Monetary expertise corporations have made progress within the nation, however they haven’t considerably bridged Nigeria’s exclusion hole, notably in rural areas the place many residents lack entry to fundamental banking companies, JUSTICE OKAMGBA writes
Rural communities in Africa’s greatest inhabitants are nonetheless struggling to have entry to monetary companies, regardless of Nigeria’s fintech increase, which peaked in 2022 with a valuation of over $1.2bn.
Startups within the area have collectively raised over $2bn in funding, most of which got here between 2019 and 2022, in line with Intelpoint’s Nigerian Monetary Companies Market report launched in December.
Within the coronary heart of Okuenyi, a small village in Obingwa Native Authorities Space, Abia State, residents wrestle to entry the web for monetary transactions, similar to in lots of rural areas throughout the nation’s 774 LGAs.
The conundrum, in line with specialists, stems from restricted connectivity, lack of monetary literacy, and insufficient infrastructure.
This example prevents rural communities from taking part within the fintech revolution, specialists mentioned.
A 40-year-old native dealer, Uche Abama, faces day by day hurdles: sending money, receiving financial institution alerts, a quagmire that leaves him and different merchants with no different possibility than to discover a resolution in a close-by Ovom neighborhood.
“It’s nearly not possible to make a cellphone name or entry the web right here in Okuenyi,” the vegetarian advised The PUNCH on a name.
Banks in Nigeria launched Unstructured Supplementary Service Information codes in 2016, beginning with GTBank.
USSD performs a major position in growing monetary inclusion, particularly in rural areas the place conventional banking infrastructure could also be restricted. But it surely turns into tougher for dwellers with entry to solely cell networks (2G, 3G).
The timeout classes whereas utilizing the USSD code are frequent. When this occurs, transactions are terminated, leaving residents annoyed.
“Utilizing USSD codes can also be not an possibility as a result of the 2G community is sort of nonexistent for some telecom suppliers. No MTN. Airtel shouldn’t be sturdy sufficient right here; it’s the identical scenario with Glo,” Abama acknowledged.
With over 1.5 million banking brokers (PoS retailers) throughout the nation, Okuenyi has just one PoS agent who’s stationed at Nkwo Market, however even then, community points could make transactions unreliable.
“Generally, you get to the service provider and there’s no community. That scenario forces us to go to Ovom, the place transactions are smoother,” he bemoaned.
For him and lots of others within the space, an absence of dependable monetary companies means spending time and sources travelling to neighbouring communities for duties so simple as withdrawing or transferring cash.
In accordance with the Groupe Particular Cellular Affiliation, the umbrella physique of cell operators globally, solely 29 per cent of the Nigerian inhabitants has common entry to cell web, leaving out a whopping 71 per cent.
A journalist from the identical locale, who declined to say his identify, mentioned that every time he travels, it’s all the time powerful to make transfers utilizing the banking cell app, USSD.
“Most occasions, I must journey to Aba searching for web to carry out sure duties. It was nearly not possible to get issues executed within the village,” he advised The PUNCH.
In accordance with the 2023 EFInA Entry to Finance Survey, monetary inclusion rose to 74 per cent in 2023 from 68 per cent in 2020, whereas 26 per cent of Nigerians are financially excluded.
City-rural hole: lower within the hole from 24 per cent recorded in 2020 to twenty per cent in 2023. Youth (18–35): 71 per cent monetary inclusion was recorded in 2023.
Infrastructure deficit is a serious downside and the World Financial institution estimated that $6bn in annual funding was wanted to bridge Africa’s digital divide.
Nonetheless, the Nigerian authorities is collaborating with the World Financial institution to enhance entry to the web and digital companies throughout the nation, notably in rural areas.
The aim is to boost $3bn to fund the growth of Nigeria’s fibre optic infrastructure from 35,000 km to 125,000 km, making it Africa’s third-longest terrestrial fibre optic cable community.
Digital monetary literacy is essential for Nigerians to successfully use digital monetary companies, equivalent to cell cash and digital currencies.
The Minister of Communications, Innovation and Digital Economic system, Dr Bosun Tijani, goals for 90 per cent of Nigerians to be digitally literate by 2030.
This aim is commendable, however it’s important to evaluate the present state of digital literacy and devise a practical roadmap to attain this goal.
Fintech
With fewer than 300 Central Financial institution of Nigeria licensed fintech gamers, the trade is dominated by a handful of innovators, lots of whom are replicating comparable options to handle cost challenges.
Whereas these fintechs and monetary establishments concentrate on city areas, a good portion of the inhabitants in rural areas is financially excluded, creating an enormous alternative for fintechs to discover and bridge the hole.
As of 2021, Statista reported 144 fintech startups, with a 2020 McKinsey research suggesting over 200 standalone fintech startups. In the meantime, the 2023 Nigeria Fintech Map listed 254 fintech corporations.
These fintechs concentrate on completely different classes, equivalent to offering infrastructure, cost processing, and switching, however the majority of them are primarily concerned in funds and lending.
The co-founder of XChangeBox, Abiola Jimoh, defined to The PUNCH that the shortage of variety in fintech options had resulted in a saturated market, with many gamers providing comparable companies.
He mentioned that in comparison with Nigeria’s inhabitants of over 200 million folks, there are just a few fintech gamers—lower than 200 licensed by the Central Financial institution of Nigeria.
“Some function by means of partnerships, however the CBN is now turning into upfront about them getting their license as a substitute of partnering with one other participant,” Jimoh famous.
By venturing into underserved areas, fintechs can develop tailor-made options that cater to the particular wants of those communities, selling monetary inclusion and bridging the hole.
