The increasing adoption of technology in Nigeria’s financial industry has led to huge transformation in their service delivery. In this report AMAKA IFEAKANDU looks at the impact of Fintech in the banking sector and development of the country’s economy.
With the advancement in technology, the Nigerian banking industry has adopted different innovations to provide excellent service, meet customers demand and still remain relevant in the global financial system.
This new innovation in the industry has created an opportunity for all financial institutions in the country to work towards installation of efficient electronic devices that will meet the expectation of customers in terms of service.
The recent report showed that Nigeria has the largest fintech market in Africa, with a rapidly growing number of start-ups offering solutions that address the inefficiencies of the traditional banking sector.
Fintech has already transformed how Nigerians access financial services – from mobile payments to lending platforms, the horizon is limitless.
Importance of Fintech
The rapid growth of Nigeria’s fintech sector is a positive force for economic development, financial inclusion and innovation, shaping a more inclusive and digitally empowered economy.
Through their technology-driven approach, Nigerian Fintechs are making financial services accessible to the unbanked and underbanked population.
By leveraging mobile technology and innovative payment solutions, Fintechs are bridging the gap and extending financial services to previously underserved communities.
The use of technology has exposed bank customers to a wealth of opportunities, to promote their safety, convenience whilst ensuring they are at an edge in today’s digital banking world.
Growth of Fintech
The banking sector has seen the increasing use of technology to conduct different transactions.
Globally, fintech solutions, such as mobile payments, digital lending, and blockchain technologies, have revolutionized the delivery and accessibility of financial services. Fintech startups have sprung up across Nigeria in recent years due to the low penetration of traditional banking services, an explosion in smartphone ownership, especially among the local youth, and an increasing number of cashless transactions.
Although the financial industry as a whole constitutes a small part of the national Gross Domestic Products (GDP), Fintech growth is the ultimate reason this share has started to grow in the recent years.
Challenges
Despite Fintech growth in the country, the lack of clear policies and regulations, fragmented legal frameworks, multiple regulators and regulatory complexities have created uncertainty and obstacles for the companies.
While political and regulatory changes are ongoing presently, the fintech sector is still lacking explicit guidelines and regulations covering all scope of their activities. For instance, there is currently no clear legal framework governing new business models and technologies such as blockchain and cryptocurrencies. Uncertain circumstances make the operational landscape risky and obscure both for fintech companies and their customers and the economy in general.
Operators’ views
Operators in the financial industry believe that for the country to achieve the desired level of financing required by the real sector, the window offered by banks in partnership with Fintechs, must be adequately harnessed.
They shared the view that instead of people viewing Fintechs as competitors to traditional banks, banks should embrace them as partners.
Banks offer established customer bases and trust, while Fintechs bring agility and innovation.
So, strategic collaborations will be key in building hybrid solutions that leverage the strength of both sectors, particularly in areas like mobile payments, SME financing, and cross-border transactions.
The partnership between banks and Fintech while conducting business transactions will impact positively in the development of the nation’s economy.
Group Managing Director, United Bank for Africa Plc (UBA), Mr. Oliver Alawuba recently said that “As Nigeria marches towards a $1 trillion economy, the Fintech sector is poised to play a crucial role in expanding financial access, driving innovation, and stimulating competition within the broader financial system.”
Expressing the need for the banking sector, fintech innovators, the real sector, and regulatory institutions to work hand-in-hand to drive this transformation, he said “We are on the cusp of a new era, one that will be defined by innovation, resilience, and sustainable growth. Let us take this opportunity to collectively shape the future, ensuring that the Nigeria of tomorrow is one where prosperity is shared, opportunities abound, and our economy stands as a beacon of growth on the global stage.”
He said according to the 2023 survey of the Enhancing Financial Innovation and Access (EFinA), about 26 per cent of Nigerians remain unbanked or underbanked, adding that Fintechs with their low-cost structures and innovative delivery models, are uniquely positioned to bridge this gap.
He said that beyond the urban centers, Fintechs should focus on creating products tailored to rural populations, leveraging mobile technology and partnerships with microfinance institutions.
He stated that the future of fintech lies in the intelligent use of data, stressing that through advanced analytics and artificial intelligence, fintech companies can create highly personalized services that meet the specific needs of different customer segments.
Citing an example, he said using data to create credit scoring models for individuals and businesses without traditional credit histories will enable more inclusive lending practices.
Managing Director Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan while addressing financial journalists in a conference said that for Nigeria to achieve the goal target of a $1 trillion economy by 2026, there must be a robust collaboration between banks and Fintech companies to drive real sector growth.
He highlighted the critical role of the banking sector’s ongoing recapitalisation in bolstering economic resilience.
Hassan noted that enhancing the capacity of Nigerian banks to absorb economic shocks is crucial for supporting the country’s ambitious growth target.
“Strong and well-capitalised banks are essential to advancing the current administration’s vision of growing Nigeria’s economy to $1 trillion,” he said.
He stressed that banks, in partnership with fintechs, must provide accessible and affordable financing to the real sector, which includes agriculture, manufacturing, and services.
He said notwithstanding the opportunities for growth and the benefit that the system stands to gain through the exploration of Fintechs in the financial services ecosystem, stakeholders must be conscious of the additional risks and complexities that the system may be further exposed, particularly in the area of privacy, personal information, customer protection, transparency, and cyber-security.
This, according to him, has no doubt made regulatory oversight increasingly more complex, adding that financial regulators must evaluate existing rules and consider adoption of new regulations to better address the opportunities and challenges presented by these new technologies.
He, however, stressed on the need for supervisors to understand the interconnection among the various financial services providers and how their policies and actions can affect the efficiency and optimality of the overall financial system.
He noted that many Nigerian banks have focused almost exclusively on large corporations, undeserving small and medium enterprises as well as the financially excluded active poor unlike the Fintechs that have the potential of closing this gap through deployment of innovative financial services, using new technology and reduction of bottlenecks associated with traditional financial institutions.
The Chief Finance Officer (CFO) of Parthian Partners, Mr. Olayinka Arewa said that with today’s industry outlook, “we have banks that compete favourably in spaces; that were hitherto unimaginable. We have banks that operate internationally. This was not so in 2004.”
“In 2004, public sector funds were pulled out systematically from the banks. Banks were made to go after deposits, and that was how retail banking grew. With today’s advancement in technology, and in terms of consumer appetite, the current exercise will be successful.
“Let us not forget that we have a youthful population, with the average age in the Nigerian population today being 19 years. That means we have more youth than the older generation. So, the appetite has changed. Even if we did not want to change, we would have been forced to change.”
According to him, “we have tiers of banks, tiers of microfinance banks, tiers of fintechs. With this recapitalization that has started, I am hopeful, as a country, that what happened in 2004 gave us institutional capacity.”
