Long the global laggard in financial inclusion, Africa has in recent years kept steadily ahead of the Western world in moving towards a cashless, card-less, mobile-driven future. In just a decade, the region has used mobile phones to spearhead a revolution in financial services. While some in the press heralded Apple Pay as a “revolutionary product” after its 2014 launch in the U.S., Kenyans were first introduced to M-Pesa in 2007. Today, more people have mobile bank accounts than traditional bank accounts across 19 African markets. Kenya may be the poster child for fintech aficionados, but Nigeria, Africa’s biggest country, is ready to surpass other African nations in financial inclusion. For it to do so, Nigerian banks and fintech providers will need to partner to expand access to credit, leverage recent improvements in mobile payment platforms, and improve information sharing.
A decade ago, making standard financial transactions in Nigeria was a Herculean feat that tried and tested customer patience. Years of inefficiency means that approximately half of Nigerians remain unbanked. Although many of these customers have savings accounts, less than 8% have accessed credit from a formal financial institution, and there are less than 300,000 credit cards in issue. During the last five years, however, banks and regulators have undertaken slow, yet effective steps to transform Nigeria’s financial center from a cash-dominated bureaucracy to one of the most sophisticated banking industries in Africa. In the last 6 months, leading banks have launched new apps that offer best-in-class mobile delivery and biometric and facial recognition. Wema Bank, which recently celebrated its 72nd anniversary, launched ALAT, Nigeria’s first fully digital bank. These developments may enhance the “tech credibility” of legacy banks and appeal to shareholders in annual reports, but it’s unclear that their tech-driven strategies have facilitated greater access to credit or contributed to deeper levels of financial inclusion. Although the payment infrastructure is now in place, incumbents’ reluctance to expand opportunities for consumers leaves open an opportunity for fintech companies to lead in retail banking where traditional institutions are sleeping.
Until recently, the last mile of payments to consumers and SMEs was unreliable and impeded efforts to integrate more Nigerians into the financial ecosystem. However, recent improvements in interoperability have opened the door to consumer finance as a viable source of revenue. Kenya’s M-Shwari, M-PESA’s landmark platform that revolutionized Kenyans’ capacity to save, has been a much-touted success. The launch of mCash in late 2016 has been a game-changer for Nigeria’s banking industry by going farther than M-Shwari. Whereas M-Shwari customers can only make transfers and save using the Safaricom network, mCash is compatible with all Nigerian banks and telecommunications companies. In one fell swoop, Nigeria obtained what other markets have struggled to achieve. Prior to this shift, payments across platforms were onerous and expensive; however, thanks to companies like Flutterwave, Amplify, or Paystack, which are focused on creating seamless interoperability in Africa’s financial sector, fintech providers can better access the bottom of the pyramid. In 2016, Wema Bank loaned N12bn to retail customers (5% of total lending) from their 135 branch locations. In the same year, two leading consumer finance startups loaned just under N10bn and are projected to surpass Wema’s retail lending in 2017. With the benefit of data-driven models, fintech providers can target consumers that legacy banks might overlook due to the low returns, and with interoperable platforms, they can build service models that provide a gateway to other financial services such as loans and insurance.
To scale this transformative potential, greater collaboration between banks and fintech companies is required. Nigeria should consider following the lead of the European Union where the recently enacted Payment Services Directive (PSD2) compels all banks to open up their core banking applications so that customer data may be accessible to fintech startups. This groundbreaking law helps to drastically reduce the costs of new customer acquisition for startups and will force banks to focus more on users’ needs, benefiting consumers greatly. Increased competition in financial services coupled with increased availability of digital services will accelerate adoption of business models with lower fixed costs and greater use of technology. For Nigeria, more information sharing between banks and fintech providers will improve risk profiling, enhance customer services for Nigerians at every income level, and provide customers with more options best suited to their individual situations.
Nigeria’s financial sector has the tools to expand access to finance through existing legislation, but without more will to collaborate between banks and fintech companies, too many users will continue to be left out of the system. As Africa assumes a larger share of the world’s working age population, overlooking tomorrow’s clients is a mistake. Improving efficiency, cost, optimization, and delivery will enable banks and fintech companies alike to shape Nigeria’s development, better benefit from economic growth, and diversify their clientele in order to weather downturns.
Chijioke Dozie is director and co-founder of Kaizen Venture Partners and CEO of OneFi, the largest smartphone-based loan provider in Nigeria.