With over $9 billion in value pools, the Nigerian banking sector remains an attractive sector for investors. In the first nine months of 2020, Nigeria’s leading banks performed remarkably well as their earning results revealed much lower-than-expected loan loss provisions, coupled with exceptional revenue from the banks’ trading portfolios and mark-to-market gains.
As Africa’s largest economy, Nigeria offers significant opportunities for Fintechs and consumers. While adoption continues to grow among SMEs, young consumers, and affluent segments, digital divide and user experience affect a broader acceptance in the mass-market segment.
According to economist and strategy consultant, Andrew Nevin the future of the financial sector will only favour technology savvy investors. “By 2030, banks will be invisible. Asset management will be almost completely customised. Insurance will become co-creation on risk and not loss mitigation. 90% of transactions would be via mobile, and 99.99% of transactions will be electronic.” A youthful population, increasing smartphone penetration, and a focused regulatory drive are expected to increase financial inclusion and cashless payments – which could be the perfect recipe for a thriving sector.
A proprietary survey revealed that just 18.2% of Nigerians believe that traditional banks are better than Fintechs, while 81% think otherwise. Interestingly, about 65% of those who believe so are young females between 18 – 24 years, highlighting poor user experience and slow responses to complaints.
“The market competition will benefit the customer, but the Fintech companies also have to invest in reaching out to millions of Nigerians who still do not have access to financial services or even a bank account,” said an expert. “To use any of the Fintech services, customers need to have a BVN. Fortunately, the development of agency banking by Telcos and some Fintech brands has helped reach these underserved people to make payments, transfers or remittances. However, these customers cannot access insurance, pensions, or loans, which remains a significant market opportunity for traditional banks.”
Agile, customer-centric organisations and tech-focused companies are positioned to lead the market during a challenging time. Lending is increasing as more Fintechs leverage payment data to determine lending risk more efficiently. Startups such as Carbon and RenMoney have leveraged alternative credit-scoring algorithms successfully to provide instant, unsecured, short-term loans to individuals.
“Nigeria has become a happy hunting ground for Fintech innovation, and both startups and investors are responding positively to the market,” said an expert who manages communication for a Fintech company.
“Considering the population, internet proliferation and the focus on financial inclusion, we are barely scratching the surface.In June 2020, the value of money transfers per mobile apps in Nigeria was over N2.6 trillion (roughly $6.7 billion). Between January and June 2020, the lowest value of mobile app transfers was recorded in April, when the transactions were worth some N1.6 trillion.
“But in Kenya alone, Safaricom recorded a 13.5% increase in M-Pesa customers, to 26.8 million. The value of M-Pesa transactions in Kenya grew by 32.9% year-on-year to KES9.04 trillion ($82 billion), while the volume of M-Pesa transactions grew by 14.9%, to 5.12 billion transactions. What we have in Nigeria are not problems in innovation, but massive improvements on which investors are placing massive bets,” he added.