After P2P trading, hybrid finance apps are taking off in Nigeria’s crypto space

As cryptocurrency adoption grows in Nigeria, founders are building hybrid finance apps to simplify access to crypto. These hybrid apps reduce the education barrier and overwhelming user experience flows common in crypto trading apps, allowing users to interact with cryptocurrency as easily as they do with fiat money on their traditional mobile banking apps.

Hybrid finance apps integrate traditional finance (TradFi) and decentralised finance (DeFi) features that allow users to buy, sell, or convert crypto to Naira without the need for an escrow or peer-to-peer (P2P) trading. Since mid-2023, startups like Taja, Palremit, Prestmit, Azasend, and Pandar have sprung up to create these hybrid solutions to enable more Nigerians to take part in the crypto sector. At least 20 such startups currently operate this hybrid finance model in Nigeria.

“I’ve only used Bybit when I had small amounts of Dogecoin and Bitcoin in my wallets,” said David Ayankoso, a non-frequent crypto user based in Lagos. “I find the process of exchanging crypto on Bybit to be complicated. The app is overloaded and not as simple as some other platforms. So instead, I buy Solana or Bitcoin elsewhere [on hybrid finance apps] and transfer it to my Phantom wallet to buy or trade random altcoins.”

Nigeria is one of the hotspots for crypto adoption globally, yet that high transaction value is only spread among a few knowledgeable people in the Web3 space. Sending and receiving crypto doesn’t quite work like fiat currencies in traditional banks. With one wrong click, funds are prone to losses, and bank accounts to freezes, making many Nigerians averse to digital assets.

The pitches of these hybrid finance startups often go like this: if you’re not familiar with the crypto P2P trading setup, use a hybrid finance app to avoid overwhelming yourself with the process of dealing with an escrow—or worse, getting scammed. Users simply open an account, gain access to a virtual account (a service hybrid finance apps provide through partnerships with payment processors), fund the account, and buy crypto directly from the app.

“Founders who build these apps see an opportunity to take advantage of a ‘grassroot movement’,” said Ayo Adewuyi, head of product at Prestmit, who claims the startup has over 700,000 users, thanks to additional features like gift card trading which attracts users from several countries. “For example, one of the reasons Patricia [one of the earliest to use this model] was an important crypto hybrid app was because people saw it as a Nigerian brand that wanted to localise crypto. Founders saw this and tapped into it.”

The clampdown on P2P trading and the strict regulatory oversight on big crypto exchanges paved a way for hybrid apps to thrive, said Adewuyi. He claimed Prestmit’s users grew significantly after large crypto exchanges deprioritised the Nigerian market.

While hybrid finance apps are not new, there is a growing focus on integrating crypto payment options into traditional finance systems. Beyond buying crypto for investment holdings, these apps let users manage digital assets like local currencies. They can pay bills, buy airtime and data, trade gift cards, send crypto directly to others through app tags, and pay for online services with crypto. Hybrid finance apps are also important to freelancers who earn in crypto, allowing them to convert to their local currency without relying on the P2P space.

Unlike building a crypto trading app, for example, operating a hybrid finance model is a much simpler setup. These startups provide three key things: the platform (proprietary technology like an app or a web-app), virtual accounts for user account management, and crypto liquidity.

Imagine walking into a mom-and-pop shop in your neighbourhood. With cash in hand—your local currency—you ask the storekeeper to sell you a crypto asset, say Bitcoin. The storekeeper collects your money, and two things could happen: either they process your order as the counterparty because they have the means, or they use a back-door service to obtain the required amount of crypto to sell to you. Either way, the hybrid app remains the counterparty to every trade. Most of these apps rely on crypto infrastructure providers to enable users to buy and sell crypto, while some outsource liquidity to over-the-counter (OTC) traders and institutions that provide bulk crypto liquidity.

“Liquidity is not manufactured out of thin air; liquidity providers, in some cases, are the P2P guys just that in this case, they go through a much more rigorous KYC process because startups want to be sure that the funds they are receiving are not illegal,” said Adewuyi.

The result of this outsourced liquidity often means that users have to play by the rules of the providers. Most liquidity providers cap the minimum amount of crypto users can buy or sell, which can be a bad experience for people buying or exchanging small amounts. For example, Luno, which can be considered a hybrid startup, allows users to offload their Bitcoin liquidity from 0.000025 BTC ($2.03), which means users cannot sell or off-ramp their coins below this amount. Some apps set the minimum crypto sell-off amount higher.

Since hybrid finance apps primarily make money from transaction fees, the costs are higher compared to trading platforms. Users get charged a percentage of their deposits on some of these platforms, and when they try to exchange, they do so at a higher, marked-up rate than the official exchange rate. In P2P trading apps, where liquidity is provided by traders who are directly responsible for their revenue, competition drives down prices.

“A lot of people are not interested in the complex part of crypto, and hybrid apps come in here. They provide the liquidity that users need at a specific rate, and if you’re fine with it, you go through with the transaction,” said Adewuyi.

Yet, hybrid finance apps pitch their tent on the value they provide—insurance from the risk factor found in trading apps—while extracting a few dollars in charges from customers. In the grand scheme of things, many of them do not operate as crypto exchanges, eliminating token listing fees as a possible revenue source.

Despite their dual nature, most so-called hybrid finance apps tilt more toward their traditional finance side than crypto, qualifying them more as fintechs than crypto startups. With this distinction, they are more bound by fintech rules than by the rules governing crypto startups in Nigeria’s evolving regulatory structure.

The broader trend has seen TradFi platforms integrate DeFi solutions into their products in attempts to find a balance. Uganda’s Eversend and Nigeria’s Grey, two traditional cross-border fintechs, have integrated stablecoin payments into their apps to appeal to Web3 freelancers who earn money in digital assets.

Hybrid finance apps are products of founders’ conviction that onboarding users into the utility side of crypto—as everyday money—is the future-forward way digital assets are developing. It also suggests that P2P, despite its faults, has no shortage of admirers who make crypto an insider affair. These apps are responses of founders for all those who feel left out.