S&P: Fintech to close Nigeria’s financial exclusion gap in 5 years

In a recent interview on CNBC Africa, Samira Mensah, a Credit Analyst at S&P Global Ratings, discussed the transformative role of fintech in closing Nigeria's financial exclusion gap within the next five years. Nigeria has been striving to achieve 95% financial inclusion by leveraging the potential of fintech companies to provide easy, cost-effective, and fast financial solutions to the population. With around 40% of the adult population still excluded from the formal financial system, the adoption of fintech services has become crucial to bridge this gap. Mensah highlighted the favorable terrain in Nigeria, including a young demographic that embraces digital banking and a regulatory environment that supports innovation in the financial sector. Nigerian banks have also adapted by integrating digital channels to expand their reach and cater to a more diverse customer base. These concerted efforts from both fintech firms and traditional banks are expected to drive significant progress in financial inclusion within the next five years. Despite the progress, there are challenges that need to be addressed to realize the full potential of fintech in Nigeria. Issues such as mobile penetration, broadband access, and smartphone usage remain key areas of focus. While mobile penetration in Nigeria is relatively high, smartphone ownership is still limited, with only a third of the population owning smartphones. The rollout of advanced technologies like 5G is expected to further propel fintech innovation and improve access to digital financial services. When discussing the relationship between traditional banks and fintech companies, Mensah emphasized the importance of collaboration. While competition exists, particularly in regulatory compliance and product development, a collaborative approach is seen as more beneficial for both parties. Top-tier banks in Nigeria possess strong balance sheets and competitive positions, making them well-positioned to leverage fintech solutions to enhance their services and revenue streams. The recent introduction of an open banking framework by the Central Bank of Nigeria is expected to facilitate data sharing and deepen collaboration between banks and fintech firms. The conversation also touched on the emergence of cryptocurrency in Nigeria, following the government's decision to lift the ban on crypto transactions in December 2021. The increasing adoption of cryptocurrencies in Nigeria reflects a growing appetite for innovative financial solutions among the population. Cryptocurrency offers simplified transactions, cross-border payments, and opportunities for individuals to earn and save value through digital assets. The recent regulatory changes are anticipated to accelerate institutional and retail adoption of cryptocurrencies in Nigeria, further propelling the evolution of the financial landscape. In conclusion, the prospects for fintech in Nigeria appear promising, with the sector poised to drive significant advancements in financial inclusion and literacy. By embracing collaboration, leveraging technological innovations, and fostering a supportive regulatory environment, Nigeria's financial sector is on track to undergo a transformative shift in the coming years.