Since tech startups took the center stage in Africa in the last decade, fintech startups have effortlessly exacted their dominance with superior performance year after year. In 2022 for instance, 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 the year in review, 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.
Furthermore, Nigerian fintech startups which raised $1.2 billion in 2022 equally enjoyed a commanding lead in the nation’s tech startup ecosystem. Although this has not amounted to much considering the number of unbanked and anunder-bankeded Africans according to BPC’s Digital Banking in Africa report released on March 17, 2022, which reveals that over 57% of Africa’s 1.1 billion population, which is also the world’s youngest overall population, with a median age of under 19 years, remains unbanked.
Although fintech startups have aided in the acceleration of financial inclusion efforts in Nigeria over the years with active bank accounts increasing from 114.8 million in 2020 to 133.5 million in 2021, 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%. However, the Nigerian payment industry remains largely untapped despite efforts of platforms such as Paystack, Flutterwave, PiggyVest, Bamboo, and others, as well as digital banks such as Kuda.
Nigerians Resort to E-Payments as Scarcity of New Naira Notes Continues
The recent announcement by the Central Bank of Nigeria (CBN) to introduce redesigned banknotes of N200, N500, and N1, 000 and phase out the old notes, initially by the end of January 2023, now 10th Feb. 2023 has once again emphasized the need for more fintech solutions in the country. As the deadline for the change draws near, there has been a surge in the demand for alternative payment options, highlighting the limitations of the traditional banking system and the need for more innovative financial technology solutions.
Nigeria is pursuing a twin reform in its financial sector: financial inclusion and a 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. Financial inclusion aims to provide access to financial services to the unbanked population, while a cashless policy aims to reduce the use of physical cash and promote electronic payment methods. To achieve these goals, Nigeria needs to create a more innovative and inclusive financial sector that can provide accessible and affordable financial services to everyone.
How Fintech Startups can Drive CBN’s Financial Inclusion and Cashless Policy
Fintech startups and products have the potential to revolutionize the financial sector in Nigeria and provide much-needed solutions to the current challenges faced by the country’s banking system. For example, mobile banking and digital wallets have already made financial services more accessible, particularly in rural areas where traditional banks may not have a physical presence. The use of technology has also made it easier for individuals to send and receive money, make payments, and access loans without the need for physical cash or a bank account.
In addition to improving accessibility, fintech solutions can also promote financial literacy and empower individuals to make informed financial decisions. For example, financial education and financial management tools can help people understand how to manage their finances, reduce their debt, and invest their money wisely. This can be particularly beneficial for the unbanked population, who may not have access to traditional financial services and may not be able to make informed financial decisions.
Moreover, fintech solutions can also promote financial stability and reduce the risk of financial fraud. For example, digital payment systems can provide greater transparency and accountability in transactions, reducing the risk of fraud and money laundering. This can help to create a safer and more secure financial system, reducing the risk of financial instability and improving the overall health of the economy.
How to achieve financial inclusion and a cashless society in Nigeria
Despite the potential benefits of fintech solutions, there are still significant challenges that must be overcome to achieve financial inclusion and cashless society in Nigeria. For example, there is a lack of access to digital infrastructure and internet connectivity, particularly in rural areas. There is also a lack of trust in the security of electronic payment systems, which can deter people from using these systems.
Additionally, there is a need for more investment in the development and implementation of fintech solutions, as well as in the education and training of the workforce. This will help to create a more favorable environment for the growth and development of fintech startups, as well as ensure that the workforce is equipped with the skills and knowledge required to implement and maintain fintech solutions.
In conclusion, the recent announcement by the CBN has once again emphasized the need for more fintech solutions in Nigeria. Fintech startups and products have the potential to revolutionize the financial sector and provide accessible, affordable, and secure financial services to everyone. However, there are still significant challenges that must be overcome to achieve financial inclusion and a cashless society, including access to digital infrastructure, internet connectivity, trust in electronic payment systems, and investment in the development and implementation of fintech solutions. With the right policies and investment, Nigeria can achieve its goals and become a leader in financial innovation and inclusion.