When Nigerian payments company Flutterwave announced it had obtained a banking licence on 2 April, it was a milestone that marked the push of fintechs deeper into mainstream banking territory.
“We are reimagining banking for Africa’s future,” said Olugbenga Agboola, CEO of Flutterwave, the Nigerian fintech unicorn founded 10 years ago and now valued at over $3bn.
“Now we are going further by building a unified platform where businesses can open accounts, accept and send payments, manage payouts, run payroll, and operate across currencies in one place, with access to lending and working capital powered by real transaction data.”
As Nigeria’s army of gig workers and small-business start-ups grows, fintechs are stepping in as service providers of choice, offering an array of innovative financial products covering payments, record-keeping, invoicing and lending.
Top among the list of emerging payment-service banks providing similar services are Paystack, Paga, Moniepoint, Kuda Bank, Opay and PalmPay. These fintechs offer financial services with speed and flexibility to a growing customer base of fast-moving micro-businesses including market women, online retailers, logistics and delivery services, as well as remote workers who receive and send payments from within and outside Nigeria.
A new model for fintechs
Fintechs have done this primarily by simplifying payments and integrating deposits, credits and investments at one platform. These are services that individuals , and small businesses yearned for that the big banks were slow to provide.
The leading operators have taken different pathways into the heart of the Nigerian financial services industry. Flutterwave, Paystack and Paga, in particular, chose a payments pathway.
Agboola had been working within the information technology unit of Access Bank, one of Nigeria’s top banks, when he founded Flutterwave in 2015, with Iyinoluwa Aboyeji. The incentive at the time was the opportunity to provide a dedicated payments service for quick and seamless transactions, in a market where such services were either too fragmented or non-existent.
The same opportunity was spotted by the pair of Ezra Olubi and Shola Akinlade, computer science graduates from Babcock University in southwest Nigeria, who went on to found Paystack in the same year. Paystack’s rapid acceptance and quick growth caught the attention of US online payments giant, Stripe, which went on to acquire Paystack for $200m in 2022.
The latest evolution of fintechs is the addition of banking licences. Paystack made a 15 January announcement that it had acquired Ladder Microfinance Bank, which transformed into Paystack Microfinance Bank.
By design, microfinance banks serve low-income individuals and small business owners, in line with the Central Bank of Nigeria’s financial inclusion strategy.
Paystack’s payment service operates independently of Paystack Microfinance Bank. However, the banking subsidiary is expected to eliminate the payment arm’s need for third-party partner banks for settlements, bringing vital aspects of the service under one roof.
The creditworthiness of customers is determined through their transaction data. Like traditional banks do, individual and corporate customers will also have access to loans, overdrafts, working capital as well as investment and wealth management products.
Similarly, Flutterwave plans to use customers’ transaction data to determine creditworthiness, including the nature of the credit – whether an overdraft or a loan. Businesses like Flutterwave will be able to operate across currencies, even managing payrolls and other payments from a single platform.
Paga, another fintech firm, which also evolved from payments to taking deposits, giving credit and facilitating investments, has a longer history characterised by steady, cautious growth. It was founded in 2009 by Tayo Oviosu, an electrical and electronics graduate from the University of Southern California who had a stint with the tech company Cisco Systems, as part of his early experience.
Paga was initially focused on creating mobile wallets that enabled easy transfers, bill payments and deposits. But it achieved an important milestone in February when it signed a collaboration deal with US payments giant, PayPal.
Under the agreement, Nigerian subscribers to PayPal are able to access their accounts through their Paga app. This is especially useful for remote workers with jobs outside the country, who can receive their payments through PayPal and convert them to their Paga naira accounts with ease.
“Until now, Nigerians could not receive money via PayPal,” Oviosu said in a statement announcing the deal in February. “Our partnership unlocks that. Gig workers can now get paid through PayPal, and family members can now send you money on PayPal.”
The microfinance and other routes
Fintech company Moniepoint was founded in 2015, the same year as Flutterwave and Paystack. But the venture that is the brainchild of Tosin Eniolorunda (CEO) and Felix Ike (the chief technology officer) chose the microfinance route to banking, focusing mostly on providing point-of-sale payment devices to
micro- and small businesses, leveraging its payments switching licence.
It was a segment that grew quite rapidly, attracting investments from the likes of Visa and Google Africa’s Investment Fund as well as private equity investors. By 2024, Moniepoint had grown to a unicorn with a valuation of more than $1bn.
