By Chukwuma Umeorah
In a fast-paced world of globalisation and digital transformation, the role of technology in reshaping economies cannot be overstated.
The evolving impact of technology in the banking and finance landscape has created room for disruptive innovations that have evidently contributed positively to the sector.
Nigeria, with its burgeoning Fintech sector stands at the forefront of this financial revolution, challenging traditional norms and fostering an environment with endless possibilities.
Fintech refers to leveraging technology to deliver tailored financial service offerings to consumers and corporates.
The adoption of Fintech solutions continues to disrupt financial services globally and strategic adoption has established financial heavyweights around the world. For many economic players and stakeholders, a significant question would be how to explore the benefits of fintechs.
For the Nigerian Exchange Group Limited (NGX), the aim is to create an attractive environment for Fintech companies to list on the exchange. With valuation surpassing that of some Nigerian biggest traditional banks, Fintech unicorn companies in Nigeria have proven to be viable assets with great potential on the economy.
Around the world, 2021 saw a record number of venture capital investments with more than $300 billion in the first half of the year alone which created close to 800 unicorns across the globe. It was reported that five out of Africa’s seven unicorns emerged from Nigeria in recent years out of which four evolved in 2021 alone. Opay raised $400 million, resulting in a company valuation of $2 billion, Flutterwave raised $250 million, leading to a company valuation of $3 billion.
However, funds were raised outside Nigeria despite the companies being of Nigerian origin.”
The companies are not the only ones with such a high valuation outside the Nigerian bourse, underscoring the need to integrate such high-valued fintechs into the local capital market, providing investors with a diverse range of opportunities and supporting the growth of these disruptive innovators.
Chief Digital Officer, NGX Limited, Dr. Olufemi Oyenuga, while delivering a paper titled: “Role of Fintechs in Financial & Capital Market” at the recently concluded two-days training for journalists organized by the Securities and Exchange Commission (SEC), noted that the financial services sector was in disruptive times and that “market leadership in Nigeria have moved from FUGAZ to GOFIZ. FUGAZ is Firstbank, UBA, GTB, Access bank, and Zenith Bank while GOfIZ is GTB, OPAY, Flutterwave, Interswitch and Zenith when considering leading financial service providers in the Country.” That is to say that some traditional banks have been deposed by fintech companies who have largely adopted innovative ways of rendering well-tailored services to its consumers.
He added that this disruptive trajectory is fueled by Nigeria’s young and digitally dynamic population, exponential technology growth, smart business models and influx of Venture Capital funds towards Fintech.
“Fintech companies have created enormous new entrepreneurs and new jobs and contributed to the growth of Nigeria’s GDP. Future possibilities are that Fintech companies will be buying big banks.
Reeling out some of the benefits and value proposition of Fintech to the Nigerian Capital Market (NCM), he noted, “It would provide increased flow of trade, economic growth, resourceful efficiency, standardization and harmonisation and diversification of risks.” Others include providing access to capital through crowdfunding and bond issuance platforms, to decentralized trading marketplaces, trade execution, post-trade services, and data analytics and information services among others. He strongly posited that these Fintech solutions would enhance efficiency and accessibility of the market.
However, he advocated for a solid regulatory framework to ensure compliance and advance innovation within the ecosystem. “There is always regulation required for any ecosystem and fintech is inclusive.” NGX RegCo (the regulatory arm of the Nigerian Exchange Group), has also been active in ensuring compliance within the market operators.
Despite the significant advantages of having Fintech companies listed on the Nigerian stock exchange, most Nigerian fintech startups have preferred to list on foreign stock exchanges such as NASDAQ, NYSE, or LSE. This trend could be interpreted as a form of capital flight, as it has deprived local investors in African markets where these startups operate of the opportunity to invest in and support the innovative companies shaping the marketplace.
However, the Securities and Exchange Commission (SEC), has not rested on its oars by taking positive steps to ensure that it replicates the conditions that make Nigerian tech companies prefer foreign capital markets.
The apex regulator in November 2018 inaugurated a Fintech Roadmap Committee for the Nigerian Capital Market. In furtherance of its terms of reference, the Committee examined the benefits, entry barriers and the regulatory hurdles faced by FinTechs as banking and securities regulators attempt to encourage and regulate financial innovation while protecting investors and consumers. The committee came up with its report in August 2019 among several recommendations aimed at improving the ecosystem.
The Financial Literacy Technical Committee (FLTC), a market-wide committee of the capital market, also provides market-related and people-centric information. It has also introduced several programmes and offerings to promote access to capital in the financial services sector and enhance financial Inclusion in our economy.
The NGX in October 2022, said that it was working with SEC, the Central Securities Clearing Systems (CSCS), and the Nigerian Pension Funds Operations Association (PenOp) to introduce a specialized tech board.
This collaborative approach finally came to fruition, as on December 15, 2022, SEC approved the ‘Rules for Listing on NGX Technology Board. This specialized board, targeted at unicorn fintech companies operating in Nigeria. However, the Exchange is yet to see the first listing of a fintech company but has assured that efforts are underway to facilitate a successful fintech listing by the year 2024.