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How fintech can stimulate financial inclusion: Challenges and Opportunities

Article by Osayaba Giwa-Osagie SAN -Senior Partner and Ivy Osiobe  -Executive Associate of Giwa-Osagie & Co, Nigeria


The past years have seen the emergence and growth of the fintech sector with fintech disrupting the traditional approach to financial services. Fintech is an acronym for “financial technology” and is used to describe the delivery of financial services using technology. It applies to a wide spectrum of financial activities which includes, payments, savings, insurance, investments, online trading/commerce etc.

The major factors that drive fintech are technological advancement, consumer behaviour and regulatory condition. For example, in 2012, the Central Bank of Nigeria introduced the cashless policy to reduce the amount of physical cash in circulation and encourage use of electronic payment platforms. This led to a surge in Fintech companies offering payment solutions. To stay relevant and competitive, several banks partnered with these fintech companies and integrated fintech services into their service delivery package.

A recent factor that has impacted the fintech industry is the covid 19 pandemic.  With the pandemic, there was an increased exposure of consumers to digitized services, which greatly influenced consumer behaviour. While the world was forced to live with minimal physical contact, fintech made access to financial services convenient, quick and simplified for consumers.  The acceleration of digitisation as a result of the pandemic also created an enabling environment for fintech to thrive.

What studies have shown so far is that fintech is fast growing and is here to stay. However, there are some pertinent questions to be considered. What do these technologies really mean for businesses and consumers? How will fintech disruption of the financial sector, help to drive financial inclusion? What are some of the challenges and opportunities for growth? Can the Regulators and Law makers keep up? This article aims to consider these questions and how Fintech is stimulating financial inclusion.

Driving Financial Inclusion with Fintech

Globally, governments and financial institution around the world have been driving the principle of financial inclusion, which aims at getting financial services to the unbanked and the underserved population. While, financial inclusion is considered necessary to reduce poverty and accelerate economic growth, it is estimated that globally, about 1.7 billion adults are unbanked[i] and this can be as a result of several factors ranging from low financial literacy, lack of access, affordability to lack of consumer trust. In 2012, The Central Bank of Nigeria in pursuing its goals for inclusion introduced the cashless policy which aimed to discourage use of physical cash for transactions. This policy provided an enabling environment for the growth of fintech companies providing mobile enabled services and also enhanced equal access and use of financial products for the unserved and undeserved population.

Further to its drive for inclusive finance, the Central Bank of Nigeria in 2018 issued a National Financial inclusion strategy where it outlined its implementation approach and plan for distribution of financial services.

–       One fact that the past few years have revealed is that technology and digitization are a major tool for stimulating financial inclusion. This is more so for Nigeria, considering the high penetration rate of mobile phones in the country including rural settlements.

–        To achieve a fully banked Africa, it has been intimated that the goal should be to speed up the convergence between the industry’s various players to stimulate financial inclusion[ii]. This convergence requires Regulators to play an active role and the CBN appears to understand this fact. Initially, Regulations in Nigeria do not allow non-financial institutions to provide financial services. This has been reviewed and amended with the introduction of the Guidelines on Mobile Money Services in Nigeria and the Guidelines for Licensing and Regulation of Payment Service Bank (PSB). For the purpose of this article, the major point of interest for both Guidelines is that they allow a convergence of industry players from fintech, banking and telecommunication sector providing mobile money services and digital bank services to accelerate financial inclusion.

–          Following the introduction of the Mobile Money Guideline a total of 21 mobile money operators’ licences[iii] have been issued out to 16 non-bank operators and 5 bank operators. Tech giant, MTN is presently a mobile licence operator.

Also, under the PSB model, 3 licenses have been issued, two to subsidiaries of telecommunication companies[iv]. Considering the large subscription base of the telcos and their ability to reach an additional layer of customers that traditional bank ordinarily could not reach, introducing telcos to financial services is a brilliant move to achieve financial inclusion. These telcos are well equipped to easily penetrate and make financial products accessible to the unbanked. Also, with these arrangements, a lot of data about the unbanked Nigerian population will flow into the country’s banking sector, making it easy for banks to target this population.

