The importance of digital financial services for a country like Nigeria which runs a cash-based economy cannot be overemphasized especially at a time when social distancing and contactless transactions is the order of the day.
The urgency of utilizing fintech to keep financial systems functioning and keep people safe has been amplified by the outbreak of the deadly coronavirus.
According to the World Bank, digital financial services, powered by fintech, have the potential to lower costs by maximizing economies of scale, to increase the speed, security and transparency of transactions and to allow for more tailored financial services that serve the poor.
“Fintech is helping governments quickly and securely reach people with cash transfers and other forms of financial assistance and reach businesses with emergency liquidity,” Ceyla Pazarbasioglu, Vice President Equitable Growth, Finance and Institutions, The World Bank Group said.
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For countries to reduce poverty and spur economic growth, Pazarbasioglu said access to affordable financial services is critical as countries with deeper, more developed financial systems enjoy higher economic growth and larger reductions in poverty and income inequality.
The low penetration rate of digital financial service in Nigeria is evident in the long queues that have recently been reported in banks across the country. This is despite the advice of health experts that maintaining social distancing and making contactless transaction can help curtail covid-19 transmission.
‘A cashless economy fueled by a high penetration rate of mobile money like in Kenya would have been a good measure to help curtail the spread of Coronavirus in Nigeria,” a Lagos-based analyst said.
Also, the choice by the Federal and State Governments to use physical locations for distributing the conditional cash palliative to the most economically vulnerable population in Nigeria is considered by analysts as a wasted opportunity that could have helped the country to onboard its 40 million excluded adults.
The 2018 data by EFInA put Nigeria’s financial exclusion rate at 36.8 percent. Meaning the central bank of Nigeria would have to close an exclusion gap of 16.8 percent if it’s going to achieve its 80 percent inclusion target of 2020.
The world Bank has however identified four stages for the development of digital financial services and they include basic access to transaction accounts, more intensive usage of transactions account of digital payments, moving beyond payments to other DFS products (e.g., credit and insurance), and stage four being- widespread adoption and usage of DSF by individuals and MSMEs
For a country like Nigeria to achieve the aforementioned, the 2020 digital financial service report released recently by the World Bank recommended the following:
Enable financial and digital infrastructures
To achieve this, the Washington-based lender said it would have to- foster good penetration of mobile phones and connectivity, well-functioning payment systems and enabling interoperability, establish credit infrastructure and enhance coverage of credit relevance data support universal broadband connectivity and target high penetration of smartphones.
Ancillary government support systems
Enhancing financial management system to support the intensive shift of G2P payments to digital as well as establishing and expanding coverage of digital ID will help Nigeria to achieve a more inclusive digital financial industry. “Enable automated access to digitized Government data platforms,” the World Bank recommended.
Conducive legal and regulatory frameworks
A digital financial services policy that allows non-bank insurance of e-money, implementation of simplified CDD and enabling the development of widespread agent network will help expand access, the World Bank said.
“Adopt payment systems law, enable non-banks access to payment systems, robust consumer protection framework in place, develop and implement competition policy, establish a comprehensive regulatory framework for DFS providers and adopt a comprehensive legal measure for data protection and privacy,” the World Bank recommended.
