Will fintechs replace Nigerian banks?

Aug 18, 2022|Yomi Ajayi

I recently got my tires pumped last week at one of the roadside mechanics close to my house. Thanks to my poor planning, I only realised after my car had been fixed that I didn’t have enough cash to pay for the service. A couple of years ago, before the blow-up in the transformation of financial services, that would have been a huge problem, especially in Nigeria, where cash is still king.

Key takeaways:

  1. The Nigerian fintech space has taken off, with various new entrants carrying out four major financial services: Payments, Credit, Savings and Wealth management. 

  2. The payment sub-vertical is the largest and most sophisticated of Nigeria's four core function fintech areas. We have seen unicorns emerge from it like Flutterwave (worth over $3 billion). 

  3. However, regulatory constraints still limit sufficient competition within the fintech space. As such, the ability for fintechs to completely unseat the incumbents largely depends on regulators’ willingness to go the distance in lowering the barriers to entry for non-bank players in the space.

The onslaught of new entrants such as disruptive fintech startups and even telcos that have started using SIM technology to provide financial services has fundamentally changed this equation. I like to think about the disruption in financial services (or fintech) as simply innovation in services. To break things down further, we can group the four main jobs to be done in finance as follows:

  • Payments: moving money from one location to the other in exchange for a good or service

  • Credit: moving money from tomorrow to today

  • Savings: moving money from today to tomorrow

  • Wealth management: protecting the long-term value of assets

It’s important to set things out this way because when people think about financial inclusion in Nigeria, it’s easy to assume the useful metric is just to think about the number of people with access to a bank account. However, as stated above, financial services are much more than that.

The disruptors in the space are looking to solve problems in at least one of the four jobs to be done. As a result, new alternatives are now available to the part of the population previously underserved by traditional financial institutions such as banks.

Going back to my encounter with my mechanic earlier, I made it out of the pickle because while my mechanic did not have a

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