Fintech startups are making it easier for Nigerian millennials to invest in US stocks
Fintech startups are the rave across African tech ecosystems but the sector has been increasingly defined by payments specialists. This is somewhat unsurprising given how global payments giants have fueled interest by investing hundreds of millions of dollars.
But beyond payments and digital banks, there’s a growing crop of “wealthtech” or wealth management startups offering investment opportunities to willing users in Nigeria. More specifically, some of these platforms focus primarily on helping a generation of young Nigerians invest in foreign stocks and assets easier than ever before.
After starting Rise informally as an investment club among friends, Eleanya Eke chose to formalize operations as a fund management company given the scale of interest. The club of Nigerian professionals had teamed together to buy and flip or rent residential property in the United States but as the group grew demand rapidly evolved. “We first started with US real estate but a lot more people were interested in US stocks. All of that informed our move as there’s a really strong demand for it—especially among the internet-connected crowd.” Now in beta phase, Eke says Rise already has over 1,000 users.
Despite strong latent interest, the lack of know-how and on-boarding requirements for US brokerage firms represented barriers that restricted potential standalone middle-class investors. That was the driving factor for Richmond Bassey and Yanmo Omorogbe, co-founders of Bamboo, an investment app that now allows Nigerian users buy and trade US equities. Bamboo has garnered over 10,000 Nigerian users since launching in October.
Bassey says the company helps users scale the hurdles of on-boarding by partnering with trusted brokerage firms in the US and carrying out the data and identity verification requirements on the Nigerian end. Among other things, the platform requires users to register with a Bank Verification Number, a mandatory unique ID issued by Nigeria’s financial authorities to every customer with a bank account. Bamboo’s founders say while they have started with US equities due to most investor interest there are also plans to offer stock options from other countries in the future.
The growing use of wealthtech platforms also signal a wider shift in investment culture among younger Nigerians who are increasingly looking beyond traditional models of saving. Locally, wealth management apps like PiggyBank and Cowrywise which allow users automate savings in naira have also become popular by also offering savings and investment options with interest rates much higher than what traditional banks offer.
While wealthtech platforms market themselves as available to all comers, their user base is mainly dominated by young professionals who are more tech savvy and trusting of the internet. Eke also admits younger users hold extra appeal for business: “Young Nigerians are a major opportunity,” he says. “Consider the fact that they’re starting their careers and they have the longest investment horizon because they are looking to build a significant nest egg overtime.”
With a longer-term investment outlook, investing in dollar-priced assets is easily an attractive option for young Nigerians who have seen older generations lose significant portions of their wealth through the various currency rollercoasters of the last 30 years with the Nigerian naira. Even though the naira has been relatively stable versus the dollar in the last couple of years, thanks to the costly machinations of the Central Bank of Nigeria, annual inflation of around 12% to 14% and the overall uncertainty of the economy means naira-priced assets are probably not the best storage of value for the long-term.
The opportunity to invest in US stocks and assets provides a viable alternative for younger Nigerians who are largely apathetic about investing in the Nigerian Stock Exchange due to a number of factors. This includes the perception that, with institutional investors dominant, the most valuable assets on the exchange remain out of reach or that the market is rigged in favor of insiders. The perception was reinforced after MTN, Africa’s largest telecoms operator, listed its Nigerian unit on the local stock exchange as shares were largely unavailable to retail investors.
“You also have the ghosts of the past,” says Lagos-based stock market analyst Onome Akpifo, in reference to the market’s major crash in 2008 which fueled a lack of trust among investors. “Some [young Nigerians] were burnt in the crash—and so were their parents.”
There’s also a lack of shared evidence of what’s possible. For better or worse, US stock markets have engaging success stories of young founders like Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg to trusted and stable global bluechip names like Coca Cola and Proctor & Gamble.
“We don’t have as many stories of great returns and great success stories on the market. It’s not that they don’t exist, but they’re not told enough,” Omorogbe says. “Because the market is harder to read and predict, it’s hard to see where their returns are going to come from,” she adds. The size of Nigeria’s stock exchange itself is telling, with a market cap of around $72 billion. The Johannesburg Stock Exchange is more than 10 times larger and more dynamic. Performance wise, the All Share Index of the Nigerian stock market posted a negative return in 2019.
But the stock market’s struggles reflect the wider state of Nigeria’s economy as sluggish growth has put the government’s economic recovery plan in jeopardy. With a recession as recently as 2016, several middle-class young Nigerians will likely follow the lead of Nigerian businessman and Africa’s richest man, Aliko Dangote who has announced plans to diversify his $15 billion wealth and invest more in the US to hedge against currency shocks and inflation. In addition to the stock market’s foibles, the threat of the effects of inflation underline the attraction of dollar-denominated assets as a more stable choice for long-term plans to store and build wealth.
“Young people don’t have a lot of faith in the Nigerian Stock Exchange but still need to invest somewhere,” Eke says. “They know companies like Facebook, Twitter and Tesla because they use their products but they should be able to buy and invest in them as well.”