How fintechs, others are enabling digital financial inclusion in Nigeria

When Aminu Kamalu moved to Nigeria’s capital, Abuja to start a new life after the constant raid of his village in Zamfara State by armed bandits, having a bank account was the least of his problems as his community of mainly subsistence farmers were not interested in banking, let alone the digital system. However, moving to Abuja meant that he needed to find a petty job or start selling wares to fend for himself and his people back home.

Interestingly, he found himself in a city where online transaction is the norm for most businesses. While he was able to start a business of groceries in one of the satellite towns, he resisted opening a bank account due to the rigour of the documents required.

Not even the cashless policy introduced by the Central Bank of Nigeria that led to scarcity of cash could convince him to open a bank account, even as some of his customers were unable to transfer money to him for the tomatoes and pepper he sold to them.

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“I could only sell to those with cash, while I told my regular customers to bring the money whenever they had cash. My business was affected during the period,” he recalled.

He said he had to rely on Point of Sale (PoS) operators when he needed to send money as their popularity had reached his community, and when he went to the market to restock.

But this comes with an additional cost as he has to pay over N100 to send money for other transactions.

His orientation, however, changed when one of the PoS operators told him that he could open an account without most documents needed in the banks.

“I finally opened an account with Opay in October, using just my national identity card. I was told that if it were in the bank I would be asked to bring the receipt of my electricity bill for the past six months, a passport, among other documents that I won’t be able to provide as I am an itinerant. They also gave me an ATM card that I can use to withdraw money although I have limited transactions I can do in a day,” he said.

The inability of Hauwa Auwal to access her account with one of the top banks in the country made her to decide to open an account with one of the fintech firms in the country.

She said, “I was told that the name on my National Identity Number (NIN) and Bank Verification Number (BVN) were not spelt the same, so I would need to make some changes for both to align. But the process was tedious as I would have to go to court to obtain an affidavit, then a change of name in a national daily newspaper, among others.”

Hauwa said she felt the process was too tedious, so she opted to open another account with a fintech and the process was easy with just her NIN.

“The formalities in banks are increasing these days; if they had known the names were not the same, why open the account in the first instance? I went to a PoS agent close to my house and the account was opened in less than 10 minutes without the tonnes of documents I went to the bank with,” she added.

Also, Khadija Kabir said she left a bank account dormant for years due to unauthorised withdrawals from those close to her.

“This made me not to trust the banks again, even though I was told that it was a family member that made the transactions. I felt that if my money was not safe with them, I should keep it with me and be responsible for the risk,” she noted.

Although this costs her a lot as she has to rely on her children for transfer of funds from customers, she said she felt comfortable that the money would be safe. But she later turned to the services of PoS agents.

“The popularity of PoS agents became a change maker for me as I transact with my customers through them. My agent serves as a middleman for any online transaction. I still have mistrust for the banks due to my experience. While I am nursing the thought of opening another account soon, the presence of PoS operators close to me has filled a necessary gap.”

Fintechs filling Nigeria’s financial inclusion gap

It is said that an estimated 30 million Nigerian adults lack access to financial inclusion. A survey by the Enhancing Financial Innovation and Access (EFInA) stated that the financially included population in Nigeria, as at 2023, was 26 per cent, but 72 per cent now have access to it.

The survey noted that the feat was achieved through non-bank financial institutions (such as Fintechs), which enabled 12 per cent of respondents to have access to financial inclusion.

But at the heart of this is the deployment of innovative tools like the PoS that enables instant transfer in exchange of cash in a country where “cash is king.”

According to the Nigeria Inter-Bank Settlement System (NIBSS), PoS terminals registered in the country as at August 2024 reached 26.54 million, with transactions reaching N6.23 trillion in the first seven months of this year.

While there is currently no data on the number of Nigerians that hold accounts with mobile money banks and fintech firms, their flexibility in on-boarding customers without the need to mundane documents required by mainstream banks has endeared them to many Nigerians.

This laxity became exploited by fraudsters for money laundering, thereby drawing the ire of the country’s financial regulator, the Central Bank of Nigeria, to place a ban on the opening of new accounts by fintechs.

But the ban was lifted after two months, with a condition of the use of National Identity Number and Bank Verification Number as prerequisite for registering new accounts.

The ubiquity of the PoS agents that preserve the cash-run economy of the country has continued to bring more Nigerians on the grid of financial inclusion.

A striking novelty in the PoS usage is how business owners have made it not only part of their payment methods but part of their business.

A provision seller at Lugbe, a suburb in Abuja, Salisu Muhammad, said he started PoS terminals when an agent of one of the companies introduced it to him three years ago.

“It became another arm of my business as I use the money from the sales in the provision business to serve those in need of cash. It has eased the lives of many Nigerians as you don’t have to spend time going to banks, where you will also join long queues to withdraw money,” he said.

He, however, said the introduction of N50 tax on transactions above N10,000 had been a great challenge as it costs more to transact on the platform. Although he said his customers paid for the charges, he added that majority of those that use the terminals withdraw below N30,000.

Hs said, “While I am not against the tax, the government should have made it deductible for transactions above N50,000. Also, the cash scarcity that occurs once in a while is a challenge. I go to my friends’ places to get cash because when you go to banks they can only give you N10,000 or N5,000, so it won’t be profitable to trade with that.”

Echoing the same sentiment, Idris Buhari, another operator who engages in commercial phone charging, said the tax meant that they would lose over 50 per cent of their profit to the government if they did not increase their charges.

“Normally, we charge N100 for a N10,000 withdrawal, from which the fintech will remove N25; and now, the government will take another N50. And this is compounded with the internet failure we face sometimes while making transactions,” he explained.

CBN wields the big stick

The allegation that PoS operators are colluding with bank staff to mop up cash in their reserves has led to the CBN to limit daily transactions on the platforms to N1.2 million daily.

The apex bank had in a circular in December last year stated that the action was to help the ongoing efforts to advance the cashless economy of the federal government. It also introduced a cash withdrawal limit per customer at N500,000 per week and a daily maximum transaction cash-out limit of N100,000 per customer.

Way forward

The chief executive officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said PoS operators were providing very valuable services and facilitating financial inclusion.

He said, “They have made it easier for people to access cash. I think what we need is to look at the fundamental issues around cash scarcity. If you look at the entire spectrum of payment instruments, the value of transactions on those platforms has increased, in some cases, by more than 100 per cent in a year.”

He added that PoS agents were providing critical services but many of them operate with a regulatory oversight or even customer identity checks, which in itself raise concerns about security and fairness.

“Until now, there was a penalty if you carried cash to the bank to deposit. But I think that has been taken away. The PoS guys even offer some incentives at petrol stations to be able to get cash.

“The more important thing is that we need to estimate what the current demand for cash is and ensure that we provide an adequate amount of cash to service the economy,” he said.

This report was produced under the DPI Africa Journalism Fellowship Programme of the Media Foundation for West Africa and Co-Develop.