Thursday, December 27 2018 08:02 PM / By Segun Adeyemi is the CEO of Amplified Payment Systems Ltd / FintechNG
Introduction
The year 2018 has been an interesting one for FinTech startups in Africa. From major funding announcements to ground breaking events to new policy directions, the space has clearly been a busy one. Across the continent, over $560million was invested in tech companies in 2017.
Of the $114million reportedly raised by tech companies in Nigeria, 75% of it went to FinTechs. So far in 2018, Nigeria FinTechs have raised over $95million according to publicly available data. If you have been following the startup ecosystem in Nigeria, you are probably inundated with news about FinTechs and their activities on a daily basis. This media attention can be largely attributed to these major investments.
Considering the quality of companies and founders in the space, and the opportunity to build a massive company with both social and economic return potential, I believe this attention and investments are rightly deserved. With this background and the preponderance of payments and FinTech startups springing up daily, one would have thought that most of the basic information required to make sense of the space will be readily available on the first page of a Google search.
I recently discovered that’s not the case when I had a discussion with a key ecosystem player who expressed his frustrations in accessing clear information on FinTech related activities and licenses in Nigeria. A few weeks before then, a former boss and mentor had also called to discuss a similar topic. I remember I’ve had friends, budding FinTech entrepreneurs, bankers, corporate executives, investors and other stakeholders ask one or two questions in trying to understand the electronic payment and FinTech landscape.
A quick search made me realize that most of the information out there is largely fragmented and difficult to understand. I couldn’t find a single source that gives a clear picture of activities within the space. This ebook is my attempt to give a basic overview and breakdown of the different areas within the electronic payment and FinTech ecosystem in Nigeria.
It also includes a list of some active players in the different categories. I have similarly tried to highlight the different regulatory licenses required to operate at different levels, especially in the light of the new PSP (Payment Service Provider) and PSB (Payment Service Bank) guidelines recently released by the Central Bank of Nigeria.
The overview and categorizations in the subsequent pages are strictly
informational and by no means exhaustive. Do not act on the information herein
without thorough examination of the particular situation. Reading this e-book
will not make you a FinTech expert or “thought-leader” overnight :). I hope
this gives you enough context and clarity to better understand the space. Have
a great read and happy FinTeching.
Payment Solution Service Providers (PSSP)
These are companies that have been licensed by the Central Bank of Nigeria (CBN) to provide the underlying infrastructure, end-to-end electronic payment solutions, systems and services to stakeholders within the financial services space. Until the newly proposed tiered payment system providers (PSP) licensing structure, the PSSP along-side the Switching license has been the goto license for players in the fintech space because it gives the most flexibility in terms of scope of what can be done.
The companies that operate here typically have direct integration into
the card schemes (Visa, Mastercard & Verve) and a deeper relationship with
banks and some have systems integrated directly into the core banking systems.
A recent report claimed that only 7 companies have been granted this license in
Nigeria. Obviously, companies such as Interswitch hold PSSP license.
Payment Gateways Providers
These are mostly facilitators between the merchant’s
customers and the actual payment processors, these companies can also be
referred to as merchant aggregators. In some cases, these companies are also
the payment processors or they connect to the different payment processors to
process web/mobile transactions on behalf of merchants. This is the most active
space as both the payment processors themselves, banks and other payment
startups who offer additional value-added services to merchants, play in this
space. Our payment
gateway product Amplifypay falls
under this category. For this category, before the recently proposed PSP
licensing structure, there was no clear regulatory requirement and most players
in this category are essentially required to meet certain security measures
that enables them to collect and transmit card details to the end processors.
The global security standard from a compliance standpoint is the Payment Card
Industry Data Security Standard (PCI DSS) that a provider’s systems need to be
certified for regularly, to operate at this level. All the payment companies
that acquire merchants fall under this category, either they process themselves
or transit to an end processor. Some players here include Webpay (By
Interswitch); Amplify; Paystack; Ravepay (By Flutterwave); VoguePay, GTPay, etc
Bill Payments Platforms and E-wallets
Companies that provide mostly consumer-facing platforms (web/mobile/bot)
for airtime and data purchase, fund transfers, bills payment, merchants
payments, and the likes. Depending on the scope of operation, a PSP or a mobile
money/e-wallet license from the CBN might be required to operate as a biller.
The biggest players here are the companies that provide these services on the
background for the banks to vend because almost all the banks in Nigeria enable
their customers to carry out these transactions from the bank’s digital
platforms (mobile / web app, ATM, bot, USSD, keypad). In some cases, the banks
vend the bills themselves while in other cases they connect to other third
party providers. Some major third party consumer facing platforms that play in this
space include Quickteller, Remita, Paga, Nairabox, Kongapay, VTpass,
Wallets.ng, Tingg (Cellulant), Kudi.ai (bot), etc.
