The persistent low income and the inability of many African countries including Nigeria to stabilise their economy and create an enabling environment for startups, is changing the narrative around financial inclusion.
Many operators have gone from actively pushing unbanked population to merely providing services to mostly existing banking customers who lack access to full financial services. For many of them, the cost of onboarding new customers is not worth the investment.
“As a founder, I have come to the terms that I can’t build for everyone. I just focus on building for customers that can pay,” said Eben Ghanney, founder of WeWire, a fintech company solving cross-border challenges in Africa.
Financial inclusion rate in Nigeria currently stands at 64 percent, according to the Central Bank of Nigeria (CBN). This is below the 70 percent target set for the year 2023. The apex bank also set a target of 95 percent financial inclusion by January 2024.
In essence, Nigeria still has 36 percent of its adult population lacking access to financial services. Experts also point out that even among those considered included, the majority do not have access to full financial services including credit, insurance, wealth management, retirement planning, and many others.
But companies who would usually push to onboard these unbanked populations are not sufficiently incentivised by regulators to solve the problem. Aside from poor economic conditions that many African countries face, the deplorable state of infrastructure makes it difficult for small startups to onboard many people in rural communities where they proliferate.
Some experts suggest that even when the companies manage to reach the unbanked people in these communities, the return on investment – a function of consumer demand – is very low. There is also the fact that some of these excluded people may not actually need the services that startups offer them.
“We have an aggregation of quality customers problems and not a financial inclusion problem. Those you think are excluded need something different. Quality traders and business people in Africa don’t struggle because they are supported by communities of other high-quality people,” said Osaretin Victor Osemota, growth partner at AnD Ventures and Africa partner for Alta Global Ventures.
Also, digital onboarding of excluded people requires internet connectivity which is not widespread in many parts of Africa. In some communities, access to financial services is very limited and where they exist, services are made available through banking agents. The agency banking market is a highly competitive one and demands a lot of resources for any player to survive. This is why big players like Moniepoint, Opay, and Palmpay command a lot of capital.
Despite these huge resources, most of their resources are not going to only onboarding new customers. These players are increasingly competing with traditional banks for the existing over 55 million customers and a few of them are winning.
Asemota says fintech companies has start behaving like banks which only provide services to people they know can pay for their services.
“For fintech to win, it must use the same playbook for markets and look out for those who are on an upwardly mobile trajectory. Fintech isn’t a saviour platform,” Asemota said.
At the moment, it is expected that financial inclusion can only grow when telcos grow their activities in the financial services sector. Why this is critical is because these telecom operators own some of the largest infrastructure. As a result of their infrastructure, telcos are more on ground in nearly every region of the country and communities. While their network signals may be strong in some communities and weak in others, their physical presence nevertheless gives them an advantage to engage excluded.
But pushing the needle in financial inclusion takes more than just having a presence in the unbanked communities. There is the issue of trust that has to be won. People will not give their money to platforms they will not trust. This is perhaps why MTN’s fintech unit MoMo is now laser focused on building its presence in these communities.