Cowrywise has become the second fintech company and the first from the fund management space to secure a licence from the Securities and Exchange Commission (SEC) of Nigeria.
It is a big moment for companies in the wealth management space in Nigeria. A licence regime from SEC confers a level of protection on the space and boosts the confidence of consumers.
As of 2019, the wealth management market globally was worth $334 million and expected to grow by 4.21 percent (CAGR) between 2021 and 2024. In Nigeria, the market has been growing with a number of startups such as Cowrywise, Piggyvest, Risevest, Bamboo, Ruby Finance, Trove Finance, Chaka, etc., addressing the different segments of the market.
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Chaka Technologies was actually the first wealth management firm to secure a licence from the SEC in June 2021. The Cowrywise licence means the regulator has finally realised the critical place of these tech-based platforms in driving and deepening wealth creation in the country.
While the opportunity in the space is not in doubt given the growing number of young middle-class Nigeria, lack of regulation in the market has meant that little traction was achieved. Most new and existing middle-class people would not trust their wealth management to platforms where they are not guaranteed protection for their money.
Although the Central Bank of Nigeria (CBN) had often provided guidelines for the entire fintech ecosystem, they often seem to lump all categories of fintech companies together.
Cowrywise which came into the market in 2017 stepped into a fintech market that was urgently in need of specific regulation. No wealth management player had a licence even though it was not illegal to operate in the country.
To build trust and create a level of protection, it went into partnership with Meristem Trustees Limited.
“From the get-go, we placed investment protection as our priority. In fact, we started off with a statement we still hold dear: “Trust is our currency“. For us, that meant we needed to do all we could to keep investors safe regardless of the absence of a documented structure. To do this, we mirrored the trustee structure of traditional firms,” the company said in a post.
Cowrywise says it is the first fintech company to implement the trustee structure in Nigeria. Aligning with a trustee ensures that the interests of investors are protected. The trustee is similar to a guardian who ensures that your fund manager sticks to the plan. In the case of Cowrywise the plan was to give first-time investors a platform they could trust meaning they could be exposed to secured investments that had limited risk.
Wealth management in the past has been an exclusive service of high net worth individuals, hence the banks dominated the space. But with the emergence of technology-based companies like Cowrywise, the market is beginning to transform by looking beyond just high network individuals and incorporating the middle class.
“I think what Piggyvest and others have done is the first step in democratising wealth management by using technology. I think they will do very well as they are now on an unstoppable trajectory unless the government loses all reasoning,” said Victor Asemota, Growth Partner at AnD Ventures, a venture capital firm.
The rise of technology-based wealth management firms in Nigeria has also attracted significant attention from venture capital investors. Future Africa, a venture firm co-founded by Iyinoluwa Aboyeji, had particularly targeted wealth management startups such as Rise, Bamboo, and Chaka. Cowrywise had early in the year announced a $3 million from US-based venture capital firm, Quona Capital. It was the first time the VC would be investing in Africa and the connection had happened over Twitter.
Cowrywise evolution has also come with obstacles. The main one being that a majority of investments on its platform are denominated in naira and domiciled in Nigeria where they are buffeted by a flailing economy and inflation. This is why, in 2019, Cowrywise introduced a Eurobond mutual fund.
“Today, young people across Nigeria are making their first investments in mutual funds with the help of our aggregated platform. So far, we have aggregated 21 mutual funds spread across different asset classes. Also, we have ensured that people get started with any amount; be it a Naira-based or dollar-based mutual fund,” the company said.
The licence would enable Cowrywise to deepen partnerships with many more fund managers. It also plans to make its APIs public to help fund managers across the world access its services and open up more investment options to serve customers in Nigeria better.
“Digitizing the investment management infrastructure is an important next step in our vision to democratise access to investment products. These APIs do not just apply to fintechs; any company can embed investment features in their products as our investment API simplifies regulatory, compliance, and technical hurdles. Hence, we are opening up early access to these APIs,” Cowrywise said.
