While banking in Nigeria remains an attractive sector, with over $9 billion in value pools, the vast majority of consumers are underserved as about 60 million Nigerians do not have a bank account.
With high financial exclusion rate, especially in rural areas, due to issues of affordability, and lack of access to services, Nigeria’s financial inclusion gap created an opening that fintechs have been quick to take advantage of.
Many of Nigeria’s Fintech companies stepped up to develop enhanced propositions across the value chain to address pain points in affordable payments, quick loans, and flexible savings and investments.
Fintechs have led with innovation in product development, designing useful, convenient and affordable financial products and services for millions of Nigerians, according to the ‘Harnessing Nigeria’s Fintech potential’ report by Mckinsey & Company.
“In the process, they have created a multiplier effect across the economy, unlocking new business models beyond financial services, fueling the growth of e-commerce, increasing the STEM talent pipeline, and moving the needle on progress towards the country’s development goals,” Tunde Olanrewaju, a Senior Partner with Mckinsey & Company London said.
Despite the impressive gains of Nigeria’s Fintech industry, the recent report by the New York-based consulting firm says the impact created by the young sector is still only a fraction of its potential.
The business model of most fintech companies that only targets early adopters, individuals who are already making use of banking and other financial services and are willing to try out new ones is one of the reasons why Nigeria’s Fintech industry has not reached its full potential.
“They have not had the capacity—or appetite—to introduce new customers to the banking system,” Eyitope Kola-oyeneyin, a Partner in Mckinsey & Company’s Lagos office said.
According to her, “one of the key factors preventing the sector from achieving its full potential has been that, to date, fintech has had limited appetite to develop commercially viable use cases to serve the mass-market segment owing to the significant investment required.”
Mckinsey & Company believes opportunity knocks for those who can find ways to deliver new and better services to the underserved and unbanked.
Industry analysts say the narrative is changing, especially as a result of the impact of the COVID-19 crisis.
With consumers turning to digital options during the lockdown and some government using digital channels to roll out aid packages, the analysts said it has become clear that there is an untapped opportunity to convert the underbanked and unbanked to fintech solutions and unlock the economic and social benefits that this promises.
But, Nigeria still faces a significant financial-inclusion challenge, with more than 36 percent of the country’s population of around 200 million people excluded from the formal financial sector.
While Nigeria’s Fintech industry accounted for only around 1.25 percent of retail banking revenues in 2019, Mckinsey & Company believes the industry has significant potential for further growth.
Fintech investments in Nigeria grew to approximately $460 million in 2019, the majority of which was from external investors, this was only a small fraction of the $36 billion invested in fintech globally.
“We are seeing investment in the Fintech space but hasn’t been driven by local investors,” Lexi Novitske, managing partner, Acuity Ventures said, adding that “even though there’s a lot of local capital in the ecosystem, they are not yet patronizing this opportunity and they are missing out.”
According to a recent survey by Mckinsey & Company, Fintechs in Nigeria can create an impact in three broad dimensions: through stimulating economic activity, by creating a multiplier effect, and by driving progress towards development goals.
“Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country. The sector can unlock economic benefit by driving increased productivity, capital, and labour hours through digitization of financial services,” Olanrewaju said.
Olanrewaju believes that increase fintech activity could also indirectly grow the digital economy by, for example, providing business-to-consumer (B2C) marketplace tools such as payment integration on social media platforms, and further enabling the Nigerian e-commerce industry.
Also, Mckinsey believes fintech can support Nigeria’s human capital development by driving financial inclusion and literacy through the provision of accessible and affordable financial products that are innovative and cater to the needs of unbanked and underserved segments of the population across culture, gender, and geography.