Using Artificial Intelligence and Advanced Analytics for Financial Inclusion

–           Most discussions on fintech focuses on how mobile payment can help drive financial inclusion. However, while the payment sector is the largest and most developed Fintech sector in Nigeria, Fintech covers the entire spectrum of financial services right from payments to investments, loans, insurance, and savings. All of these sub-sectors play a key role in stimulating inclusion. Some of the requirements for financial inclusion are quick and easy access, simplification and affordability. A digitized approach to lending meets these requirements.

–          Under the traditional approach to credit scoring, there are certain requirements that create a barrier to access to credit by non-salaried customers and small companies such as requests for salary slips, corporate balance sheets etc. Artificial intelligence and advanced analytics for credit scoring will help to broaden the pool of credit worthy customers therefore allowing access to credit for those customers who ordinarily would not have access under the traditional credit scoring system.  For example, Jumo, a platform for mobile network operators and banks which provide digital lending services, uses advanced data engine and runs machine-learning algorithms to build increasingly accurate credit profiles. Another example is Fairmoney, active in Nigeria, which uses artificial intelligence technology to leverage data from customers’ mobile phones to help identify and segment their risk profiles. [v]With these technologies, credit facilities are made available to an additional layer of customers.



–        While the fintech sector is relatively new and still developing, there are challenges, which must be addressed to enable full integration of fintech services into the financial sector and optimise benefits for consumers.

Some of the challenges faced by the new sector are:

  1. Regulatory factor-  Although Regulators have shown some level of support for innovation and digitization by enacting several guidelines, the reality on ground is that Regulators are still trying to strike a balance between supporting innovation and ensuring financial stability and consumer protection. Recently, the CBN issued a regulation prohibiting financial institutions from transacting on Cryptocurrency. Again, very recently the Securities and Exchange Commission issued another policy, restricting unregistered companies from providing platform for trading in securities in Nigeria. While these policies have sparked several reactions among stakeholders in the sector, from the Regulator’s perspective they are necessary to maintain a balanced and stable financial system.

To address this challenge Regulators will need to be open to dialogues with innovators on how existing regulations can support innovation and how their products can fit in with Regulations. Regulations should also take into account the fact that the playing field may sometimes be uneven. For example, if Fintech are to have the same capitalisation requirements as banks, this might be prohibitive.

Regulators must also build their capacity and understanding of the risks that comes with innovation and develop knowledge on how to effectively manage same while allowing fintech companies to thrive.

Regulators should also explore regulatory sandboxes that allow fintech and other innovators to conduct live experiment in a controlled environment under regulatory supervision.  Interestingly, the CBN recently released its exposure draft of regulatory framework for sandbox operation. The CBN also included Regulatory sandbox in its circular for approved licence categorization for payment system operators in Nigeria. From the Circular, fintech starts-up and industry innovators can easily obtain regulatory sandbox licence as there are no capital requirements to be entitled to same.

2. Low level of financial literacy– There is the wide perception among the unbanked and undeserved that they do not need the financial products provided by banks. A large number of persons in Nigeria, would rather resort to informal lending from family and friends than approaching a bank for a loan. Also, Savings in Nigeria generally has a very traditional look such as hiding the money in a safe place at home, or using informal saving clubs commonly called osusu. These challenges have made it difficult for fintech companies providing lending and saving services to break into the sector. Although we have seen players introducing digital savings tools to bridge the gap between formal and informal savings such as Piggyvest in Nigeria and Jumo, South-Africa, there is still the need to increase the level of financial literacy to access a larger pool of consumers.

