While Sustainable Development Growth Drivers have created an entire buzz around the need of financial inclusion in economic enhancement, several Fintech startups are failing daily.
However, Financial inclusivity has been identified as a target in eight of the seventeen goals and an enabler of other developmental goals in the 2030 SDGs, This has inspired several Fintech innovations in different capacities across Africa. It has also enabled SMEs and individuals to access unhinged and unlimited financial services.
Fintech has proudly impacted several lives by creating more opportunities for different categories of people to access financial solutions they never knew existed.
While this is a good trend, many Fintech Startups are failing, as many more are rising. According to an intensive research by , with many shuttering before their potential can even be reached.
Last year, tens of popular Nigerian Fintech Startups slipped through the cracks and had to shut their doors permanently; some of them were growing cryptocurrency brands. Some of these startups include Lazerpay, Pivo, Cova, Theeper, Bundle Africa and Vibea amongst many others.
This statistics is quite disturbing and has raised several concerns around structural setup, funding issues and regulatory/ policy support. In this article, we’ll discuss key factors behind the failure of Startups in Nigeria.
5 Reasons Startups are Failing in Nigeria
- Poor access to funding; Isn’t it interesting that a brand which is positioned to advocate for financial inclusion lacks access to necessary funds? World leaders identify the lack of funding as the key challenge propelling the Fintech industry backwards.
High cost of operations and funding challenges are generally the most common issues faced by business owners of all types and industries. However, in the Fintech industry, the lack is quite noticeable.
According to Disrupt Africa, this worsened on the back of a global shortage of capital in 2023, placing the region in a “funding winter“.
Also, Africa is mostly disfavored in the finance market due to pronounced economic instability and corruption. Many investors have silently pulled back for fear of losing their funds, also prospective investors are weary of these issues. Also, providers of credit facilities attempt to require high collaterals and accept higher rates.
This is not the case in western nations where credit is widely accessible and there’s very little barrier to funding.
Hence, new Fintech Startups need to be very strategic about seeking partnership with international organizations in the West so as to gain access to easy funding. They could also be very intentional about repackaging and branding their services to position themselves favorably in the already saturated local finance market.
2. Poor Product-Market Fit:
This is a general phenomenon that hampers the growth of startups generally. Most Fintech Startups are quick to go to market without preparing themselves for the market or the market for them. In most cases, they end up building hypothetical solutions that do not solve any real problems or solutions that have already been provided by an already established Fintech brand. Unprepared for a fierce competition, they are easily kicked out of the market. For example, a new Fintech Startup promises cheaper and faster mobile transactions. This is not a differentiated idea, as there are many Fintech Startups already championing this solution. This is why the ideation process is very important in building a business. Founders must carefully differentiate their ideas, highlighting a unique problem they’re solving or a gap they intend to close. A thorough market research must be conducted to validate the identified problem and estimate profitability level.
3. Regulation issues
Fintech startups operate at the intersection of finance and technology, sectors both heavily regulated and rapidly evolving. Especially in developing countries like Nigeria where the policy regulations isn’t stable, Fintechs can be greatly affected by this instability. As with every policy change comes a shift in the market that affects people’s choice per time, and also the cash flow of the organization.
Hence, Fintechs must not only consider understanding regulatory requirements at the ideation or launch stage, throughout the lifetime of the business, startups should ensure they’re in consistent alignment with the current operational regulatory policies governing her operations.
- Aggressive Competition: One perpetual competitor of Fintech Startups are traditional banks and agile financial institutions who already have long years of goodwill. It’s practically impossible to win over these institutions by mere innovation, responsive business strategies are paramount for fintech success. While attempting to compete against the big boys, Fintech Startups must be willing to also learn and identify growth strategies especially flexibility from old players.
Consistent delivery of excellent service and quality customer experience is paramount in winning a place amongst the already established organizations. Taking constant appraisals and user feedback, Fintech Startups can build high performing financial solutions that not just solves key market problems but is also easy to adopt. Accessibility is a key metric in winning customers, as today’s customers are in search of solutions that are simple to use and easy to implore. By developing smart accessible solutions, Fintech increases their leverage against already existing market leaders, and reduces their barriers to growth.
Conclusion
While funding remains a top leading factor why Fintech Startups fail, there are a few other simple but pertinent factors that hamper the successes of Fintech Startups in Nigeria particularly. According to Harvard researchers, 75% of investor-backed fintech startups ultimately fail, underscoring the high-risk nature of this innovative industry.”
Therefore, Fintech founders must be careful in navigating regulation issues, aggressive competition and ensure product-market fit before seeking funding and launching out. Need help in building a profitable Fintech Solution? Let’s take the tough work off your shoulders.
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