on the job faster Develop more Industry wide Internship & Apprenticeship programmes Scale up internship programmes such as the Lambda school program to involve more FinTech Create Apprenticeships for capable school leavers. who can start to learn on the job quickly SOURCE: Expert Interviews, Press Search 173 EFINA#174Despite the progress made in the Nigerian FinTech ecosystem, there are that stakeholders need to make concerted efforts to address (9/9) Progress 6 Talent 00 44 Current gaps Brain Drain: & Due to more attractive opportunities for Tech talent outside of Nigeria Opportunities still gaps Foster ties between Tech Alumni & Universities Universities to host Tech focused Alumni Events Develop engaging university tech experience for students before they become alumni Connecting students interested in tech and alumni founders/leaders in the tech space for career mentoring with the opportunity for alumni to hire students Developer Communities e.g. Devcenter ■ Scale developer communities and use as channel to develop talent pipeline by creating mentoring opportunities and frequent meetups ■ Create smaller niche groups within communities to create specialized tech talent Tech training as a market opportunity for CSR by Telcos, Banks etc. SOURCE: Expert Interviews, Press Search EFINA 174#175Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 175#176There are opportunities to serve the BOP with tailored financial product that could drive increased DFS adoption Micro Insurance Micro savings■ Micro loans Key features to be considered when designing products Offer insurance products (health, agricultural products etc.) to BOP customers with flexible premium options for regular micro installment (N200 - N1000) per month paid daily, weekly/bi-weekly Develop unique and tailored value proposition for savings products Pay interest based on tiered model – increase interest as wallet balance grows (ranging from 2%-5%) ■ Provide microlending products to customers with little to no prior banking history ■ Use alternative data sources (e.g. transaction data, community guarantee etc.) to develop credit scoring in order to assess credit-worthiness and assign limits ■ Limit loans to 30-60 days to reduce chances of default Emerging market examples Milliman NHIF BIMA PROTECTING THE FUTURE OF EVERY FAMILY GOXI MICROINSURANCE Pafupi Savings M Shwari kiva musoni Next Generation Microfinance CEBUANA LHUILLIER MICRO SAVINGS Requirements Interest More Details! ISENSEY MOKash MY SAVINGS, MY LOANS Source: company website, literature review, EFINA McKinsey & Company 176#177Contents Executive Summary Global FinTech Landscape Nigeria FinTech Landscape Impact of FinTechs Recommendations and Implications for Stakeholders Appendix Approach & methodology Global examples on FinTech ecosystem enablers Profiles of Global FinTech players Demographic group profiles and pain points ■ Use cases for FinTechs in Nigeria Profiles of key FinTech players in Nigeria Impact of FinTech ■ Enablers Additional recommendations Recommendations for EFINA EFINA 177#178There are 3 key areas across which EFInA can support the growth of the ecosystem Areas Sponsor Regulatory Sandbox and innovation office Mobilize funding in targeted areas Lead advocacy for Financial inclusion ☐ Description Champion the regulatory sandbox and innovation office: Sponsor/Fund operations and resourcing of the team Connect team to global expertise (e.g. through linkages with other regulatory bodies; exchange programs; etc) Work with stakeholders to encourage sharing of quality APIs Sponsor annual "99 pain points" hackathon to channel fintech innovation to areas that matter Co-invest with investors or experienced entrepreneurs in commercially viable ventures in targeted areas (e.g. Female founded businesses; micro- financial services products; regional based businesses; etc) Contribute and mobilize other funding for innovation hackathon (99 pain points) Promote financial inclusion through targeted research, strategic industry forums and opportunity identification for Donors/Foundations Partner Stakeholders ■ Central Bank of Nigeria NIBSS NAICOM FinTechs Investors Donors/Foundations Federal competition and consumer protection commission Donors/Foundations ◉ 1 Create awareness on priorities (e.g. consumer protection, gender inclusion, etc) by launching a "Fintech" consumer guide/rating ☐ ☐ Establish a Fintech directory to build data on FinTech ecosystem and promote enhanced self-reporting FinTechs 178 EFINA#179EFINA