Financial Inclusion: The Nigerian Payment Industry in '22. What to Expect in 2023 

Despite significant progress in financial inclusion in Sub-Saharan Africa over the last decade, according to BPC’s Digital Banking in Africa report released on March 17, 2022, over 57 percent of its more than 1.1 billion population, which is also the world’s youngest overall population, with a median age of under 19 years, remains unbanked (do not hold any kind of bank account, including mobile money accounts).

This explains why, over time, the fintech sector has continued to dominate the African tech ecosystem in terms of the number of startups, employees, and overall tech funding.

Again in 2022, 200 African fintech startups received a whopping $1.6 billion across 240 announced equity fundraises from the total $4.84 billion raised by African tech startups in 2022, with the majority of the funding raised in the first quarter ($1.9 billion) and second quarter ($1.3 billion), totaling $3.2 billion in H1. The $1.6 billion raised by fintech represents an average of 20 deals and $130 million raised per month, with payments and lending leading the largest fintech equity fundraising rounds of the year.

Also, Western Africa came out on top in terms of regions, despite a small decrease YoY (-12%, from $2 billion in 2021 to $1.8 billion in 2022), thanks to another stellar performance from Nigeria, which led the continent’s tech startups funding and fintech funding with $1.2 billion, representing 68% of the total sum raised by Western African fintech tech startups in 2022. Kenyan fintech startups came in second with $1.1 billion in funding, while Egypt took third with $820 million.

Flutterwave, Africa’s most valuable fintech startup, raised a $250 million Series D round, the largest funding announcement in 2022, and Interswitch, another African fintech giant, secured a $110 million deal in a joint venture deal with LeapFrog Investments and Tana Africa Capital to expand its presence across Africa with its digital payment services.

Moove, a Nigerian mobility fintech, Uber’s largest vehicle supply partner in Europe, the Middle East, and Africa, also raised $105 million in new Series A2 funding to scale across its current markets and expand into new markets outside of Africa.

Nigerian Fintech Efforts at Driving Financial Inclusion

One might wonder how all of these funding and fintech disruptions in Africa’s largest economy translate into financial inclusion and, by extension, the much-discussed CBN’s cashless policy. According to Statista, as of 2022, most fintech startups in Nigeria specialized in payments and remittances, which is central to increasing financial inclusion.

Fintech startups have aided in the acceleration of financial inclusion efforts in Nigeria over the years. For instance, active bank accounts in Nigeria increased to 133.5 million in 2021 from 114.8 million in 2020, according to the data released by the Nigeria Inter-Bank Settlement System (NIBSS). This means that a total of 18.7 million new bank accounts were opened in 2021, bringing Nigeria’s total banked population to 63% and accelerating the CBN’s financial inclusion strategy by 20%.

Since 2016, the sector has grown significantly with the introduction of platforms such as Paystack, Flutterwave, PiggyVest, Bamboo, and others, as well as digital banks such as Kuda. With over 200 companies in the system, Nigeria’s financial technology sector is a thriving and particularly competitive one. These companies provide a variety of financial services such as loans, capital for SMEs, investment options, and payment convenience.

Altogether, the Cashless Policy introduced by the Central Bank in 2012, aimed at reducing the amount of cash in circulation while encouraging the use of electronic payments, has been the driving force behind Nigeria’s recent Fintech explosion. Furthermore, the covid-19 pandemic compelled many businesses to improvise new ways of transacting with their customers that did not require physical meetings. As a result, technology via digital means became the only viable solution to proxy transactions. As a result, local banking systems had no choice but to conform to and employ fintech-cashless means of servicing their operations with customers while retaining the traditional banking process.

Fintech, Banking the Unbanked and Underbanked

Deposit Money Banks (DMBs):

In Nigeria today, there are 21 deposit money banks serving over 20 million clients through an interconnected web of over 6,000 branches and 10,000 ATMs. DMBs target the unbanked for deposit money bank funding through savings, which generates profit for service providers such as commercial banks and other institutions geared toward financial inclusion.

Through Telecommunications Companies: Like M-Pesa in East Africa, Nigerian telecommunication companies like MTN, Globacom, and Airtel have in the recent past launched their various fintech products to tap into the massive opportunity that exists in the largely untapped financial payments industry in the country.

Public Institutions:

Participation in Financial Inclusion by public institutions has also contributed to banks helping the unbanked by utilizing strategic fintech inventions to conduct business with their clients. To name a few, public institutions such as the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), the National Identity Management Commission (NIMC), JAMB, the Nigerian Immigration Service (NIS), the Nigeria Postal Service (NIPOST), and the Nigerian Road Safety Corps have now embraced the digital payment option in their day-to-day dealings with members of the public.

Fintech has also contributed to the banking sector: Customers can now conduct transactions from the comfort of their homes, as opposed to the time-consuming and physically demanding traditional method. Customers can now check account balances, transfer funds, make payments, open accounts, block debit cards, and do other things from their mobile devices at their leisure.

Furthermore, fintech devices that use e-wallets or digital wallets have ushered in a new era in which users’ information can be securely stored when making payments without fear of their passwords being stolen. Customers in rural areas have benefited from this because e-wallets do not necessarily require a bank account.

Local money lending agents also use fintech innovations, such as point of sale (POS) machines, to bring banking to bankless areas and thus help to reduce Nigeria’s unbanked population.

Although there are more grounds to cover in the Nigerian financial sector, fintech’s contribution to both Nigerian financial inclusion and cashless policies can not be over emphasized as its impact is vividly obvious and evident for all to see.