What’s behind Nigeria’s fintech and banking earthquake?

A guest post from CrossFund, a funding platform that helps investors from around the world invest in early stage technology startups from emerging markets.

This year, 42 million Nigerians were estimated to live in areas without access to basic banking services. Yet, at the same time, Nigeria’s fintech and neobanking sectors outpace all other African nations. Connecting these two facts in a few snapshots helps to understand how reforms have come together with private sector ambitions to close this gap in Africa’s most populous nation.

In 2011, Nigeria’s leaders released an ambitious document, the National Financial Inclusion Strategy, which declared a goal of bringing 80% of Nigerians into the financial fold by 2020. Although valiant efforts were made in some areas, the figure was still only around 64% by that year. A number of factors are impeding public and private sector efforts to move the target posts: an economic downturn, deteriorating security in some parts of the country (especially in the north), low literacy and an older distrust of banks and anyone providing financial services all add to the list of obstacles .

So what about the good news?

In the private banking sector, entry-level account options are becoming common, with customers needing only a passport photo and registration number to open an account on the same day. Microfinance has also flourished to serve the large number of unregistered SMEs, including vulnerable women working in the wood trade who can access low-interest loans and credit. Startups from Lagos’ pumping digital ecosystem compete for the attention of industrious Nigerians who move money within, within and outside the nation.

The reason for these quick moves? Competition. Offline banks compete with online and online offerings with each other. Since the pandemic, an even faster digitization of banking and finance has taken place, with Lagos’ lawmakers leading the way via the landmark launch of the e-naira, among other initiatives.

Solving the problem digitally is not just a matter of setting up an online store and waiting for citizens to take advantage: unbanked, underbanked and low-income people may have limited access to or familiarity with connected devices and make little daily use of social Media . Here, African ingenuity has come into play – the simple text message has penetrated enough of society to make its functionality a reliable basis for contracts. Some banks now use texts and USSD (Unstructured Supplementary Service Data) codes that can be entered into a phone, even without an active internet connection, to open accounts, send money, pay bills and even apply for loans. Some startups are finding ways to create and distribute affordable portable POS devices through the market.

The inclusion of a digital banking tool that works even without direct internet access is also an important element of China’s CBDC. The fact that Nigeria has already deployed a working toolkit to match China’s tells you a lot about the scale of the need for solutions, and the prowess of local ingenuity in finding them.

What’s behind Nigeria’s fintech and banking earthquake?

Solving the unbanked problem through ambition and competition

A guest post from CrossFund. CrossFund is a funding platform that helps investors from around the world invest in early stage technology startups from emerging markets.

This year, 42 million Nigerians were estimated to live in areas without access to basic banking services. Yet, at the same time, Nigeria’s fintech and neobanking sectors outpace all other African nations. Connecting these two facts in a few snapshots helps to understand how reforms have come together with private sector ambitions to close this gap in Africa’s most populous nation.

In 2011, Nigeria’s leaders released an ambitious document, the National Financial Inclusion Strategy, which declared a goal of bringing 80% of Nigerians into the financial fold by 2020. Although valiant efforts were made in some areas, the figure was still only around 64% by that year. A number of factors are impeding public and private sector efforts to move the target posts: an economic downturn, deteriorating security in some parts of the country (especially in the north), low literacy and an older distrust of banks and anyone providing financial services all add to the list of obstacles .

So what about the good news?

In the private banking sector, entry-level account options are becoming common, with customers needing only a passport photo and registration number to open an account on the same day. Microfinance has also flourished to serve the large number of unregistered SMEs, including vulnerable women working in the wood trade who can access low-interest loans and credit. Startups from Lagos’ pumping digital ecosystem compete for the attention of industrious Nigerians who move money within, within and outside the nation.

The reason for these quick moves? Competition. Offline banks compete with online and online offerings with each other. Since the pandemic, an even faster digitization of banking and finance has taken place, with Lagos’ lawmakers leading the way via the landmark launch of the e-naira, among other initiatives.

Solving the problem digitally is not just a matter of setting up an online store and waiting for citizens to take advantage: unbanked, underbanked and low-income people may have limited access to or familiarity with connected devices and make little daily use of social Media . Here, African ingenuity has come into play – the simple text message has penetrated enough of society to make its functionality a reliable basis for contracts. Some banks now use texts and USSD (Unstructured Supplementary Service Data) codes that can be entered into a phone, even without an active internet connection, to open accounts, send money, pay bills and even apply for loans. Some startups are finding ways to create and distribute affordable portable POS devices through the market.

The inclusion of a digital banking tool that works even without direct internet access is also an important element of China’s CBDC. The fact that Nigeria has already deployed a working toolkit to match China’s tells you a lot about the scale of the need for solutions, and the prowess of local ingenuity in finding them.