The Govt Director at Monetary Companies Innovators, Aituaz Kola-Oladejo, agreed that concept duplication amongst corporations was a standard development, hindering the sector’s potential to handle deeper and underlying challenges.
Kola-Oladejo acknowledged that whereas some fintechs have been tackling actual issues, many have been converging on comparable options to equivalent issues relatively than innovating to unravel extra basic points.
“Persistent issues equivalent to faulty debits, prolonged transaction reversals, and difficulties in reclaiming funds after failed Level of Sale (PoS) transactions proceed to undermine client belief.
“Many of those points persist as a result of inner options developed by corporations usually don’t lengthen to the broader public.
“Moreover, worth chain integration stays a major hurdle,” she defined.
Unserved areas
McKinsey’s evaluation painted a starker image, estimating that fintechs in Africa confronted buyer acquisition prices that considerably outstrip the income they earn per buyer.
Fintechs spend as much as $20 to onboard a buyer, however solely earn $7 in income, making it difficult for them to maintain their enterprise mannequin in rural areas.
Jimoh mentioned the fintech trade confronted important challenges because of excessive prices and rules, which might restrict the scope of innovation.
“Whereas the CBN offers a regulatory sandbox for brand new concepts, the licensing course of can take 18 to 24 months, usually leading to comparable concepts being developed elsewhere throughout this era,” he acknowledged.
This regulatory lag shouldn’t be distinctive to Nigeria however is an African problem, the place innovation usually outpaces regulation.
Jimoh, who leads the cost at XChangeBox, a licensed super-agent service supplier, to ship agent banking options to rural, small, and medium-sized enterprises, mentioned just a few concepts have been explored to handle monetary inclusion and lengthen monetary companies to the final mile.
“Points like illiteracy and id administration, that are important issues, hinder progress. The id administration course of in Nigeria shouldn’t be strong, leading to a lot knowledge duplication,” the co-founder acknowledged.
The prospects are huge, and the potential for development is substantial. Because the fintech trade continues to evolve, it stays essential for gamers to shift their focus in direction of innovation, variety, and inclusivity.
By doing so, they will unlock Nigeria’s true fintech potential, empowering thousands and thousands and driving financial development, he mentioned.
Issues in regards to the affordability, accessibility, and availability of cell apps, infrastructure, and web connectivity exist.
“True monetary inclusion hinges on overcoming these challenges,” Kola-Oladejo acknowledged.
New entrants like OPay, Moniepoint, and PalmPay are leveraging their sturdy monetary positions to try to slender market gaps with an enormous focus in city areas.
Kola-Oladejo emphasised the necessity for tailor-made options that deal with the particular wants of rural populations to bridge these gaps.
“Fintech innovation ought to prioritise customisation, guaranteeing merchandise are designed to suit various markets and cater to particular buyer wants, relatively than providing generic companies like financial savings and present accounts, which primarily profit establishments,” she concluded.
Breaking boundaries
The Chief Business Officer at Itex Built-in Companies Ltd, Adekunle Adebiyi, mentioned rural penetration is essential to the success of monetary expertise companies within the nation.
In accordance with him, if the goal was to achieve the unbanked, fintechs should start to focus on rural areas relatively than populate city areas.
Fintechs work with conventional banks to enhance the sustainability and accessibility of the companies they provide to the general public, the CEO mentioned.
He famous in an announcement, “Due to this, distribution is essential if we’re to achieve Nigerians with out financial institution accounts. Rural areas, the place extra unbanked folks reside, should change into the main target as a substitute of metropolitan and semi-urban areas. As a rustic, now we have made progress towards monetary inclusion, but when we’re to satisfy our aim, we should use monetary expertise.”
In accordance with Intelpoint, as of 2021, there have been 133.5 million energetic financial institution accounts in Nigeria, a rise of 18.7 million new accounts from 2020.
Out of the 133.5 million energetic accounts, 92 per cent (122.3 million) have been particular person accounts, whereas the remaining eight per cent have been company accounts.
Company banking and the operational effectiveness of USSD codes might change into important drivers of monetary inclusion in Nigeria.
These options enable shops to behave as representatives of monetary establishments, providing fundamental banking companies to prospects who would in any other case lack entry.
Jimoh famous that company banking was rising as a significant resolution, notably in rural areas, stating that by working as mini-banks, brokers might present important companies to farmers and merchants, thereby bridging the monetary hole.
His firm, XChangeBox, is specializing in delivering medical health insurance, pension financial savings, and micro-loans by means of brokers, aiming to duplicate the success seen in international locations like Rwanda and Kenya, the place superior company networks provide complete companies.
The transformative potential of cell cash was additionally highlighted by Jimoh, who defined that utilizing USSD codes for transactions successfully turned cellphone numbers into wallets, simplifying monetary transactions for customers.
Nonetheless, he acknowledged that top entry prices had hindered the widespread adoption of cell cash in Nigeria.
Consequently, main fintech gamers like Opay and Paga are concentrating on company banking, utilising playing cards and PoS methods to reinforce monetary inclusion.
Regardless of developments in cost methods and e-commerce, Jimoh famous important challenges in regulation, funding, and coverage that proceed to impede the operations of the operators.
“By breaking down these boundaries, we are able to obtain better monetary inclusion and unlock the complete potential of Nigeria’s economic system,” he averred.
The FSI government director advocated for co-creating options with prospects to develop simpler and cost-efficient choices over time.
Whereas challenges persist, there are ample alternatives for development and improvement in Nigeria’s fintech ecosystem.
By addressing these points with tailor-made and progressive options, the sector can obtain better monetary inclusion and broader market penetration, Kola-Oladejo concluded.
