Articles February 23, 2023

The Rise of Digital Banks in Nigeria

Nigeria has been taking giant leaps in the digital banking domain, and its christening as Africa’s digital payments leader is a testimony to its success. Its banking sector is the most digitized in Africa. As per a 2022 press release, Nigeria documented 3.7 billion real-time payments in 2021, making it the 6th biggest real-time payments market.

This lends credence to the nation’s flourishing financial technology infrastructure and the backing of the public and private sectors to strengthen the effort further. The growth of digital banking in Nigeria is more pronounced, with digitization being used as a countermeasure against the frequency of fraud and money laundering. Reports show 1 in 4 consumers in Nigeria were a victim of fraud as of 2021, of which a whopping 27% succumbed to a confidence trick, and 14.3% had their credit or debit card details stolen.

How Does Digital Banking Make A Difference?

Challenger banks and neobanks are well-positioned to overcome the digital challenges and leverage the upsides of Nigeria’s growing digital economy. With the changing market, these banks are uprooting the traditional branch-based banking systems and pushing the financial industry towards more agility and competitiveness.

For those who are not well-versed in the financial industry, digital banks are not the same as online or mobile banking platforms. Digital or neobanks share no affiliation with conventional banks. They have no physical branch or banking hall, but similar to their brick-and-mortar counterparts, these platforms offer services like those available at physical banks. The primary difference is in the banking process, which is entirely online for digital platforms.

For the most part, mobile or internet banking are complimentary services promoted by traditional banks. They let consumers execute remote transactions while still being under the umbrella of a conventional banking system.

Let’s take ALAT, for example. One of Nigeria’s most successful digital banking platforms, ALAT simplifies payments and collections with the revolutionary New Quick Response (NQR) feature. It raised the bar in service delivery by boosting convenient and reliable financial transactions through contactless, account-based, and swift options to receive and pay for various goods and services. ALAT is one of many digital banking platforms transforming transactions across Nigeria and boosting its digitization efforts by leaps and bounds.

Neobanks boast extremely low transaction fees, a seamless and convenient online banking experience, and disruptive products and services. A case in point is the time to open an account in any traditional financial institution. Neobanks do away with all the paperwork and KYC, instead asking only for your full name, contact number, BVN (bank verification number), and residential address.

Status Quo of Nigeria’s Digital Banking Industry

Nigeria’s digital banking scene is unfolding in two ways. Some banks are switching to cutting-edge technologies to boost their financial services, commonly termed online banking. Other internet-powered branchless banks are increasingly springing up, offering full or limited services. The latter includes neobanks such as Kuda, Waya, VBank, OPay, TransferGo, and TransferWise. While they are early-stage FinTech startups, they pose worthwhile competition to traditional well-established banks.

As per reports, more than 200 FinTech firms in Nigeria offer online access to digital banking, mobile payments, and commercial and personal financial activities. FinTech investments in the nation had been valued at upwards of US $200 million (PricewaterhouseCoopers report) between 2011 and 2018. McKinsey’s 2019 report evidenced US $460 million in FinTech investments.

Head of Middle East, South Asia, and Africa, Santosh Rao stated:

Accelerated by the COVID-19 pandemic, Nigerians increasingly expect higher speeds, greater simplicity, and modern thinking from financial service providers. While cash is still being used widely, the shift towards greater adoption of digital and real-time payment services is testament to the success of government regulators in fostering rapid growth in digital openness, particularly payments.

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BPC Banking Technologies and Financial Consultancy Group offer an interesting statistic. As of 2021, 80% of the 21 neobanks or digital banks in Africa were operating primarily in Nigeria and South Africa, boasting 18 million users. The year also saw a rise in digital payments services (US $3.2 billion) that formed 0.67% of the nation’s GDP (ACI Worldwide with GlobalData and the CEBR). The report further attests to 64.7% of Nigerian consumers owning and using a mobile wallet.

The Future of Digital Banking in Nigeria

Statista’s studies foretell a few predictions about the growth of neobanks in Nigeria. According to its report, the transactional value in Nigeria’s neobanking segment will reach US $2,910 million in 2023. The annual growth rate between 2023 to 2027 is projected to be 23.65%, with the total touching US $6,802 million by 2027.

The average transaction value for each user in the neobanking segment will be US $2.25k as of 2023. By 2027, the neobanking segment is predicted to attract a whopping 2.11 million users, with user penetration going from 0.6% in 2023 to 0.9% in 2027.

Annual real-time transactions are projected to increase to 8.8 billion by 2026, a whopping 5-year CAGR of 18.6%. This will unlock an additional US $6 billion in GDP, representing 1.01% of the nation’s GDP. It is Nigeria’s chance to rise the ranks from the current 6th place to an ambitious 4th place among the biggest real-time payments markets.

The Guardian’s reports of April 2021 attest to 170 million active mobile phone users in Nigeria, of which 25 to 40 million use smartphones. The numbers are expected to hit 140 million by 2025. Enhancing Financial Innovation & Access (EFInA) reports show the nation’s financial inclusivity grew from 63.2% (2018) to 64.1% (2020). But financial gurus suggest an optimistic estimate of 95% inclusivity by 2024.

Over 40% of Nigerians are currently unbanked, which means over 87 million people in the nation do not have access to established financial services. With the rising cost of running a bank branch, digital banking is fast becoming well-suited to bridge the financial inclusivity gap. It is safe to say the future of digital banking in Nigeria is shining bright and exhibiting extensive untapped potential for current FinTech entrants and industry players in Africa.

Right Technology to Rectify the Wronged Past

While establishing digital banks is half the job done, the other half lies in the choice of technology. It is imperative to decide on the right technological platform for launching FinTech apps and digital banking segments.

VeriCash is a platform driving digital transformation and financial inclusivity in emerging markets such as Nigeria. The United Bank for Africa (UBA) has been leveraging VeriCash for its digitized financial services and has managed to stay afloat amidst the rising tension of CBN’s war on cash.

VeriCash helps big names in the digital banking sector with its digital banking platform, and UBA’s top-rated digital banking app is one of its many success stories. VeriCash is the companion to upcoming FinTech startups looking to penetrate the digital banking market aggressively. Desperate times call for desperate measures, and as far as efforts at recovering from the war on cash go, VeriCash is as reliable a digital banking platform partner as any!

About CIT Vericash

CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.