Experts decry technology costs of Nigeria’s financial inclusion drive

Ajibola Awojobi, the chief executive officer of BorderPal has said fintech founders are facing a significant barrier of financial cost of technological requirements for a payment solution provider.

Ajibola highlighted the relatively low number of fintech companies in Nigeria and by extension, Africa. He noted that in the United States, with its about 320 million population, there were just over 10,000 fintech companies. However, in Africa, with an over 1.2 billion population, there were less than 2,000 Fintech firms.

He said, “There are numerous challenges for founders in Nigeria and Africa. They include licensing hurdles, high costs of customer acquisition, limited digitization, infrastructure deficits, and IT challenges.”

“Africa has over a billion people, with 200 million in Nigeria alone. Despite this vast opportunity, only a small number of founders are trying to address it. The result? Sky-high customer acquisition costs often drive payment companies and similar ventures out of business before they can gain traction.”

With over $1.2 billion raised in funding for Nigerian Fintechs since 2022, the Nigerian fintech space has led the financial inclusion drive in the African continent. However, despite the progress made, there has been a barrage of fintech closures. In 2023, nine fintech startups that had raised over $70 million since 2021 shut down, with some of them citing “funding challenges.”

In the tech space, the operational costs of a fintech company are much higher than that of an average company, as they deal with people’s money. This was the take of Dami Odejimi, a software engineer with one of Nigeria’s telecommunications giants.

He noted, “One major source of cost is hosting infrastructure which refers to their servers. The providers of these services are majorly software-as-a-service (SaaS) companies, and sometimes these companies have large clients, they need to acquire individual servers.”

“Some use AWS, while others rely on on-premise servers. Essentially, hosting, infrastructure, and all the tools required to build and maintain the product are paid for in USD, and these costs are significantly high.”

“When a product starts to attract thousands or even millions of users, the cost of building, maintaining, securing, and auditing the code increases significantly. The talent required to handle these responsibilities doesn’t come cheap. Given that it involves people’s money, there’s no room for trial and error—the process must be airtight.” Odejimi noted.

Amidst the backdrop of some of these financial constraints, comes BorderPal. According to Ajibola, BorderPal helps to offer a lifeline to Africa’s fintech founders by providing a ramp over critical barriers like technology, licensing, and regulatory compliance.

He noted, “We provide a robust infrastructure enabling anyone—be it a seasoned entrepreneur or a first-time founder—to launch a global payment company in just 72 hours.”

Apart from the technological barriers, on the regulatory side, acquiring licenses like International Money Transfer Operator (IMTO) can cost billions of Naira. Financial compliance requirements such as Know Your Customer (KYC) and Know Your Business (KYB) are stringent and resource-intensive. To help with some of these challenges, BorderPal operates on a shared infrastructure model. The platform integrates with licensed financial institutions, allowing startups to leverage existing licenses while maintaining compliance with local and international regulations.

In 2008, Nigeria had a financial exclusion rate of 53per cent, and this figure dropped to 46. per cent in 2010. However, according to a survey conducted in 2023, the financial exclusion rate dropped to per centent in 2023. Nigeria’s push for financial inclusion has been significantly propelled by digital platforms and fintech solutions, which have streamlined access to banking and financial services.

Financial inclusion has been heralded as a pathway to economic empowerment for underserved communities. The Central Bank of Nigeria noted that financial inclusion derives its importance from “the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and improving welfare and general standard of living.”