The past decade has seen Nigerian fintechs disrupt the operations of traditional banks by offering digital-driven products and services. But to truly win, fintechs must embrace partnerships.
There is a running joke that the phrase “banking the unbanked” should be permanently erased from techspeak. The reason isn’t far-fetched. Over the years, many Nigerian fintech startups have sprung up to disrupt traditional banking known for its unsteady infrastructure. But for all the innovation and technology-driven convenience that digital banks have brought, some have questioned whether these upstarts are solving the problem of financial inclusion. According to this KPMG report, more than one in 3 Nigerian adults are financially excluded. Bar a few fintechs that appear to have hacked the agency banking model, most digital banks are banking the already banked.
At the Development Bank of Nigeria (DBN)’s Techpreneur 2023 Summit held on Tuesday, Olu Akanmu, president and co-CEO of OPay Nigeria, stated that there are more Nigerian fintechs focused on providing services for existing bank customers instead of targeting the unbanked population.
“There is a greater purpose fintechs have to fulfill to drive more extended financial inclusion, not just to chase the customers of incumbent banks even when they might have been underserved,” he said in his keynote address.
To fully grasp the performance of Nigeria’s financial inclusion journey, let’s compare it with Kenya. Per the 2021 FinAccess Household Survey, financial inclusion in Kenya stood at 83% in 2019, with banks providing 44%, while non-banks—largely fintechs—contributed 39%. But in Nigeria, financial inclusion stood at 51% in 2020, according to the EFInA Access to Financial Services Survey
Partnerships as the way forward
Today, fintechs and banks are converging in the business of building platforms and offering financial services. While banks are fortifying their technology to retain customers, fintechs aren’t resting on their oars to make stronger inroads into the market. Industry experts have since made a case for collaboration between both players.
Akanmu, whose company helped Nigerians deal with a cash crunch in early 2023, argued that the digital innovations of fintechs when combined with the partnerships could expand market access and reach and scale at no cost. “With deliberate partnerships for a bigger purpose to create more value, the customers and the businesses will benefit,” he said.
Speaking during a panel session themed, ‘Promoting Innovation and Sustainable Partnerships’, Kristin Wilson, Strategy Lead at Spurt, reiterated Akanmu’s point on the essence of partnerships. “It is such a critical aspect of what makes it possible for early-stage tech businesses to thrive. It is important for businesses to continuously invest in partnerships that allow them to access customers,” she said.
But partnerships are a tricky business. As this TechCabal article argues, Nigerian banks want fintech collaborations, but for specific and unique needs. “In essence, the future of fintech-bank relationships rests on meeting at a point of common needs, where original value is exchanged at mutually beneficial costs,” it stated.
Akanmu admitted that this is a contentious issue, “especially for startups that sometimes feel that they are getting the short end of the stick”. However, he urged startups to evaluate the opportunity cost of connecting with bigger platforms (read: banks) to expand their reach and market access.
Another important issue tied to partnerships is the question of regulation. Nigerian fintechs are encouraged to have proactive management of regulatory and compliance issues. For example, in May, the Central Bank of Nigeria revoked the operating licenses of more than a hundred financial institutions—including fintechs—for non-compliance. But Akanmu noted that tech players should have an open mind to regulations: “Regulators see wider and broader than our individual businesses in terms of the macro effects of our innovations and their unintended consequences.”