Widespread digital payments and financial services could bring an additional 46 million Nigerians to the financial system and add 12. 4% to Nigeria’s Gross Domestic Product (GDP) by 2025, says advisory firm, Mckinsey Global Institute.
A Mckinsey report titled, “Digital Finance For All: Powering Inclusive Growth in Emerging Economies” penned by Susan Lund and James Manyika of MGI further noted that the additional GDP growth could lead to the creation of up to three million jobs across all sectors in Nigeria, where unemployment rate is at a five-year high of 13.3 percent, according to recent National Bureau of Statistics (NBS) data.
“It would see 46 million Nigerians sucked into the financial system, while new deposits could be as much as $36 billion,” Lund and Manyika stated. “Even as new credit could also rise by $57 billion, while a reduction in the Federal Government’s leakages with digital payment solutions would translate to saving $2 billion.”
Two-thirds of the additional GDP growth would come from raised productivity of financial and non-financial businesses and governments as a result of digital payments, according to Mckinsey.
While one-third would be from the additional investment that broader financial inclusion of people and micro, small, and medium-sized businesses would bring. The small remainder would come from timesavings by individuals enabling more hours of work.
However, to achieve this growth three building blocks are required, Mckinsey noted.
These blocks include, “Widespread mobile and digital infrastructure, a dynamic business environment for financial services, and digital finance products that meet the needs of individuals and small businesses in ways that are superior to the informal financial tools they use today.”
Broadening access to finance through digital means can unlock productivity and investment, reduce poverty, empower women, and help build stronger institutions with less corruption—all while providing a profitable, sustainable business opportunity for financial service providers.
The benefits for individuals, businesses, and governments can transform the economic prospects of emerging economies.
Nigeria is currently hard pressed for economic growth brought on by a fall in oil production.
The economy contracted further by 2.24% in the third quarter of 2016, stretching negative growth from 0.36% and 2.06% in the first and second consecutive quarters of the year.
The country is forecast by the International Monetary Fund (IMF) to contract by 1.7 percent full year.
But latest figures from the NBS indicate that Nigerians are increasingly leveraging digital payments platforms for their daily transactions.
The volume of ATM transactions in Nigeria rose 15% to 157.1 million in the third quarter of 2016 from 136.3 million in second quarter 2016 while value rose 9% to N1.2 trillion in third quarter from N1.1 trillion in second quarter 2016.
The volume of POS transactions rose 18.5% to 16.0 million in third quarter 2016 from 13.5 million in second quarter, while value rose to N0.18 trillion in third quarter from N0.16 trillion in second quarter. Mobile payments also rose 25.5% to 10.8 million in the third quarter 2016 from 8.6 million in second quarter, while value rose to N0.22 trillion from N0.16 trillion within the same period
Volume of internet transactions rose 34.6% to 3.5 million in third quarter 2016 from 2.6 million in third quarter, while value rose to N0.30 trillion in from N0.26 trillion within the same period
Gbenro Dara, managing director of Efritin.com, an ecommerce platform, told BusinessDay that it was a combination of consumer needs; governments’ desire to boost financial inclusion and reduce the use of cash which encourages the adoption of electronic payment.
Only 44 percent of Nigerians are financially included. This compares with Kenya’s 75% inclusion and South Africa’s 70%. However, Nigeria’s Central Bank targets to grow inclusion to 80 percent by 2020.
“The growth in digital payments can be attributed to the fact that e-payment is effectively being integrated into retail business,” Dada said.
“Despite the slowdown in the economy, retail continues to grow, driven primarily by an emerging middle class who are increasingly comfortable with online payment options. Also, the growth is driven by mobile and internet penetration driven by Smartphone sales. We find that more people are upgrading their phones to smartphones and transacting on them via various payment options. Merchants who did not offer these various payment options are also forced now to provide these, or risk losing their customers to competition.”
The rapid spread of mobile phones in Nigeria can be the game changer that makes this opportunity possible, according to Dada, in response to questions on the feasibility of Mckinsey’s findings.
Nigeria is ranked 17th on a list of countries with the highest smartphone penetration, by e-marketer.
The country was said to have 23.1 million smartphones in 2015, a figure projected to increase to 34 million in 2018.
Of the 25 countries profiled by eMarketer, a digital market analytical platform, China leads the table with 574.2 million smartphones out of the 1,914.6 billion smartphone in the world in 2015. US followed China with 184.2 million, while Argentina is the least on the table with 12.6 million smartphones.
In 2014, nearly 80 percent of adults in emerging economies had a mobile phone, while only 55 percent had financial accounts—and mobile phone penetration is growing quickly.
Mobile payments can lower the cost of providing financial services by 80 to 90 percent, enabling providers to serve lower income customers profitably.
The data trail these technologies leave can enable lenders to assess the creditworthiness of borrowers, and can help businesses better manage their finances.
LOLADE AKINMURELE
