FinTechs Solve Nigeria’s Financial Inclusion Challenge

When it comes to tackling poverty and improving the quality of life of the world’s poor and excluded communities, the concept of financial inclusion has been used by governments, nongovernmental organizations (NGOs) and businesses as an index of people’s ability to access banking services and financial tools.

In an increasingly digital world, people whose only payment and savings options are cash-based now find themselves locked out of entire economies, and denied opportunities to save, invest, borrow and make purchases.

In the African context, the need to tackle problems inherent to cash-based economies has fueled an explosion of FinTechs looking to remove the technological, infrastructural and cultural hurdles to financial inclusion, often disrupting the traditional banking sector with cheaper, seamless alternative payment methods.

Related: Venture Capital Firms Invested Record $5.2B in African Startups in 2021

And in terms of countries, Nigeria, one of Africa’s biggest economies, stands out.

Home to some of the biggest and most well-known African FinTechs, Nigeria now plays a central role in Africa’s payment ecosystem. Of the eight African startups valued at over $1 billion last year, only two — Fawry and Wave — do not have their roots in the country.

See also: Andela Unicorn Status Increases Buzz Around Africa’s Startup Scene

In an interview with PYMNTS last year, Mitchell Elegbe, the CEO of Nigeria-based FinTech unicorn Interswitch, spoke to PYMNTS about the company’s partnership with OkHi to launch Nigeria’s first digital address verification service.

As Elegbe explained, because of Nigeria’s poor addressing system and how it limits last-mile verification and know your customer (KYC) processes, having an OkHi address provides countless opportunities to customers, enabling them to be more financially included through access to larger wallets, faster loans and a better delivery service for goods.

Watch Elegbe’s Interview: Blockchain Technology Could Solve Many Challenges in Africa’s Payments Space

Agency Banking

Agency banking has gained popularity in the West African nation due to the lack of a strong banking system, playing a significant role in closing the financial inclusion gap.

Equipped with point of sale (POS) machines, authorized agents or merchants are able to reach people in remote areas where banking activities are nonexistent, making the nonbank-led model one of the most popular, cost-effective services in the local banking industry today.

In a recent interview with PYMNTS, Titilola Shogaolu, head of financial inclusion at Interswitch, stressed the importance of the agency banking model and the key role it’s played in transforming the lives of these agents who have seen an increase in retail store foot traffic and the positive impact it has had on their income and bottom lines.

Read more: Interswitch: Infrastructure Alone Won’t Fix Nigeria’s Un- and Underbanked Problem

“They’ve become socially relevant within their community because they are now the go-to person for all financial services needs that people in their local communities have,” Shogaolu told PYMNTS in an interview.

“And beyond financial services transactions, they also tend to offer other non-financial services transactions at their location so invariably, they become a one-stop shop [for all their customers’ needs],” she added.

But despite the advantages of agency banking, it does not meet all the needs of small- to medium-sized businesses (SMBs), especially those in remote areas that are embracing digital services for the first time.

As a result, Tosin Eniolorunda, CEO of Nigerian FinTech firm TeamApt, told PYMNTS that they’ve had to go the extra mile to provide a banking solution that combines digital tools with much needed last-mile service delivery to fill a gap in the market for those SMBs.

Related: Hybrid Banking Model Bridges ‘Much Needed’ Last-Mile Service Delivery Gap for Nigeria’s SMEs

“At the root of the solution is a bank account, but the direction [we’re taking], however, is not just to open an account. It’s more oriented towards running your business, making payments, and getting access to capital,” Eniolorunda explained.

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