There has been remarkable growth in the financial technology (FinTech) sector in recent years. The need to transition from traditional commercial banking, the acceptance of technology, and the growth of smartphones are among the contributors to fintech growth.
For Nigeria, Africa’s biggest economy with a growing population above 220 million people, FinTech companies have enjoyed tremendous growth in the last couple of years.
The industry has transformed the way Nigerians access financial services, making it more accessible, convenient, efficient, and inclusive.
Some years after the penetration of mobile phones in Nigeria, most people barely use bank apps or USSD codes for transactions, especially when the figure is above N100k. They would rather walk into the banking hall and carry out their transaction because it was safer and more secure. There was this fear of falling victim to fraudsters as most fraudulent activities are carried out through the mobile gadget.
In the early days, banks struggled with getting customers to download their apps and carry out simple transactions at any time at their convenience, at a point, an over-the-counter withdrawal limit was set to encourage customers to use the bank app and reduce the population in the banking hall.
Then the financial sector experienced a disruption caused by the emergence of FinTech startups. Interswitch, Paystack, and Paga are some of the early birds in that space who came to change the mindset of Nigerians to have some trust in mobile money wallets. Though many have come and gone, some FinTech companies have stood tall through tough times.
The services rendered by FinTech companies, which include payment of utility bills, money transfer, and cash withdrawal through point of sale (POS) without much hassle, increased the trust of customers and grew the number of users. The security of funds and the ability to swiftly get a refund when a transaction fails has also facilitated the growth of the sector.
However, despite the progress, Nigerian FinTech companies still face long-standing challenges that have refused to go away.
One of the major challenges faced by FinTech, or any company operating in Nigeria, is regulatory uncertainty. As political officeholders come and go, the evolving regulations and licensing requirements they come up with create uncertainty for businesses. These uncertainties lead to confusion and delayed growth.
Another challenge that has refused to disappear over the years is the constraints in infrastructure caused by poor internet connectivity and epileptic electricity supply. Though residents in some top cities like Lagos have experienced improved electricity, the majority of the Nigerian population do not live in the top cities, and as a result, still suffer poor electricity and internet connection. This setback hinders service delivery and leaves many FinTech companies and their customers struggling.
Fintech companies are vulnerable to cyber-attacks and data breaches, and this is not just peculiar to FinTech alone. Commercial banks have also had their fair share in this daunting challenge. In the second quarter of 2023 alone, Deposit Money Banks (DMBs) lost N10 billion to cyber fraud, representing almost 300 per cent year-on-year compared to the previous year. Cyber-attacks are reoccurrence and fintech companies have continued to fall victim.
One of the underrated challenges FinTech faces is talent acquisition. Attracting and retaining skilled professionals remains a challenge. A good number of these professionals are leaving Nigeria for a better environment, while some who are still in the country mostly complain of underpayment by fintech companies.
Financial literacy, that is, many Nigerians still lack the understanding of digital financial services; and the increasing competition from traditional banks, not also forgetting the new entrants, are other challenges.
To surmount these challenges, robust security protocols must be implemented to protect user’s data. This means the latest security software must replace obsolete ones, and must be updated frequently. Also, there is a need for the improvement of internet and electricity infrastructure to support the growth of FinTech.
The Central Bank of Nigeria (CBN) should provide clear guidelines and licensing processes to enhance regulatory clarity, while FinTech companies should also learn to collaborate rather than compete with each other.
Israel Ojoko, a journalist and data analyst, can be reached via [email protected]
Views expressed by contributors are strictly personal and not of TheCable.