Are Fintechs Really Closing Financial Inclusion Gaps In Nigeria?

By  |  February 22, 2023

I want to first sympathize with those that have lost loved ones and are facing untold hardship due to the scarcity of Naira notes. No thanks to CBN’s Naira redesign policy set up to combat corruption and most crucially, vote buying in Nigeria’s 2023 elections. Without a doubt, the protracted scarcity of Naira notes since January 2023 has opened our eyes to the urgent need for a maximally cashless Nigeria. On the other hand, it has enunciated the impediments fintechs and traditional banks face in facilitating financial inclusion of Nigeria’s over 200million citizens.

A good attempt to make transportation cashless has the potential to increase the number of sustainably banked Nigerians and this should set a precedent for other essential services and products’ transactions to go cashless.

What really is the correlation between financial inclusion and going cashless? Ideally, I believe the route to going cashless is first being “banked”, which then enables one to go cashless. Unfortunately, inspite of the investment inflows Nigerian fintechs enjoy, majority of these tech startups are primarily offering product varieties to the already banked. In further service of the already “banked” Nigerians, these fintechs further ease access to cash through P.O.S agents. Its not rocket science to make the deduction that widely spread P.O.S agents ultimately encourage cash dependency. This in every sense is counter-progressive to the noble financial Inclusion and cashless economy agenda.

With the above insufficient arsenal going up against a cash based economy like Nigeria, one would wonder why there isn’t a clear sense of urgency to fast track improved financial inclusion and ultimately a cashless society. I will narrow this piece to 3 popular proponents of fintech commonly embraced in Nigeria. These are P.O.S Agency banking (Opay, Eyowo, Klasha etc), mobile banking via ussd (Momo, firstmoney) and application based products (loan products, bnpl platforms, savings apps, investment apps etc).

The prime essence of this submission is to refocus investors, fintechs, policy makers, financial regulators and prospective founders to the real problems which provide the biggest opportunities if explored.

So are you ready? Let’s dive in!

Nigeria’s Fintech Space Is Plagued With Settlement Problems

This can be tracked back to the over dependence on traditional banking infrastructure by fintechs. To say the least, this isn’t exactly the best selling point for fintechs that promise to be viable alternatives to traditional banks. When kicking off a typical fintech product or service, the traditional bank leverage helps reduce bottlenecks and flattens some market entry barriers. However, in the long haul, dependency on traditional banking infrastructure can be radically equated to despondency on the part of fintechs. This leverage should be a means not an “end”.

Popular arguments for this nagging issue of stiffled settlements include internet quality/broadband penetration (which is currently over 46% according to N.C.C or may be 100% according to President Buhari which rides on Elon Musk’s Starlink’s introduction to Nigeria), technology infrastructure and maybe brain drain (a.k.a tech jappa). Either way, there has to be a lasting solution which would simply require more investments in manpower, infrastructure and possibly localization of some of these technologies to cut down foreign dependencies.

Public Transportation Must Be Cashless To Foster A Cashless Society

The intriuging cash based danfo era as we know it must give way for newer cashless systems. The gains of the likes of Cowry card, Shuttlers in Lagos, etc,  must be applauded. However still, a whole lot can be done to further expand the possibilities our public transportation systems going cashless. Calling a spade a spade, the wins and failings of these trailblazers must never be discounted.

A good attempt to make transportation cashless has the potential to increase the number of sustainably banked Nigerians and this should set a precedent for other essential services and products’ transactions to go cashless. Everybody needs to move from one point to another and this makes transportation pivotal to human existence.The key challenge will be providing cashless cover for last mile transportation and getting governments on the same page on the need for improved financial inclusion.

POS Agency Bankers Must robustly link up with Mobile Banking Providers

Just like several banks are linked via Payment Terminal Service Aggregators like Nigeria’s NIBSS and the recently launched Pan African PAPSS, such must be considered between mobile money agencies, mobile communication providers, POS operators and the big boss CBN. This must be SEC regulated as expected with a robust and all encompassing operational base.

P.O.S agents remain pivotal in the envisaged cashless future. In fact, the POS business is fast becoming the ultimate side hustle for brick and mortar businesses around neighborhoods.The future I forsee is one where widely spread POS agents will serve as primary agents for capturing the unbanked and for confirming the validity or status of financial transactions without people needing to go to banks or leveraging on banking infrastructure (which rely on existing interbank payment terminal service aggregators).

Currently, POS agents mostly help the un-banked with transactions that ride on traditional banking infrastructure and services. I believe they can do a lot more. That said, it’s noteworthy to state that the sequence of POS agents first solving the problem of people (with or without bank accounts in areas far from banks) needing to carry out transactions is very practical and impactful. This is what needs to be built upon.

People Must Be Forced To Embrace Change

This has historically worked, dating back to the CBN’s cashless policy drive in 2012. At some point you can’t just rely on people being willing to change. Mental shifts take time. For instance, it took 2years after availability of touch screen phones for me to switch from using phones with physical qwerty keypads (out of fear of experiencing difficulties typing). If I could go this far with my level of tech literacy, how far are people wiling to go? People transacting or saving their hard earned monies on seemingly invincible technology platforms is a lot scarier for most.The above is why I will suggest tactful and gradual coercion.

Kudos to CBN so far. However fintechs with truly superior and all encompassing solutions have a good shot at accelerating this much needed transition. On that note CBN should be more friendly and accommodating to fintechs. The same applies to other regulators who so badly need to step up their oversight functions and encourage more healthy competition and innovation in the financial sector. Finally, these advances should be firmly in view of better customer satisfaction and improved financial Inclusion.

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