In 2019, International Monetary Fund (IMF) Managing Director, Christine Lagarde, warned that tech companies that utilize big data and AI would disrupt the financial landscape. Fast-forward to 2023, an overwhelming surge of financial technology (FINTECH) driven services has continued to gain momentum in the financial sectors of the Nigerian and global economy.
Statistics indicate that between 2018 and 2021, Fintech start-ups increased from 12,131 to 26,346. In Nigeria, between 2019 and 2021, a fintech provider recorded an increase from 8,000 to 50,000 agents. This is notwithstanding the continual deployment of technology and innovation to the traditional banking system in Nigeria to enhance financial service delivery.
Raison d’etre for Fintech in Nigeria
One unassailable enhancement of FINTECH worldwide is the global trend of ease of doing things with the aid of technology. There are also other factors that account for the rise of FINTECH in Nigeria.
An outstanding factor is the striking population of Nigeria, a country of well over 200 million people, with younger persons making up a large part of the population. This young population of Nigeria plays an active role in the rise of FINTECH in the country, with an increase in the use of smartphones, a major necessity for the application of FINTECH solutions.
The rise in young entrepreneurs, especially start-ups, and innovation in products and services delivery in Nigeria has equally contributed to FINTECH’s growth in Nigeria.
One of the shortcomings is accessibility to bank services, borne out of many reasons. The insecurity plaguing Nigeria, rising from terrorist activities, sectional agitations, and robbery, has denied many Nigerians access to bank services, especially those residing in the rural areas.
The COVID-19 pandemic changed the dynamic of many sectors, pushing technology utilisation to the forefront. This influenced the financial industry as well. Access to financial services during the COVID-19 pandemic was greatly hampered, which left several customers stranded.
The recent Naira redesign policy is another incident that brought FINTECH in Nigeria to the limelight. The policy prompted inaccessibility to cash required to execute daily cash-based transactions. The difficulty in carrying out these transactions drove people to use banks’ digital and mobile banking systems for petty transactions. The unexpected surge in digital banking overwhelmed many banks, leading to unreliable and irregular service delivery.
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To make up for this shortcoming emanating from bank services, many individuals and business owners turned to using FINTECH-enabled services to access financial services as they proved to be more efficient and reliable. For example, Moniepoint and O-pay became household names, especially among petty traders and informal business owners that comprise Nigeria’s informal economy.
Over the years, there has been distrust among bank customers over unauthorized withdrawals and loss of funds saved with the banks. Additionally, the several charges imposed by the bank on its customers are overbearing. All of these continue to water down the relevance of the conventional banking industry in Nigeria.
FINTECH seems to provide solutions to the limitations faced by banks in providing effective financial services. Its resiliency and survival of several challenges, which posed great threats to banks in Nigeria, reiterate its flexibility and efficiency in providing financial services that conform to evolving demands.
The ease and flexibility of financial services provided by FINTECH have promoted inclusivity, ensuring access to financial services to every class of persons, especially the underserved populace, as persons can now easily open a financial account, gain access to loans, insurance services, and make savings, etc., at any location in real-time. These services will ordinarily be onerous to access with a conventional banking system.
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This additionally provides an escape from the attributed bureaucracy and complexity synonymous with accessing financial services from banks in Nigeria. In addition to its credit, FINTECH has helped to unravel and demystify financial constraints such as the rigours of creditworthiness, collateral, bottleneck, administrative red-tapism, etc.
As efficient as FINTECH appears to be, some challenges pose a threat to its sustainability if not addressed promptly.
There are complaints of violation of rights of direct users and third parties by FINTECH service providers. Specifically, the breach of privacy has become a significant problem. Recently the Federal Government of Nigeria has been making frantic efforts to regulate this threat, especially the one posed by loan apps. This effort aligns with the recent Google policy on protecting data privacy.
There is concern about the inability to access the physical facility of FINTECH companies, unlike what is obtainable with banks in Nigeria that have various branches. The inability to access its physical facility in case of complaints remains a concern to potential subscribers. However, a wide spread of agents nationwide has doused the fear of users and potential subscribers.
Although the need for the internet and the use of smartphones is essential, some people in Nigeria still do not have internet and smartphones. This lack of internet penetration poses a limitation to the level of financial services that can be accessed by persons without these infrastructures.
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The recent setbacks in the cryptocurrency sector have raised an eye on the sustainability and potency of financial technology. Also, the reduction of funding by investors may hamper the growth and effective service delivery of FINTECH in Nigeria. The incident of fund reduction is not peculiar to the sector, as other tech sectors are still reeling from the effects of the COVID-19 pandemic.
On the other hand, fund reduction can serve as an advantage to banks, the main competitor of FINTECHs, who have wider access to funds and can use these funds to continue to improve the delivery of their services.
On the brighter side, the intervention fund by CBN and the reduction of interest rate, combined with the various tax incentives available to start-up businesses in Nigeria, may have a significant cushion effect for companies facing this challenge.
An existential threat to FINTECH companies that give out loans is the failure to pay some of these loans. Nonetheless, the products will invariably create a big pool of data which gives insight into customers’ lending history and creditworthiness.
It is not unusual for novel innovations like FINTECHs to encounter challenges, which it will continue to resolve and improve as it grows. Some of the challenges highlighted above are gradually getting resolved, while others may take longer.
Needless to say, these challenges are not grave to undermine the benefits of FINTECHs.
FINTECH continues to define its significance and effectiveness in providing a better financial service in Nigeria. Nigeria is one of the four (4) countries at the fore of FINTECH in Africa. Looking at its achievement so far, these startups seem like a competitor of banks, which may cause an unhealthy rivalry. The flexibility, minimal cost, and convenience in the operation of FINTECH services, coupled with its reliability and resilience, drive home its distinct features over conventional banks.
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Unprecedented technology innovation and various policies in Nigeria, especially the cashless policy and various laws, continue to place FINTECH in a better light in Nigeria.
For FINTECH to utilize its full potential, a collaboration/synergy with existing banks will be more beneficial to all than being its formidable rival.
Without a doubt, the relevance of FINTECH in Nigeria seems to be visible now. It continues to gain ground in Nigeria, recording milestones with all its achievements; if its challenges are not properly addressed, it may become a limitation to its growth and general acceptability. FINTECH’s sustainability is far more important than its present relevance; continuous improvement should be its focus to meet evolving financial needs.
As observed earlier, if FINTECH is properly improved, it will improve the dynamic of financial service delivery in Nigeria for all and sundry, just as its distinctive features will directly enhance productivity and ultimately reduce poverty.
This article was contributed by Folasade Abiodun, LLM
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