Financial technology companies have made progress in the country, but they have not significantly bridged Nigeria’s exclusion gap, particularly in rural areas where many residents lack access to basic banking services, JUSTICE OKAMGBA writes
Rural communities in Africa’s biggest population are still struggling to have access to financial services, despite Nigeria’s fintech boom, which peaked in 2022 with a valuation of over $1.2bn.
Startups in the space have collectively raised over $2bn in investment, most of which came between 2019 and 2022, according to Intelpoint’s Nigerian Financial Services Market report released in December.
In the heart of Okuenyi, a small village in Obingwa Local Government Area, Abia State, residents struggle to access the internet for financial transactions, just like in many rural areas across the country’s 774 LGAs.
The conundrum, according to experts, stems from limited connectivity, lack of financial literacy, and inadequate infrastructure.
This situation prevents rural communities from participating in the fintech revolution, experts said.
A 40-year-old local trader, Uche Abama, faces daily hurdles: sending cash, receiving bank alerts, a quagmire that leaves him and other traders with no other option than to find a solution in a nearby Ovom community.
“It is almost impossible to make a phone call or access the internet here in Okuenyi,” the vegetarian told The PUNCH on a call.
Banks in Nigeria introduced Unstructured Supplementary Service Data codes in 2016, starting with GTBank.
USSD plays a significant role in increasing financial inclusion, especially in rural areas where traditional banking infrastructure may be limited. But it becomes more difficult for dwellers with access to only mobile networks (2G, 3G).
The timeout sessions while using the USSD code are frequent. When this happens, transactions are terminated, leaving residents frustrated.
“Using USSD codes is also not an option because the 2G network is almost nonexistent for some telecom providers. No MTN. Airtel is not strong enough here; it’s the same situation with Glo,” Abama stated.
With over 1.5 million banking agents (PoS merchants) across the country, Okuenyi has only one PoS agent who is stationed at Nkwo Market, but even then, network issues can make transactions unreliable.
“Sometimes, you get to the merchant and there’s no network. That situation forces us to go to Ovom, where transactions are smoother,” he bemoaned.
For him and many others in the area, a lack of reliable financial services means spending time and resources travelling to neighbouring communities for tasks as simple as withdrawing or transferring money.
According to the Groupe Special Mobile Association, the umbrella body of mobile operators globally, only 29 per cent of the Nigerian population has regular access to mobile internet, leaving out a whopping 71 per cent.
A journalist from the same locale, who declined to mention his name, said that whenever he travels, it is always tough to make transfers using the banking mobile app, USSD.
“Most times, I would have to travel to Aba in search of internet to perform certain tasks. It was almost impossible to get things done in the village,” he told The PUNCH.
According to the 2023 EFInA Access to Finance Survey, financial inclusion rose to 74 per cent in 2023 from 68 per cent in 2020, while 26 per cent of Nigerians are financially excluded.
Urban-rural gap: decrease in the gap from 24 per cent recorded in 2020 to 20 per cent in 2023. Youth (18–35): 71 per cent financial inclusion was recorded in 2023.
Infrastructure deficit is a major problem and the World Bank estimated that $6bn in annual investment was needed to bridge Africa’s digital divide.
However, the Nigerian government is collaborating with the World Bank to improve access to the internet and digital services across the country, particularly in rural areas.
The goal is to raise $3bn to fund the expansion of Nigeria’s fibre optic infrastructure from 35,000 km to 125,000 km, making it Africa’s third-longest terrestrial fibre optic cable network.
Digital financial literacy is crucial for Nigerians to effectively use digital financial services, such as mobile money and digital currencies.
The Minister of Communications, Innovation and Digital Economy, Dr Bosun Tijani, aims for 90 per cent of Nigerians to be digitally literate by 2030.
This goal is commendable, but it is essential to assess the current state of digital literacy and devise a realistic roadmap to achieve this objective.
Fintech
With fewer than 300 Central Bank of Nigeria licensed fintech players, the industry is dominated by a handful of innovators, many of whom are replicating similar solutions to address payment challenges.
While these fintechs and financial institutions focus on urban areas, a significant portion of the population in rural areas is financially excluded, creating a vast opportunity for fintechs to explore and bridge the gap.
As of 2021, Statista reported 144 fintech startups, with a 2020 McKinsey study suggesting over 200 standalone fintech startups. Meanwhile, the 2023 Nigeria Fintech Map listed 254 fintech companies.
These fintechs specialise in different categories, such as providing infrastructure, payment processing, and switching, but the majority of them are primarily involved in payments and lending.
The co-founder of XChangeBox, Abiola Jimoh, explained to The PUNCH that the lack of diversity in fintech solutions had resulted in a saturated market, with many players offering similar services.
He said that compared to Nigeria’s population of over 200 million people, there are only a few fintech players—less than 200 licensed by the Central Bank of Nigeria.
“Some operate through partnerships, but the CBN is now becoming upfront about them getting their license instead of partnering with another player,” Jimoh noted.
By venturing into underserved regions, fintechs can develop tailored solutions that cater to the specific needs of these communities, promoting financial inclusion and bridging the gap.
