Now is the time for Nigeria to innovate in digital financial services

Nigeria has always responded to challenges with innovation and resolve. But as we begin 2016, it is clear there is one area where we are falling short of our potential: building the most inclusive and therefore vibrant economy possible.

Five years ago, our government announced a plan to have 80 percent of Nigerians financially served by 2020. Currently, we stand at around 60 percent. If we are to meet our goal in the next four years—adding at least 18 million new, regular users of formal and informal financial services—we have many challenges to overcome.

People without access to financial services tend to be poor or live in rural areas. And the surprising truth about poverty is this: It’s expensive. From high fees and interest rates to non-monetary costs, like the time it takes to travel and pay bills in person, numerous expenses reduce a poor person’s already limited assets.

Financial services can make these expenses much more manageable. Equally important, they introduce the simple but powerful ability to save. Savings allow people to plan for the future and compensate for sudden events like hospital visits or crop failures, which can otherwise thrust them right back into poverty. Access to a larger savings pools is also good for the banking industry, as larger depository funds can reduce credit costs.

This is why the government’s plan to increase access to financial services is such a worthy one for our country. It will help Nigerians help themselves—socially, economically and sustainably. And in this day and age – with mobile connectivity, which now covers about 90 percent of the world’s poor – digital financial services can increase access to more people than ever before. What is more, digital accounts are much more affordable to manage and provide on a large scale than traditional bank accounts.

This brings us, however, to the challenges. Digital financial services, and the complementary commercial and regulatory infrastructures that support them, are still in their nascent stages in Nigeria. Currently, our country has 37,000 financial access points—including 8,000 mobile money agents—for an adult population of 93 million (one access point for every 2,500 adults). Compare that to Kenya, which has 80,000 financial access points—including 66,000 mobile money agents—for an adult population of 26 million (one access point for every 325 adults).

Clearly, a critical first step in expanding the reach of digital financial services is growing our network of cash-in, cash-out agents. In order to do so, we will likely have to broaden the purpose of this network beyond just digital finance. A shared agent network, serving a variety of needs for providers of many different services, will be more useful to consumers, and will therefore have a better chance at success.

Accompanying this network, we must also see a surge of innovation in the private sector — encompassing not only new products and services, but new business models. Offering low-fee digital accounts to a high volume of poor customers is an excellent model in theory. But sustainability is by no means simple or assured. Many providers around the world have learned this the hard way, going to market without enough planning or understanding—and quickly having to close up shop as a result. We must learn from these providers, as well as those who have succeeded.

At the Lagos Business School where I am the AcademicDirector and Senior Fellow in Information Systems, we are launching a new venture to do exactly that. We will look at models from around the world to determine best practices for bringing digital financial services to Nigeria in a profitable and sustainable way. We will also examine the issue of distribution and how to design agent networks that are convenient and useful for poor people. In Nigeria, we must invest in both sides of the coin – making digital financial services practical and appealing for providers and customers alike.

Our national goals for financial inclusion are ambitious. But, as an academic and former leader in the private sector, I have seen firsthand the intelligence and enthusiasm we can bring to modern problems. And I trust that with a studied understanding of the challenges and a creative, committed approach to finding solutions, we can achieve our goals and build a more inclusive and vibrant economy for all.

Olayinka David-West