Mobile Money Operators
These are companies that have been licensed by the CBN to operate the
full spectrum of cash deposit and withdrawals, issue debit cards, bills
payment, merchants payment, funds transfer, and other financial services on
their mobile phone by leveraging on the telecommunication infrastructure.
There’s a lot of potentials here because of its ability to increase financial
inclusion in the country but the impact has been largely undermined due to
regulatory issues that prevent the telcos from taking the leading role in
Nigeria which is contrary to the situation in most countries where mobile money
has been largely successful. The proposed establishment of Payment Service
Banks (PSB) by the CBN seek to enable telcos and other players such as bank
agents, retailers to play a deeper role in providing financial services to the
public. As expected, some telcos have announced plans to obtain the PSB license
and launch their mobile money service before the end of Q2 2019. Some of the
licensed and active mobile money operators include Paga, Cellulant, Fetswallet,
Teasymobile, Fortis Mobile Money, Kongapay, etc
Disbursement / Settlement Service Providers
These are companies that offer payout and bulk disbursement services.
Many companies here are either processors / switching companies connected
directly to the banks or are aggregators that do disbursements through NIBSS
settlement systems. The key players here include major processors like
Interswitch, Unified Payments, e-Tranzact and also aggregators like Chams,
Upperlink, etc
Card Brands/Schemes Operating in Nigeria
These are the companies that own and operate the debit, credit and
prepaid card brands that are issued by the banks and other card issuing
financial institutions. The two biggest global card brands, Visa and MasterCard
are popular in Nigeria and Verve card is similarly popular. Only CBN licenses
banks are allowed to issue cards in Nigeria. Switching companies are not
allowed to issue payment cards so that they don’t prioritize their card over
others.
Next Generation PoS / Merchant Services
These includes solutions that leverage technologies like NFC, QR Codes,
USSD, etc and companies that offer other valueadded services to merchants that
are built on-top of or around payment. Some companies here include Spacepointe,
Loystar, PayAttitude (by Unified Payments), mVisa, mCash (by NIBSS), Paypad,
etc.
Software Application Providers / Payment Infrastructure Service Providers
These include system integrators and pure IT companies that build
software and other IT infrastructure for the general electronic financial
services ecosystem. Some of these companies are also Payment Terminal
Application Developers for the PTSPs. Some of the companies in the categories
highlighted above also fall into this category such as Interswitch, Remita,
Chams. Others include Computer Warehouse Group, Inlaks, Parkway Projects,
Appzone etc.
Agency Banking
These are third party companies that provide financial services to
customers on behalf of licensed banks and / or mobile money operators in their
business premises. The idea behind agency banking is basically to leverage on
businesses that have a deep reach and distribution in places where the banks
might not be able to or are not incentivized to setup branches. The operating
model for agency banking was also referenced in the new PSP licensing regime
meaning that going forward, companies that want to act as agents to banks or
MMOs will need to have a type of PSP license.
Payment Terminal Service Providers
These are specifically the companies that have been licensed to operate
all kinds of card-present transactions (offline / PoS transactions) in the
country. When customers make payments with their cards on a PoS machine, these
are the companies that provides and maintain the PoS machines. There’s both a
software and hardware component to this and while some of the companies develop
their software internally, some outsource it to other application development
companies. Some of the biggest PTSPs in Nigeria are Unified Payment,
Interswitch, Etop, Citiserve, Global Accelerex, Computer Warehouse Group, Itex
Group, Payone, ESL, and more.
Payment Service Providers
This is a new license regime that seeks to completely recategorise the
licenses required by FinTechs to operate in the e-payment space. Under this
regime, payment service providers are segmented into three licensing categories
namely Super, Standard and Basic. All existing private switches, PSSPs, PTSPs,
super agents and non-bank merchant acquirers will require one tier of this
license or the other to operate at different capacities. The amount required to
play at the different tiers ranges from a minimum of N100million ($275,000) to
N5billion ($14million). The regulator’s argument for the stringent and high
financial requirement is to protect the customers from the imminent and
increased risk from the growing acceptance of new FinTech solutions. A
statement from the draft guideline states that it “will properly position the
Bank to adequately address the emerging issues of FinTech with respect to cyber
risks, risk management framework, capital adequacy, better focused regulation
and oversight operations.” This suggests that the regulation seek to protect
the interests of the bank than to provide a regulatory framework that provides
an enabling environment for the FinTechs to thrive. The draft has led to
different debates and arguments as many stakeholders hope that it would be
reviewed to accommodate their feedback and inputs.
Integrated Payment Players
Even though there are different categories and scopes of operation
within the electronic payment space in Nigeria, there also seems to be a lot of
overlap and for the fact that a lot of the markets do not have depth, many
payment companies in Nigeria operate across the different value chains.
