Trust: A drive for financial inclusion in the fintech industry

By Enoch Deyon Kantan

After the Global Financial Crises (GFC), only 22 percent of American Financial Institutions were deemed trusted. Since then, trust in the financial sector has increased to 33 percent in 2019, and over 50 percent in 2023. Despite this increase, the financial sector world – wide remains the least trusted sector. If the Americans least – trusted the financial sector, how much more is the Africans in Sub-Sahara Africa?

As EFInA survey report reveals, Nigeria’s formal financial inclusion improved to 64 percent in 2023 from 56 percent in 2020, fueled by growth in the banking population and non – bank financial institutions. However, financial exclusion persisted due to poverty and difficulty in accessing services in remote areas.

Due to lack of physical infrastructure in their respective regions from the commercial banks, coupled with cynicism and insecurities in the FinTech Industry, some Nigerians are financially excluded.

As a young startup founder in the FinTech industry, who knows the power of financial inclusion with the impact of the Fintech industry, Nigeria’s financial inclusion landscape has transformed significantly from 2016 to 2023, with formal financial service usage growing from 30 percent to 57 percent. The adoption of financial service agents has also skyrocketed, from 4.4 percent in 2018 to 54 percent in 2023, yet low levels of awareness, limited understanding of product offerings continue to hamper trust in other formal (non-bank) products. I will highlight the Key Drivers of Trust for Financial Inclusion comes 2024:

Of what importance is Trust?

Trust in financial Institutions is widely believed to be important for financial stability. With low trust (a 1 out of 10) customers may decide not to become customers of a financial institution. Distrustful people are less likely to have a savings account than trustful people and have stronger liquidity preferences. Report also reveals that Nigerians continue to rely on physical financial coping mechanisms to meet their goals, address liquidity distress and cope with shocks. Both active physical mechanisms, such as taking on additional work and cutting back on expenses, and passive physical mechanisms, like doing nothing, remain prevalent choices.

What are the drivers of Trust in the financial institutions?

We can categorise different drivers of trust into five groups: Economic Factors (Like Financial Crises), Behavior and Characteristics of Financial Institutions, Consumer Characteristics (like demographic characteristics, their financial literacy, and their economic and political views).

Economic Factors: Trust here moves procyclically . The procyclicality of trust is confirmed by a cross-country analysis for 98 countries: Countries with the largest rise in unemployment also experienced a dramatic decline of trust in financial institutions and banks. The link is strongest in the Organisation for Economic Co-operation and Development (OECD) countries. With the EFInA report of 27 percent Nigerians considered “Financially Healthy” means that Nigeria is expressing a dramatic decline of trust in the Financial Institutions. End-users’ views of general economic situation, their own financial situation and the stability of prices are most important in explaining trust. Financial crises may not only have a direct impact on trust, it can also change the (effect of other) drivers of trust and the extent to which trust matters for financial decisions. For example, The Naira redesign policy advanced digital finance but had broad negative impacts. Businesses and households saw more harm than good. About 70 percent of entrepreneurs reported setbacks, with losses in revenue and market disruptions which hamper trust in the financial institutions. Despite 45 percent of Nigerians used Digital Financial Services in the past 12 months, up from 34 percent in 2020, yet cynicism in the digital financial services persisted. At Softawallet, we will work together with the Government in 2024 to improve the economy by bettering our services and making it swift, reliable and more of customers satisfactory.

Behaviour and characteristics of financial institutions:

Trust in Financial Institutions depends on the behaviour and characteristics of these institutions. Starting with behavior, various studies show that prudent behavior, which is characterised by long-term focus – taking  into account the interest of all its stakeholders – as opposed to short – term profit maximisation, has a positive effect on end-users trust. For example, the big sharks in the FinTech industry have demonstrated high level of trust coupled with high integrity, competence, stability and benevolence. We the startups can learn from their consistency characterized on long-term focus – taking, rather than the short – term profit maximisation sharks that go oblivion.

Softawallet will strengthen her transparency, competence, consistency, stability and integrity with thorough legal backings in 2024 and beyond.

Consumer Characteristics: Apart from demographic variables like age and gender, three characteristics of people have been considered potential drivers of trust in the financial institutions (aside from Financial Crises earlier discussed) financial literacy, political and economic values.

Financial Literacy argues that end – users with more knowledge will be more trustful towards their own financial institution than less knowledgeable end – users. Knowledgeable end-users have better ability to evaluate information and are likely to make better decisions about which service provider to choose. The lack of knowledge may lead to distrust from non-knowledgeable end-users.

Trust in Fintech industry is measured on information perhaps information source. Access to the internet, social media, television, or newspaper may foster trust in service providers because financial institutions use these communication channels to provide information on their products and because authorities use these particular media to disseminate views that boast confidence in the financial system. A significant proportion of formally served Nigerians face challenges related to fraud incidence, poor service, high banking costs, and a lack of clarity in financial information.

Political and Economic values find that people with pro-market economic views i.e individuals who favour hard work and lower government ownership and think that larger income differences are needed as incentives for individual effort – exhibit higher trust than people with negative attitudes towards the market.

At Softawallet, regarding political views, we’ll find relatively high trust levels for individuals who place importance on wealth, on helping society and with greater preference for democracy, individuals and environmental concerns. Also, we won’t relent in digital literacy for youths in expanding our tentacles for Financial Inclusions.

Enoch Deyon Kantan is the Founder of Softawallet Financial Services