Despite best efforts by the Central Bank of Nigeria (CBN) and other agencies to boost inclusion, 38.1 million Nigerians remain financially excluded as of December 2021. This is a shortfall by 16 percentage points from the desired target of a 20 percent exclusion rate target by the apex bank.
The financial institutions have often responded to the CBN’s push to include more Nigerians. Financial inclusion is at the back of policies such as the Shared Agent Network Expansion Facilities (SANEF) that has seen hundreds of thousands of Nigerians employed as mobile banking agents, and the 60 percent loan to deposit ratio that is aimed at increasing credit to small businesses.
But rather than remove frictions, banks and fintech companies mostly attack the challenge from separate angles. This means that the majority of consumers and businesses have been using financial services that are walled off from each other, with their own payment methods and commerce services. As solo players, each financially can only play to their strengths, it also means they can take on more than they can deliver. For instance, companies without the requisite infrastructure to reach more people in the informal sector will be forced to build from scratch which could be capital intensive and not a sustainable strategy for the businesses that are unable to get the talent and resources to maintain the infrastructure.
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This is the opportunity that fintech-as-a-service (FaaS represents. The ultimate goal of fintech-as-a-service is a collaborative approach which is much needed in addressing financial exclusion. To understand FaaS, imagine walking into a shopping mall in Lagos where you are able to pick out every single item you need.
In terms of financial services, to a customer FaaS is like your super app offering you services such as virtual accounts, FX, investment opportunities, collections, bill payments, account balance, among many other services. Businesses can then put these services together on a platform that leverages a global payments infrastructure so that whatever they build can be used around the world.
As the name implies, FaaS is essentially providing financial technology as a service and it requires opening APIs for other players in the financial services markets as a software to be integrated into their system.
For instance, Flutterwave in February announced the kick-off of FaaS vertical. The company’s API can therefore be leveraged by institutions like banks to build new innovations. It is particularly beneficial to tech startups that lack the capacity to build their own infrastructure as well as big financial institutions that want to focus on their core business.
For example, using fintech-as-a-service, a bank can tap into an automation system that allows it to process large requests for loans within stipulated time and in a more efficient manner. This gives them an opportunity to serve, identify and process loans for customers in the informal sector therefore bring financial services to many more that are excluded.