Typically, most payment companies irrespective of the market entry point, end
up becoming more integrated over time. The most fully integrated player in the
market today is arguably Interswitch.
Payment Service Banks
This is a recent category created by the CBN towards its efforts in
promoting financial inclusion and driving financial access for the unbanked and
the low-income segment of the society. The license will allow non-bank
institutions such as telcos, retailers, super agents, and other similar
stakeholders to offer basic financial services such as acceptance of deposit,
payment and remittance, operate electronic wallets, issue debit and prepaid
cards amongst other services. However, this license doesn’t allow the companies
to offer full financial services such as credit, insurance, currency exchange
to ensure the bread and butter of the big banks are protected to a large
extent. Also, companies that want to play in this space need N5billion minimum
share capital.
NIBSS (Nigeria Inter-Bank Settlement System Plc)
NIBSS deserves a special mention as it will be difficult to put this
organisation in any of the categories listed above. NIBSS is partly owned by
the commercial banks and the CBN to operate the Nigeria Central Switch (to
connect all existing and upcoming switching companies). NIBSS operates as a
Shared-Service infrastructure for facilitating payments, streamlining
Inter-bank payments and settlement mechanisms. NIBSS is also a Payment Terminal
Services Aggregator. It acts both as a semi-regulator and a major player. NIBSS
has different products across the different categories listed above and more. A
recent product worthy of mention is their mCash payment solution for
online/offline merchants that leverages USSD technology in collaboration with
the banks and telcos.
Source: Fintech Snapshot - Nigeria
The Broader FinTech Space
The payment space is the most vibrant and active of the fintech areas in
Nigeria. This is as expected because Nigeria is a largely cash based society
and there’s a huge opportunity in the digitization of cash transactions.
However, beyond the payment space, there are other very active FinTech
categories and companies in Nigeria that are tackling big opportunities and
using technology to solve real problems in the financial services space.
Consumer/SME Lending
This is the most space active after the payment space and it is because
of the massive opportunity that exists as the banks don’t seem to be doing a
good job in providing loans to customers and small businesses. Key Players:
Paylater, Aella Credit, Lydia, Kiakia Credit, Easyloan, Quickcheck, Renmoney,
Page Credit, CDL, C24, Zedvance, Branch, Invoizpaid, Social Lender, Fairmoney,
Payconnect, StartCredits, etc
Asset Management (Savings/Investments)
This area taps into customer’s desire for higher returns on their
investments; an automated way to commit to and simplify their savings; and a
better customer experience. Key Players: Piggybank, Cowrywise, Kudimoney,
Osusumobile, Isave, Riby.me, Farmcrowdy, Thriveagric and the web/mobile portal
of traditional asset management firms
Digital Insurance
Nigeria is said to have the lowest insurance penetration rate in the
world with just about 1% of the population being insured, it is interesting
that there is no single fully digital insurance company in the country. What we
have seen are sites for distribution and rate comparisons. This is due to
socioeconomic factors, large capital requirements, regulatory environment and
some technical risk elements that could potentially make the insurance business
less attractive and difficult to penetrate for startups. However, the
traditional insurance firms are paying attention and investing heavily in their
digital platforms. Key Players: Topcheck, Autogenius, Visacover
Digital Banks
The first fully “digital bank” in Nigeria (Alat) was launched earlier
this year by a Nigerian Bank and therefore can’t qualify as a challenger bank.
Other attempts have been services that seek to serve specific areas of
financial services. This is the case with the credit companies and asset
management companies mentioned above. It is expected that many of these
companies have plans to become a fully digital bank as they grow. Key Players:
Alat, Kudimoney.
Cryptocurrency Platforms
The rave and uptake of different digital currencies across the world in
the 2016-2017 period did not pass Nigeria by as we saw a number of websites and
apps that allows Nigerians easily store, trade and learn about
cryptocurrencies. Even though digital currencies have taken a bearish trend
recently, there are still some active players in the market. Key Players:
BitKoin Africa, NairaEx.
Others
There are other fintech companies worthy of mention that might not fit into the categories described. Some of such companies include ReachApp (personal finance), Imeela (crowdfunding)
Click to download the full report here
About The Author
Segun Adeyemi is the CEO of Amplified Payment Systems
Ltd., a leading FinTech company building next generation payment solutions
for banks, businesses and consumers across Africa. He has a degree in Economics
with years of experience in FinTech, business and product development, strategy
and finance.
Prior to cofounding Amplified Payment,
Segun had stints as a growth executive in a leading Nigerian tech company and
as an investment analyst in Union Capital Markets Ltd. Segun has attended
several FinTech related training and seminars and spoken at FinTech conferences
and across Africa and beyond.
He can be reached via e-mail: Segun@amplifypay.com or twitter @segunhq
This report was produced with
contributions from Henry Mascot (@iamhenrymascot) and Florence Dairo
(@FloxDairo)
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