3. Lack of consumer trust – Research has shown that people still do not fully trust fintech companies and this is majorly driven by fear of the unknown, limited Regulation and aversion to sharing of personal data. A lot of consumers are struggling to catch up with the pace of the fast growing fintech sector. Fintech companies will need to work hard to demonstrate both its social corporate and corporate governance credentials[vi]. Since major traditional banks have been able to garner a good level of trust over the years, strategic partnership with banks can help Fintech with the trust level needed to scale.  Also, the CBN recently issued four approved licence categorisation for payment system operators and imposed certain recapitalization requirements that must be met by new and existing participants in the fintech payment sector.  For example, mobile money operators (MMO) are required to have a minimum share capital of two billion naira. The circular also provides that only MMO are permitted to hold customer funds. Further, collaboration between licensed payment companies, banks and other financial institutions must be with CBN approval. This development will foster a more credible and stable fintech ecosystem which would in turn build trust in the sector.


Next Opportunities in the Fintech Sector

  •  There is a growing interest in the fintech sector in Africa, majorly due to the large market size and the several untapped opportunities that exist.

One major opportunity in the sector, going forward, is in the area of cybersecurity, KYC and AML solutions. Mobile technology-enabled services do not require the face to-face interaction that takes place with traditional banking and thus provide a more opaque and anonymous experience which creates an enabling environment for criminal activities. Therefore, fintech companies that can institute a meaningful KYC process, solve issues around KYC, AML and provide secured app will feature prominently in the future.

  • Another opportunity for growth in Fintech, is the development of API Fintech Companies. The fintech space is fast growing. As demand for fintech services increases and various subsectors expand, there will be a high need for API companies that provide infrastructure which allows for seamless interaction and communication between multiple technologies, programs, platforms or servers.

Digitisation and Increase in Cyber Attacks

-Following the emergence of Fintech companies, there have been heightened competition between banks and Fintech as the former thrive to stay relevant and the latter struggle to scale. Most banks have digitally transformed their existing operation and are entering into strategic partnership with Fintech for improved customer benefit and experience. Many countries in Africa are experiencing a significant transformation of their financial sectors as they move to digital financial services. However, on the heels of the increase in digitization is the threat of cyber attacks to the digital financial infrastructure.

-These cyber attacks which are a threat to financial stability, have gained momentum since the covid 19 pandemic. In October 2020 in Uganda, major tech players were hacked for four days which disrupted service transaction. In Nigeria at about same period, major techs were also hacked with airtime and data distributed to mobile users by the hacker with the twitter account name “anonymous”. There were also allegations that several other banks were hacked by this “anonymous”. Although these banks have dismissed the allegations as mere rumours, the increase in cyberattack is a real time threat to stakeholders in the financial and technology sector. The question is how best to organize protection across governments, financial authorities and industry and how to leverage resources effectively and efficiently?

-First, there is the need to build effective domestic relationships across the continent among financial authorities, law enforcement and relevant government actors. A co-ordinated regulatory framework and procedure will go a long way to curb the menace.

-To strengthen cyber resilience, the Financial Stability Bank will need to develop a basic framework for supervising cyber risk management at financial institutions. Governments and industry should strengthen security by sharing information on threats and by creating financial computer emergency response teams (CERTs)[vii].

-Harmonization of laws on cyber security would be helpful for efficient and effective information sharing and cross border investigation and this can be easily achieved by signing and ratifying a common convention on Cybercrime or integrating the provisions of the convention into local law. One good example of a comprehensive legislation against cybercrime is the Budapest convention. Unfortunately, it has not been ratified by any Africa Country.

Also, the importance of educating consumers and businesses on cybercrime and how to protect themselves cannot be overemphasized. Sensitization is key to combating cyber attacks.

In conclusion, Fintech has disrupted the way traditional institutions provide financial services and how customers interact with the financial sector. Innovative financial technologies have a pivotal role to play in making financial products accessible to more people. While Fintech companies have been disruptive, they do not have to be the death knell for banks. There is the need for collaboration between the banks and the fintech companies to provide impactful new financial products that offers improved experience for existing consumer and expand outreach to the unbanked and undeserved population.  As much as Regulators are focused on driving inclusion, there is the need to understand that fintech is a viable tool that can help achieve massive results if well regulated, developed and utilized.





[ii] The three challenges facing African finance in 2021 (



[v] African banks after the crisis | McKinsey


[vii] The Global Cyber Threat to Financial Systems – IMF F&D


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