The Executive Director at Financial Services Innovators, Aituaz Kola-Oladejo, agreed that idea duplication among companies was a common trend, hindering the sector’s ability to address deeper and underlying challenges.
Kola-Oladejo acknowledged that while some fintechs were tackling real problems, many were converging on similar solutions to identical problems rather than innovating to solve more fundamental issues.
“Persistent problems such as erroneous debits, lengthy transaction reversals, and difficulties in reclaiming funds after failed Point of Sale (PoS) transactions continue to undermine consumer trust.
“Many of these issues persist because internal solutions developed by companies often do not extend to the broader public.
“Additionally, value chain integration remains a significant hurdle,” she explained.
Unserved areas
McKinsey’s analysis painted a starker picture, estimating that fintechs in Africa faced customer acquisition costs that significantly outstrip the revenue they earn per customer.
Fintechs spend up to $20 to onboard a customer, but only earn $7 in revenue, making it challenging for them to sustain their business model in rural areas.
Jimoh said the fintech industry faced significant challenges due to high costs and regulations, which could limit the scope of innovation.
“While the CBN provides a regulatory sandbox for new ideas, the licensing process can take 18 to 24 months, often resulting in similar ideas being developed elsewhere during this period,” he stated.
This regulatory lag is not unique to Nigeria but is an African issue, where innovation often outpaces regulation.
Jimoh, who leads the charge at XChangeBox, a licensed super-agent service provider, to deliver agent banking solutions to rural, small, and medium-sized enterprises, said a few ideas have been explored to address financial inclusion and extend financial services to the last mile.
“Issues like illiteracy and identity management, which are significant problems, hinder progress. The identity management process in Nigeria is not robust, resulting in much data duplication,” the co-founder stated.
The prospects are vast, and the potential for growth is substantial. As the fintech industry continues to evolve, it remains crucial for players to shift their focus towards innovation, diversity, and inclusivity.
By doing so, they can unlock Nigeria’s true fintech potential, empowering millions and driving economic growth, he said.
Concerns about the affordability, accessibility, and availability of mobile apps, infrastructure, and internet connectivity exist.
“True financial inclusion hinges on overcoming these challenges,” Kola-Oladejo stated.
New entrants like OPay, Moniepoint, and PalmPay are leveraging their strong financial positions to attempt to narrow market gaps with a huge concentration in urban areas.
Kola-Oladejo emphasised the need for tailored solutions that address the specific needs of rural populations to bridge these gaps.
“Fintech innovation should prioritise customisation, ensuring products are designed to fit diverse markets and cater to specific customer needs, rather than offering generic services like savings and current accounts, which primarily benefit institutions,” she concluded.
Breaking barriers
The Chief Commercial Officer at Itex Integrated Services Ltd, Adekunle Adebiyi, said rural penetration is crucial to the success of financial technology firms in the country.
According to him, if the target was to reach the unbanked, fintechs must begin to target rural areas rather than populate urban areas.
Fintechs work with traditional banks to improve the sustainability and accessibility of the services they offer to the public, the CEO said.
He noted in a statement, “Because of this, distribution is crucial if we are to reach Nigerians without bank accounts. Rural areas, where more unbanked people reside, must become the focus instead of metropolitan and semi-urban areas. As a country, we have made progress toward financial inclusion, but if we are to meet our goal, we must use financial technology.”
According to Intelpoint, as of 2021, there were 133.5 million active bank accounts in Nigeria, an increase of 18.7 million new accounts from 2020.
Out of the 133.5 million active accounts, 92 per cent (122.3 million) were individual accounts, while the remaining eight per cent were corporate accounts.
Agency banking and the operational effectiveness of USSD codes could become significant drivers of financial inclusion in Nigeria.
These solutions allow retail outlets to act as representatives of financial institutions, offering basic banking services to customers who would otherwise lack access.
Jimoh noted that agency banking was emerging as a vital solution, particularly in rural areas, stating that by operating as mini-banks, agents could provide essential services to farmers and traders, thereby bridging the financial gap.
His company, XChangeBox, is focusing on delivering health insurance, pension savings, and micro-loans through agents, aiming to replicate the success seen in countries like Rwanda and Kenya, where advanced agency networks offer comprehensive services.
The transformative potential of mobile money was also highlighted by Jimoh, who explained that using USSD codes for transactions effectively turned phone numbers into wallets, simplifying financial transactions for users.
However, he acknowledged that high entry costs had hindered the widespread adoption of mobile money in Nigeria.
Consequently, leading fintech players like Opay and Paga are concentrating on agency banking, utilising cards and PoS systems to enhance financial inclusion.
Despite advancements in payment systems and e-commerce, Jimoh noted significant challenges in regulation, funding, and policy that continue to impede the operations of the operators.
“By breaking down these barriers, we can achieve greater financial inclusion and unlock the full potential of Nigeria’s economy,” he averred.
The FSI executive director advocated for co-creating solutions with customers to develop more effective and cost-efficient offerings over time.
While challenges persist, there are ample opportunities for growth and development in Nigeria’s fintech ecosystem.
By addressing these issues with tailored and innovative solutions, the sector can achieve greater financial inclusion and broader market penetration, Kola-Oladejo concluded.