The Iceberg of FinTech

Note: This article was originally published in the 2019 FinTech Nucleus.

The History of FinTech

From the invention of early calculation devices such as the abacus to the advent of the double-entry accounting system, financial technology (FinTech) has always been with us. The evolution of FinTech as we know it today is traced back to the invention of the electric telegraph and the Morse Code by Samuel Finley Breese Morse in 1836. Long-distance communication became a thing and — as telegraph lines were laid first around North America and built across the Atlantic Ocean — Morse’s telegraph soon connected the four corners of the globe and provided the basic infrastructure for financial globalization.

Using Morse’s inventions, the US Federal Reserve Banks developed a proprietary communications structure in 1918 — a dedicated fund transfer system — to move funds electronically between the 12 Reserve Banks. This was in use until the early 1970s when the Banks switched to telex (as the basis of its transfer system) and eventually to computers. In 1950, modern FinTech trends began to surface when the Diner’s Club Inc. introduced a Frank McNamara’s invention: The Diners Club Charge Card, which allowed members to trade on their credit. The Club Card effectively functioned as a credit card. In clarifying the inspiration that gave birth to this brilliant idea, “[l]egend has it that McNamara was [once] dining with clients and forgot his wallet and had to call his wife to his rescue.”[1] The American Express Company soon copied Frank’s invention and started issuing travel cards in 1958.

In 1960, Quotron Systems Inc. introduced Quotron—the first electronic system to provide stock market quotation. In 1966, the telex network replaced the telegraph and offered the world an instantaneous means of making long-distance communication and also made global financial transactions possible. 1967, artificial intelligence began to influence financial technology when the first robot cashier — or the Automated Teller Machine (“ATM”), as most of the world knows it — was introduced in the United Kingdom (the “UK”) by Barclays bank. This invention made it possible for the banked to withdraw their money from machines anytime of the day. John Shepherd-Barron, credited with the invention of the ATM, said at the time: “It struck me there must be a way I could get my own money, anywhere in the world or the UK. I hit upon the idea of a chocolate bar dispenser but replacing chocolate with cash. ”[2]

FinTech continued to evolve at a tremendous pace, thanks to such inventions as E-Trade and online banking in the 1980s and digital wallets and mobile payment systems in the 1990s. The advent of the internet also ignited the FinTech revolution and growth, but it was really the financial crisis of ’08 and near-collapse of the financial system that marked the turning point for FinTech. Massive job loss in the financial sector, global distrust in established banking institutions, new financial rules and regulations, millennials’ tendency to deal with companies offering financial solutions like Google and Alibaba, and the launch of smartphones made serious impacts and caused a paradigm shift of the FinTech industry.[3]

TheFinTech evolution has completely changed the way we live and bank; now, there is absolutely no need to carry wallets around anymore: it is now possible to catch a ride or buy a ticket with a single click.4

What Really is FinTech?

The term “FinTech” holds different meanings for different people. It may therefore be hard to go with a dictionary meaning. Here is a modest attempt: FinTech is a term used to describe disruptive technologies in the financial services industry. It is also used to describe companies or businesses investing in or developing innovative technological solutions to provide financial services, alongside or in competition with established institutions. But to truly understand FinTech, one must have an understanding of the FinTech ecosystem distinguished by its components.

Briefly, the FinTech ecosystem consists of payment and remittance platforms, digital banks and banking software, robo advisors and personal finance managers (“PFMs”) and wealth, asset, and investment managers. Others include RegTechs (technologies that help facilitate regulatory compliance and checks), and InsurTech (the use of technology that leverage artificial intelligence and Big Data to create more efficient means of providing insurance coverage, create customized insurance policies, simplify policy management, and enhance customer satisfaction).[4]  From a broader perspective, government agencies and regulators, private and institutional investors, and financial institution also form part of the FinTech ecosystem and play significant roles in driving FinTech evolution and growth.

The Global FinTech Industry

The global FinTech industry is big and growing at a rapid rate. After landing at $19 billion in total in 2015, and falling to $15 billion by mid-August 2016, the interest in funding rose astronomically in 2018. According to CB Insights’ 2019 FinTech Trends, FinTech companies backed by venture capital raised nearly $40 billion (up 120%) across 1,707 deals globally (up 15%) over the past year -2017. Putting it in another perspective, Apple alone (with its Apple Pay digital wallet) has 400 million account holders holding an Apple Store or iTunes account- that’s more than what the top 3 banks in the world have in retail banking customer.[5] And with billions of dollars in funding, traditional financial institutions are struggling to keep up.

FinTech in Africa

Africa is home to hundreds of FinTech startups. Since 2015, these startups have “secured over $100 million in investment”.[6] In Nigeria alone, mobile money operations — sponsored by the surge in e-commerce and smartphone penetration — grew from an average monthly transaction value of $5 million in 2011 to $142.8 million in 2016.[7] And Kenyan M-Pesa — widely regarded as the pioneer FinTech startup in Africa — grew to 17m customers in just 6 years, and now provides its services to over 25 million customers across Africa, Asia, and Europe. These are impressive numbers.