As of January, Moniepoint had reached a transaction volume of more than N400trn, with operations in all of the country’s 774 local councils. More than 2m businesses are using its payment devices and it has more than 4m account-holders at present, according to the company.
Kuda Microfinance Bank is a fintech that mimicked Moniepoint’s growth trajectory. Kuda was founded in 2019 by Babs Ogundeyi, its current CEO, a veteran of international consultancy firm PWC, and Musty Mustapha, a software engineer who is the company’s chief technology officer. He is a former employee of Stanbic IBTC, Standard Bank’s local unit.
They got early funding support from venture capitalists including US-based Volar Ventures, Target Global from Europe, Japanese SBI Investment and other angel investors. Having raised more than $90m from several funding rounds, Kuda’s valuation currently exceeds $500m.
Just like Moniepoint, Kuda got a licence upgrade in January to a national microfinance bank, which allows it to do business all over Nigeria. There are currently more than 7m users of its banking app, with transactions exceeding N14trn in the first quarter of last year, according to available figures.
Two other fintechs in Nigeria, Opay and PalmPay, backed by Chinese investors, have grown within a decade from faltering start-ups to prime engines of commerce, driving micro- and small businesses.
Opay has funding support from a group of Chinese investors led by billionaire Yahui Zhou. It first began in Nigeria as Opera Limited, best-known for its Opera browser that had aspirations to evolve into a super app that could do multiple things. In 2018 the company acquired a Nigerian payment platform Paycom, from Telnet Ltd, and derived its new name from Opera and Paycom – Opay.
With more than 50m users, Opay is currently valued at $2.75bn. It offers a broad range of banking services including payments, deposits, loans and investments.
PalmPay’s evolution is a bit different. It is a joint venture of Chinese phone maker Transsion Holdings (maker of Tecno, Infinix and Itel phones popular in Nigeria) and NetEase, a Chinese internet and gaming company. Other major investors include Chuangshi Capital and Yunqi Partners.
PalmPay’s prime method of market penetration was by bundling its app with the phones made by Transsion. PalmPay offered its customers collateral-free loans, especially for the purchase of smartphones made by Transsion. This called for the intervention of the Federal Consumer Protection Commission over allegations of invasive debt collection tactics.
Still, PalmPay has been able to garner more than 35m active users of its banking app. Market analysts estimate it is worth between $800m and $1.2bn.
Welcomed into the fold
In January, the Central Bank of Nigeria (CBN) designated the leading fintech companies, including Flutterwave, Paga, Opay, Moniepoint, Kuda and PalmPay as “systemically relevant participants”, implying that they needed stronger regulatory buffers given their widespread adoption.
They are required to have a minimum capital of N5bn, and their deposits are insured by the Nigerian Deposit Insurance Corporation to the tune of N5m.
The monetary authorities have indicated even more ambitious roles for the fintech companies, including spearheading cross-border payments. CBN Governor Olayemi Cardoso said in late February that the fintech companies are being primed to help drive down the cost of international payments.
“We have embraced fintech innovation to drive the next generation of secure, instant crossborder payments,” Cardoso was quoted as saying in a statement. “Our Regulatory Sandbox now allows payment-focused fintechs to test new cross-border solutions under close supervision, ensuring innovation proceeds without compromising stability.”
Fintechs were being recruited for the decentralised nature of their operations and reach among poorer demographics. They are expected to engage households, micro and small businesses, often excluded from remittances due to high costs and heavy compliance burdens, and get them to participate in global trade.
Within the existing international payment systems, costs take as much as 6% of the value transacted, in addition to other delays and constraints that deter participation, according to the CBN. As an alternative, Nigeria wants to get the fintechs to make more use of the Pan-African Payment and Settlement System (PAPSS), introduced by the African Export-Import Bank in 2022 to boost intra-African payments and trade.
An important measure to enable the participation of poorer households is the introduction of simplified know-your-customer and anti-money laundering approaches for “low-value cross-border transactions”, according to the Central Bank.
PAPSS is independent of the more expensive SWIFT remittance system operated under the auspices of the Organisation of European Conference on Development (OECD) countries.
Having built up resilient remittance infrastructure nationally, several fintech companies are already involved in international payments. Flutterwave owns an app known as Send, which remits funds to more than 30 countries in Africa and beyond.
“A world-class fintech ecosystem has emerged [in Nigeria],” said Cheta Nwanze, an analyst at Lagos-based risk advisory, SBM Intelligence. “Companies like Paga, alongside Flutterwave and Paystack, solved local problems and earned trust, capturing a digital payments market worth hundreds of trillions of naira.”