By Ejiofor Agada
Digital banks have become a transformative force within the Nigerian financial landscape by revolutionizing how people access and manage their finances. With the rapid advancements in technology and the growing adoption of smartphones, digital banks have emerged as a critical driver for improving the economic landscape in Nigeria. It is imperative the discussions continue on how we can explore the various ways in which digital banks are reshaping the financial sector, enhancing financial inclusion, driving economic growth, fostering entrepreneurship, promoting financial literacy, addressing challenges, and envisioning the future of banking in Nigeria.
By harnessing the power of technology and innovative solutions, digital banks are opening up new possibilities for individuals and businesses, ultimately leading to a more inclusive and prosperous economy. The fact that it is helping the government to indirectly widen the tax net, the overall concept is helping shape the economic narrative in a predominantly informal economic sector.
Rise of digital banking in Nigeria
Digital banks are described as a new breed of financial institutions that operate primarily online without physical branches. They offer a range of banking services through mobile apps and websites, allowing customers to manage their finances conveniently from their smartphones or computers, with little or no need for human interference.
Over the past decade, digital banking has experienced a significant rise in Nigeria. This can be attributed to the increasing penetration of smartphones, improved internet connectivity, and the need for more accessible and convenient financial services, in addition to the spike in tech innovations, especially in Nigeria, making the country be adjudged as the epicentre of global tech innovations. Digital banks are now disrupting traditional banking models by offering innovative solutions that cater to the evolving needs of tech-savvy Nigerians.
Financial exclusion is a significant problem in Nigeria, with a large portion of the population lacking access to basic banking services. This has severe implications for individuals and the broader economy, as it limits opportunities for saving, borrowing, and participating in the formal financial system.
According to the data from the Central Bank of Nigeria (CBN) and Enhancing Financial Innovation and Access (EfinA), in 2020, about 70m of the Nigerian population was unbanked, representing about 36 per cent, but in 2023, that same number has gone down to about 40 million+ excluded people, which is one-quarter of the population.
Digital banks are now playing a crucial role in addressing financial exclusion by providing affordable and accessible banking services to the unbanked population. Through simplified account opening processes, reduced transaction costs, and user-friendly interfaces, digital banks are making it easier for individuals to access financial services and manage their money, even without a traditional bank account.
A World Bank report titled “The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19” revealed that about 64 million of its nearly 200 million people still do not have an account with a financial institution or mobile money platform.
The report also showed that of the world’s 1.4 billion unbanked population, over half or 740 million, comes from seven economies, including Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.
The report also pointed out that the number of Nigerians with accounts at regulated institutions such as a bank, credit unions, microfinance institutions, post offices, or mobile money service providers increased by 16 per cent to 45 per cent in 2021. Similarly, the report found that global account ownership increased by 50 per cent from 51 per cent in 2011 to 76 per cent in 2021.
Innovative digital solutions are at the core of digital banking in Nigeria that has improved the ratio of the unbanked, as these solutions leverage technology to streamline processes, enhance security, and offer personalized banking experiences to customers. Features such as biometric authentication, instant money transfers, AI-driven financial advice, and automated savings tools are revolutionizing the way Nigerians interact with their finances. Though these trends were made possible by the Government’s insistence on a modern identification process through a standard National ID system (NIN) and the Bank Verification process (BVN), the innovative system of designing technology tools that capture these ID modules is majorly due to the ingenuity of techpreneurs produced in the country.
Specific digital solutions offered in Nigerian:
Nigerian digital banks are introducing various innovative solutions tailored to the local market. For example, some digital banks offer virtual cards, enabling customers to shop online securely, while others provide budgeting tools that help users track their expenses and achieve financial goals. These solutions empower individuals to take control of their finances and make informed decisions in a digital-first world.
Digital banking is not only transforming individual financial experiences but also driving economic growth in Nigeria. By expanding access to financial services, digital banks are stimulating entrepreneurship, enabling small businesses to flourish, and fostering economic inclusion. The increased flow of digital transactions also contributes to a more transparent and efficient economy. A typical example is the rapid growth of the ubiquitous Point of Sale (POS) deployment across the country.