The Race to Regulate FinTech

FinTech is now big deal. And regulators and authorities are finding it really hard to keep up with its meteoric rise. On the international scene, the United Kingdom, Singapore, and Malta are making significant progress and are seeing an inpouring of investment. With its innovative rulebooks, FinTech-friendly projects, and displacement of restrictions for FinTech businesses, the UK’s Financial Conduct Authority is considered the most forward-thinking regulators in the world. The government of Singapore has also rolled out initiatives and programmes that led to the pouring in of about US$229 million investment in 2017. And Malta is fast becoming a sweet spot for FinTech startups, due to the country’s proactive regulations and incentive system.

While the Central Bank of Nigeria (“CBN”) has shown some interest in regulating financial technology and services in Nigeria, there’s currently no FinTech-specific legislation in Nigeria. While it may be good for FinTech to be allowed to grow unhindered, the lack of FinTech-friendly regulations also inhibits FinTech’s ability to attain its maximum potential in some ways. For instance, crowdfunding, which is a form of equity or debt financing, is being held back by legislation such as the Companies and Allied Matters Act (“CAMA”) and the Investment and Securities Act (“ISA”) which prohibits certain enterprises from raising funds from the public.

Apart from CAMA and ISA, another legislation that affects FinTech activities is the Banks and Other Financial Institutions Act, 2004 which mandates the registration as bank or other financial institution any entity that wishes to engage in marketplace lending activities. Also, the Money Lender Laws of different states regulate money-lending and chargeable interest rates. Then, there are Guidelines such as the approved CBN Guidelines on Mobile Money Services in Nigeria, 2015, which require every mobile money operators to obtain an operational license from the CBN. Among other stipulations, the Guidelines direct that all transactions initiated and concluded within the mobile payment system must have a unique transaction reference and that all transactions must have such elements as the transaction reference number, payer and payee phone numbers, transaction amount, and other relevant details.[8]

Recently, the CBN Licensing Regime for Payment System Providers was released. The Regime is meant to position Banks to adequately address the emerging issues of FinTech with respects to cyber risks, risk management framework, and capital adequacy, among other things.

Other laws and regulations that touches on and apply to FinTech industry generally include the Regulations on Instant Electronic Funds Transfer Services, the Mobile Payment Regulatory Framework, the Guidelines on International Mobile Money Remittance, CBN Anti-money Laundering/Combating the Finance of Terrorism (AML/CFT) Risk-based supervision framework, 2011, the Corrupt Practices and Other Related Offences Act, and the Money Laundering (Prohibition) Act, 2011 (as amended), just to mention a few.

FinTech & Financial Inclusion

In rounding off this article, we note that financial inclusion is still an issue in Nigeria. With an overall financial exclusion rate that stands at 41.6%,[9]  financial inclusion still remains an elusive accomplishment and one of the factors responsible for this failure is the impotence of variety of existing policies and regulations which do not allow for the engagement of innovators and innovative models.[10] 

But it is not all doom and gloom. Last year, the Central Bank of Nigeria (“CBN”) and the Nigerian Communications Commission signed a MoU on digital payment systems, and in 2018, the CBN issued the Regulatory Framework for the Use of Unstructured Supplementary Service Data (“USSD”) For Financial Services in Nigeria, and collaborated with the Nigeria Inter-Bank Settlement System (“NIBSS”) to create a regulatory sandbox that will allow financial technology startups to test solutions in a controlled environment. The CBN is also partnering with the private sector to roll out a 500,000-agent network to offer basic financial services.

Recently, the Nigerian Securities and Exchange Commission (the “SEC”) constituted a ‘FinTech Roadmap Committee of the Nigerian Capital Market’ to: develop a FinTech roadmap for the Nigerian capital market; inform the SEC on approaches to innovation within the financial sector; promote access to capital, financial inclusion and enable greater transparency and more efficient compliance in a fast digitalizing financial service sector; serve as a think-tank which will provide guidance on independent research for examining the role and value of FinTech in the financial ecosystem; and seek responsible policy regulatory regimes that balance financial innovation and consumer protection. If the Committee succeeds in its mandates and Nigeria successfully develop and enforce a FinTech-friendly regulation, the future of FinTech — and consequently, the Nigerian economy — looks blindingly bright.

[1] Digifez, ‘FinTech 101: What is FinTech and What is Its Modern History?’ (2017) Available from: Accessed on 21 February 2019

[2] Said Business School, University of Oxford, ‘The Evolution of The FinTech Industry’ Available from:  Accessed on 22 February 2019

[3] Ademola Adeyoju, ‘FINTECH AND AI: A DISRUPTIVE UNION, (2019) Available from:  Accessed on 20 February 2019

[4]Lea Nonninger and Mekebeb Tesfaye, ‘Latest FinTech industry trends, technologies and research from our ecosystem report’ (2018) Available from:  Accessed on 20 February 2019

[5] Brett King, ‘The Rise of FinTech and the Death of Traditional Banking’ (2018) Available from:  Accessed 29 December 2018

[6] Christie Uzebu, ‘The Rise and Rise of FinTech in Africa’ (2018) Available from: Accessed 30 December 2018

[7] KPMG, ‘FinTech in Nigeria: Understanding the Value Proposition’ (2016) Available from:  Accessed 3 March 2019

[8] See the CBN Guidelines on Mobile Money Services in Nigeria. Available from: Accessed 31 December 2018

[9] EFInA Access to Financial Services in Nigeria (A2F) 2016 Survey. Available from: Accessed 1 January 2019

[10] Central Bank of Nigeria, ‘Exposure Draft of the National Financial Inclusion Strategy Refresh’ (2018) Available from:  Accessed 31 December 2018

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