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  Late in March, news broke that Bankly, a Nigerian ‘fintech of the unbanked’, had raised $2 million from investors. Commentators said this was good news for the country’s financially excluded. With the wind in its sails, Bankly could reach more people, and bring them into a financial ecosystem driven by digital technology.
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The startup is one of several FinTechs that have received significant backing from investors in recent times. It’s not hard to see why this is happening. A huge, barely tapped market for financial services seems too good an opportunity to pass up. Early movers in this terrain could earn stupendous returns on their investments. But are these FinTechs really reaching the unbanked? Or is the talk of capturing the financially excluded just an effective marketing storyline?

Who Are Nigeria’s Unbanked?

Nigeria does have a large population of people existing outside its formal financial system. As of August 2020, about 43.2 million Nigerians had a Bank Verification Number (BVN). This means that 57% of the country’s adult population—more than 57 million people –are unbanked. These numbers have changed somewhat over time. In 2008, only 21% of the adult population was banked, according to the Enhancing Financial Innovation and Access (EFInA) group. This increased to 36% in 2014, and 39% in 2018. In summary, things have gotten better on this front, at least in percentage terms. But the absolute numbers indicate that we’re still far away from achieving universal coverage for the financially excluded. A good fraction of Nigeria’s 200+ FinTechs have made bridging this gap their main goal. Are they actually achieving this?

What’s Really Happening?

The answer to the question we’ve posed lies in how these FinTechs operate, and in their user data, where such information is available. A survey of Nigeria’s fintech landscape by McKinsey has revealed that companies in the space “are primarily focused on payments and consumer lending.” About 19% cater to SME payments, and 17% cover consumer payments. By contrast, only 2% offer consumer accounts, a basic banking service. Many of these FinTechs require their users to register with a BVN to access their services. The unbanked don’t have BVNs. So they’re excluded from these platforms as well. The demographic of users for these services is also worth looking at. Data for specific companies are hard to come by. But we can rely on a decent proxy: online payments. According to the Nigerian Inter-Bank Settlement System (NIBSS), the majority of online transactions in 2018 and 2019 came from four states—Lagos, Rivers, Ogun, Oyo – and the FCT. Tellingly, these states are home to some of the country’s biggest cities: Lagos, Port Harcourt, Ibadan, and Abuja. And Ogun State has benefited from Lagos’s urbanizing influence. It’s safe to say that the beneficiaries of Nigeria’s fintech revolution are overwhelmingly city dwellers. And most of them are already plugged into the formal banking system. Here’s the takeaway: the unbanked (and, more generally, the financially underserved) aren’t getting full value for the fintech rave…yet.

The Promise Remains Valid

But the impact is being made, especially by companies that utilize local agents or marry traditional finance and modern technology. An obvious example is Paga. With its app, users can send and receive money and pay their bills. The company has thousands of agents across the country that help people in their communities carry out these transactions via the Paga platform. Telcos have also adopted the agent-based model for their mobile money service. Leveraging their nationwide reach, they’re providing bill payment and money receipt and transfer services from neighbourhood booths run by their agents. Bankly, mentioned at the start of this article, is digitizing the traditional thrift collection system. But they’ve begun by enlisting the service of representatives across Nigeria. These agents manage the collections from members of thrift societies. Eventually, members will become part of a digital banking system, and they’ll be able to save money and make transactions online. Fintech remains skewed towards business and consumer payments. But a growing number of startups in the space are reaching out to the financially excluded.

It’s Still Early Days

Contemporary fintech is still in its early stages in Nigeria. As the EFInA’s 2020 report on the sector points out, its economic impact to date remains low, accounting for “only 1.25% of retail banking revenues in 2019.” There’s plenty of room for growth. Perhaps we will eventually see a boom in financial technology that truly benefits rural or semi-urban populations. Hopefully, this comes soon enough for the millions who need it. Featured Image Source: The FinTech Times
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This article was first published on 15th April 2021


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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