Technology can help solve the major problem in the financial services sector of the country. Technology and its role in the growth, expansion, and scaling of various industries make for interesting topics for conversations. This won’t change as technologies emerge and evolve, and their different applications are discovered. To a large extent, one feat technology has managed to attain is to make the globe a level playing field. If nothing else, citizens of third world countries can go into conversations with citizens of first world countries. They’d understand each other too, despite the wide difference in their living standards.
Technology’s role in health, entertainment, and e-commerce is apparent, even if it is not always adopted. However, when it comes to industries with solid regulations and traditional settings, it is harder to accept or implement. In the financial sector of Nigeria, innovators steadily come up with ideas that disrupt and improve the space, but some hurdles see them back.
We will look at technology’s role in the financial sector so far, how COVID and the government have impacted the sector’s growth, and what to expect in years to come.
The Major Challenge in the Nigerian Financial Sector
While it appears that Nigeria leads the fintech ecosystem in Africa, there remains a responsibility to proffer more solutions in the financial sector. The African Unicorn, Flutterwave, which is making waves on the continent, has roots in Nigeria, and other fintech firms also play in the country, with most of them trying to do the same thing: payment solutions. Yet, payment remains an issue. Usually, a customer patronizes many of these companies simultaneously, having different apps on their phone. The plan is to be prepared with another when one fails.
Nigeria’s financial services industry is worth about $9 billion, so there is more to the financial challenges than just payment. Payment services make up just about 25% of the financial sector. Financial inclusion remains the major challenge the sector faces, and the fact remains that fintech will have to provide solutions to the challenge of financial inclusion.
Following the outbreak of COVID-19 and the ensuing restrictions, the increase in online shopping led to the need for more financial solutions. Yet these services were mainly used by the already banked. This makes sense, as many banks boosted their digital presence to improve the experience of their existing customers and maybe attract customers from their competitors. The plan was not to bring the financially excluded or unbanked onboard.
According to Business Day, as of December 2021, of the 106 million adults in Nigeria, 36% are completely financially excluded. This is against the minimum acceptable 20%. Different fintech industries pop up and offer the same services, yet the problem remains. This makes one wonder about the bottlenecks affecting the system, especially those posed by the government.
Technology, the Financial Sector, and the Government’s Part of the Blame
When it comes to technology and the financial services sector, the CBN and the SEC of Nigeria appear to dish out a flow of regulations that do more stifling than regulating. These regulations kill innovations that could help the system and the economy. The governing bodies seem to regulate from a place of fear. Fear of the unknown. However, the truth remains that it is impossible to effectively regulate what you don’t understand.
From the taxes to the bans, the Nigerian government adds a disabling environment to the lack of infrastructure businesses already suffer from. In doing this, they have managed to snuff out solutions that could help. The keys are existent, but the compliance and regulations the government imposes cause a barrier which innovators can’t overcome. The best option would be to allow the innovations to experiment and get a footing, then try to understand and see their plans and compare them with the trend. Then, regulation can follow.
By regulating before understanding, the government stifles innovation and holds back progress. Ecommerce and other financial solutions in the fintech space suffer from over-regulation and few succeed in scaling.
On the issue of financial inclusion, it took the government more than two years to approve the PSB licenses of MTN and Airtel. The PSB licence and the mobile money technology that other African countries have embraced are expected to be game-changing. With the focus on rural areas’ penetration, the unbanked will become financially included.
Until the government sees the relationship between technology and the financial services sector of Nigeria and how it can help not just the sector but many other areas, financial inclusion might remain a pipe dream.