In Nigeria, as of 2018, 37 percent of the adult population were unbanked according to a survey conducted by Enhancing Financial Innovation and Access (EFInA). Insufficient bank branches and ATMs have impeded greater financial inclusion. For every 100,000 adults, Nigeria has 4.3 branches compared to 5 in Kenya, 8.6 in Ghana and 10.1 in South Africa.
Consumers also continue to face difficulties with securing a biometric bank verification number (required since 2014 to open bank accounts and keep them active) and high service fees make financial services unaffordable.
The unbanked in Nigeria could be an attraction pool of potential consumers for Fintech firms who are able to effectively reach them.
Fintech is a coined term of Financial Technology. Fintech is the use of technology to provide financial services such as savings, micro-credit and funds transfer. Some fintech solutions have been described as ‘having a bank in your pocket’ because they offer financial services in a quicker and more convenient way than traditional banking financial institutions.
Fintech has also been described as the application of ICT in the field of financial services, including digital payment and remittance, investment and distribution platforms, cybersecurity, big data and data analytics and distributed ledger applications to new asset classes and processes.
Globally, total investment activity in the fintech sector – combining venture capital, private equity and merger and acquisitions – reached a peak of US$120bn in 2018, up from US$51bn in 2017.
Africa can lay claim to having laid the foundations of fintech with M-Pesa, a mobile device-based platform for money transfers and financial services founded in Kenya in 2007. It allows users deposit, withdraw, transfer money as well as pay bills through their mobile devices. The number of fintech companies in Africa grew at an annual rate of 24 per cent between 2009 and 2019, fueled mostly by Nigeria, Kenya and South Africa.
Nigeria, Africa’s largest country by GDP and population, is among the continent’s fintech leaders with a lively crop of start-ups and a giving suite of digital offerings from mainstream banks. Fintech revenues are forecast to reach an estimated US$543m by 2022, driven by increasing smartphone penetration and its unbanked population.
Nigerian fintech are branching out from payments into lending, micro-investment, wealth management, peer to peer transfers and insurance. Payments and remittance are the most developed sub-sector to date. The country has seen a surge of new and simplified apps to help merchants, businesses and consumers. Mainstream banks, initially slow to react to the digital era, have quickly adopted to offer apps and tools in areas like loans, while non-traditional players – including telecom companies and retailers such as super markets are entering the finance space.
As payments and remittances being the most developed sector, there is a surge of new and simplified apps emerging. Start-up payment processing firm Interswitch pioneered the infrastructure to digitize the economy in the 2000s. Today, it provides much of the tech wiring for Nigeria’s online banking system as well as personal and business financial products. This includes its Verve payment cards and the Quick teller app, which allows users transfer money, pay bills and buy mobile and internet data. Flutter wave, the Nigerian-owned, San-Francisco headquartered start-up provides a payment tool for businesses. It focuses on helping Africans build global businesses by accepting payments from anywhere in the world and recently mobilized quite substantial amount of money to expand across Africa. Other companies such as Chipper cash, focus on personal cross-border payments.
Nigerian fintechs are also expanding into lending. There has been a marked increase in mobile lending products targeting the small and medium sized enterprise (SME) and retail sectors. These products allow users to apply for loans online (mostly without the need for collateral) and use advanced technologies such as machine learning for credit analysis. For example, Opay mobile app offers access to credits on its EaseMoni and Okash tools. Another example is the Lagos-headquartered Carbon (formerly Paylater), which offers access to credit, simple payments solutions, investment opportunities and tools for financial management.
Mainstream commercial banks are not left behind in offering digital solutions like Guaranty Trust Bank Plc has its own mobile app called Quick Credit where its account holders can easily have access to credits. Credit Direct by First City Monument bank (FCMB), Specta by Sterling bank and First Advance and First Credit by First Bank Nigeria Ltd are others.
Fintechs also provide platforms for investment products like Cowrywise and Farmcrowdy where they offer returns on investment of reasonable percentages.
Digital Insurance or ‘Insur-tech has not gained ground in Nigeria as it did in Ghana and Kenya because Insurance has always been a small sector in financial services in Nigeria.
Fintech being a sub-sector within the Nigeria’s financial system and without a specific fintech law, the following regulations provided the enabling environment for fintech to play in the Nigeria’s finance space:
The Payments System Vision 2020, launched by the Central Bank of Nigeria in 2007 has boosted electronic payments.
Publication of National Financial Inclusion Strategy in 2012 by the CBN, setting the financial inclusion target to 80 per cent by 2020 (revised in 2019 to 95% by 2024).
Creation of licenses for bank and non-bank mobile operators to provide mobile payment services. Eligible applicants for Payment Service Bank (PSB) licenses include banking agents, telecommunications companies, retail chains (like supermarkets), mobile money operators, courier companies and postal service providers.
Despite the fast growth of fintech companies in Nigeria, the sector is faced with the following challenges. These are:
Fees to gain a financial services license is very high with a minimum sum of N50m (US$139,000).
Multiple supervision of the sector by the CBN, the Securities and Exchange Commission (SEC) and Nigerian Communications Commission (NCC). Fintechs find it difficult to comply with all the regulations issued by these stakeholders.
Fintechs’ limited access to consumers’ data which are highly regulated by the Nigeria Data Protection Regulation of 2019.
Weak Cyber security.
Lack of expertise and skills in the areas of business management, marketing and corporate governance by the teams of fintech firms.
The following actions were taken to mitigate the barriers of entry into and operation of fintechs.
Launching of the Financial Industrial Innovation Sandbox in December 2019 by the Financial Service Innovators of Nigeria in conjunction with the CBN and the Nigeria Inter-Bank Settlement system (NIBSS). It aims to lower entry barriers into the fintech space with regard to regulation and licensing.
Launching of the Fintech Roadmap Committee (FRC) by the SEC to examine barriers to entry and regulatory hurdles.
Has Fintech driven the level of financial inclusion in Nigeria?
It has been questioned by experts whether fintech has truly moved the needle on financial inclusion, believing that it is easing financial transactions for those already in the system (those with bank accounts). There is no direct correlation between rise in fintech and financial inclusion but surveys conducted by Enhancing Financial Innovation and Access (EFInA) reveal that the percentage of financially-excluded adults in Nigeria reduced from 41.6% in 2016 to 36.8% in 2018.
Prospects of Fintech in Nigeria
Presently, the Nigerian fintech sector is experiencing tremendous growth as innovators come up with financial solutions and attract investment. Nigeria’s massive population, entrepreneurial workforce and crop of successful fintech start-ups could well place it at the leading edge of Africa’s financial innovation story. On the part of the regulatory bodies, they are trying to balance innovation with customer protection. Opening up licensing to new players, bringing down fees and charges and encouraging the business ecosystem by opening up access to capital markets are all signs of an accommodating legal environment that will increase competition.
State of Play: Fintech in Nigeria is an Economist Intelligence Unit report, sponsored by Mastercard and MTN Group.
Sanusi is a Secondary School Teacher in BUA Cement Schools (Sokoto) where he teaches Economics to senior students with over ten (10) years of working experience in teaching. He bagged his Bachelor’s degree in Economics/Education and Master’s degree in Banking and Finance all from Usmanu Danfodiyo University, Sokoto. He has some few publications to his name and he is currently pursuing a professional program in Accounting (ICAN).