Financial technology or fintech is an innovative endeavour through technology that seeks to deliver financial services through software as opposed to traditional financial institutions. By developing e-payments and transfers banking has become more accessible to everyone especially SMEs and the low income populace. Accessible in this case would refer to being able to perform transactions without having to go to the bank but also being able to perform transactions with less cost.
Fintech and innovation have greatly contributed to the promotion of financial inclusion. Between 2011 and 2014, the number of adult account holders in the world increased by 700 million and the unbanked population fell by 20%. In Nigeria, financial inclusion rates went up to 64.1% in 2020 from 54.8% in 2016. Financial technology in Nigeria has grown significantly since 2016 with the launch of platforms like Paystack, Flutterwave, PiggyVest, Bamboo etc and digital banks like Kuda. The financial technology space in Nigeria can be described as a booming sector and a particularly competitive one with over 200 companies in the system. These companies offer several financial services like loans, capital for SMEs, investment options and ease of payments.
Poor financial inclusion in Nigeria is due to certain factors:
- Low levels of formal employment
- Very few credit information services
- Financial illiteracy
- Strict documentation requirements to open bank accounts
- Low financial product penetration
The conversation of financial inclusion gained more prominence as the fintech sector grew. However, financial exclusion is still a problem. According to Enhancing Financial Innovation & Access (EFINA), 35.9% of Nigerians are financially excluded. This figure is a significant one given the large Nigerian population of over 200million. This figure has since increased to 38.1% in 2020. This is because the population is growing faster than financial inclusion is.
In 2012, the Central Bank of Nigeria (CBN) adopted a Financial Inclusion Strategy built on four strategic areas which are; agency banking, mobile banking/payments, linkage models and client empowerment. Formal banks in Nigeria have however underperformed. Traditional banks in Nigeria are focused on the formal sector. While 93% of Nigerians employed in the formal sector have a formal bank account and only 59% in the informal sector with only 26% of farmers having bank accounts.
According to EFINA, bank growth has shot up by the use of digital financial services. From 2018 to 2020, payments have seen a 13% gain, the highest recorded amongst digital services provided.
Regardless of this growth, only 28% of Nigerians have made payments using digital means. To give context to this, out of 106 million Nigerian adults, only 28% actively use digital financial services.
McKinsey reports that Nigerian fintech has raised over $600 million in funding. In 2019 alone Nigerian fintech accounts for about 25% of the $491.6 million raised by fintechs in Africa. A survey by Ernest & Young reported that 57% of fintech in Nigeria generate revenues of over $5 million annually. Fintechs in Nigeria are gaining relevance especially as they begin to offer better saving and investment options. An application like Piggyvest for example offers up to 13% interest on your savings.
According to a survey by the Human Sciences Research Council (HSRC), 76% of low-income consumers indicated that high transaction fees are major drivers of financial exclusion. Fintech platforms are being used to accelerate the process towards digital solutions in countries such as Ghana, and Kenya where the governments have lowered transaction fees and increased transaction limits to encourage consumers to use them. As a fintech solution, mobile wallets have provided a great opportunity to reduce the cost of remittances across the entire continent. In order to continue to bring financial products to users while addressing concerns from potential consumers, new fintech solutions are developed every year.
Fintech solutions have definitely changed the pace at which financial inclusion was taking place in Africa, resulting in extremely positive changes, but there is so much to be done. The CBN’s Payment Service Banks (PSB) guidelines are stifling competition in the finance industry.
CBN has stated in the past that Nigeria can also reach a significant increase in mobile money penetration if it opens the field to more players, particularly non-banks that can offer payments and other financial services, while regulating healthy competition; it is then puzzling, why it does not allow fintech to offer credit, deposits, and other banking services to more Nigerians to increase financial inclusion. Hopefully, fintech can be applied to the areas of the economy that would create change and positively impact financial inclusion.