The impact of digital banking on small business growth in Nigeria is evident through numerous success stories. Take the example of Ayo, a young entrepreneur who runs a thriving fashion boutique. With the help of a digital bank, she was able to quickly open a business account and easily access a loan to expand her inventory. The digital bank’s user-friendly interface and personalized customer service made her experience seamless, allowing her to focus on growing her business rather than worrying about complicated banking procedures.
Several case studies demonstrate the positive impact of digital banking on economic growth in Nigeria. For instance, digital loan providers are empowering entrepreneurs to access capital quickly, fueling business expansion and job creation. Additionally, digital payment platforms have revolutionized the retail sector, facilitating seamless transactions and boosting consumer spending even if most of the digital loan outfits are exploitative and unregulated.
There’s no doubt that digital banks are revolutionizing the economic landscape in Nigeria. By providing enhanced access to financial services, offering innovative digital solutions, and driving economic growth, these banks are empowering individuals, businesses, and the overall economy to thrive in the digital age.
Digital banks in Nigeria are playing a crucial role in supporting entrepreneurs and fostering small business growth. With their user-friendly mobile apps and seamless online banking services, these digital banks provide convenient and affordable financial solutions to aspiring business owners. From opening business accounts to accessing working capital loans, digital banks are streamlining the process and making it easier than ever for entrepreneurs to manage their finances.
While digital banking offers convenience and accessibility, it also raises concerns about security, Cybercrime and identity theft, which are real risks in the digital era. However, digital banks in Nigeria are taking proactive measures to ensure the security of their customers’ information and transactions. Robust encryption technologies, two-factor authentication, and constant monitoring of suspicious activities are some of the strategies employed by digital banks to safeguard their customers’ funds and personal data.
Another challenge faced by digital banks in Nigeria arises from the evolving regulatory landscape. As the industry grows, it is essential to establish clear regulations that protect both customers and banks. Striking the right balance between innovation and consumer protection is crucial. The Nigerian government and the CBN are working to create a conducive environment for digital banks to thrive while ensuring compliance with necessary regulations. This collaboration fosters consumer trust in digital banking and promotes a stable economic landscape.
Looking ahead, several emerging trends are shaping the future of digital banking in Nigeria. Artificial intelligence and machine learning are being utilized to enhance customer experiences, personalize banking services, and improve fraud detection. Additionally, the rise of blockchain technology holds the potential to revolutionize the way financial transactions are conducted, making them more secure and transparent. These trends will further enhance the accessibility and effectiveness of digital banking in Nigeria.
While the future of digital banking in Nigeria looks promising, there are still opportunities to be seized and obstacles to overcome. Expanding financial inclusion to reach underserved populations, such as those in rural areas, is a significant opportunity. Also by leveraging advanced technology and strategic partnerships, digital banks can extend their services and empower more Nigerians to participate in the formal financial system.
However, challenges such as infrastructure limitations and internet connectivity issues pose obstacles to the widespread adoption of digital banking. A clear example was the harrowing experience of Nigerians within the period of the Naira redesign by the end of 2022. Collaborative efforts between banks, government, and telecommunication companies will be vital in addressing these challenges and ensuring that digital banking truly benefits all Nigerians.
In reality, digital banks are transforming the economic landscape in Nigeria by fostering entrepreneurship, promoting financial literacy, addressing security concerns, and embracing emerging trends. As the industry continues to evolve, embracing innovation while maintaining a focus on customer needs will be key to realizing the full potential of digital banking in Nigeria and driving economic growth for the nation.
The rise of digital banks in Nigeria has brought about significant positive changes to the economic landscape. Through enhanced access to financial services, increased financial inclusion, and support for entrepreneurship, digital banks have become key catalysts for growth and development. While challenges and risks exist, the future of digital banking in Nigeria is promising, with emerging trends and opportunities on the horizon. By continuing to leverage innovative solutions and addressing the concerns, digital banks are poised to play an integral role in shaping a more inclusive and prosperous financial future for all Nigerians.
