Nigerian banks are tapping into pent-up demand for retail services


As the coronavirus pandemic and falling oil prices have pushed Nigeria into recession twice in the past six years, the country’s financial services firms have grown at breakneck speed.

Overall, Africa’s largest economy is home to 20 of the fastest growing businesses of all kinds in the inaugural FT rankings, compiled with research firm Statista. That puts it second only to South Africa, which has 24.

Among these Nigerian companies are specialists in agricultural raw materials, construction and food. But it is those offering financial services – from fintech to asset management and insurance – that dominate, accounting for more than a quarter of the country’s inflows.

According to Mahin Dissanayake, head of African banks at ratings agency Fitch, it’s because Nigeria’s “horrendous” economic data doesn’t reflect the activity that’s happening “under the radar”, and the transactions that people still do. However, the country’s financial sector has been able to harness technology to turn these people into customers, he says.

“Africa offers a huge unbanked and underbanked market for financial services companies,” says Dissanayake. “It offers both incumbents and new entrants very rapid growth opportunities.”

Nigeria’s population of 200 million has made it possible to achieve enormous growth simply by focusing on the local market. According to Dissanayake, the main change has been the expansion of Nigerian banks into retail banking. Previously, they avoided retail customers because creditworthiness could not be established easily. Today, technology has made it easier to track behavior. Banks therefore offer more services, such as insurance and remittances.

Data from Enhancing Financial Innovation and Access (EFInA), a research organization that monitors financial inclusion in Nigeria, shows that 45% of adults used banking services in 2020, up from 38% in 2016.

Some of the growth has been driven by efforts to meet the needs of young people in a country whose median age is 18, says Tunde Leye, a partner at Lagos-based intelligence consultancy SBM.

“There was a gap between what the formal financial sector provides and what most people coming into the working-class economy need,” he says. Today, a new generation of fintech entrepreneurs and bank executives want to create services for their peers.

United Capital, a Lagos-based lender founded more than 50 years ago, has benefited from targeting retail customers, says Ejikeme Okoli, its head of strategy and innovation. In 2019, the company – which has subsidiaries offering investment banking, brokerage and wealth management services – established a consumer credit business to provide microloans. Okoli says he has more than 250,000 customers, with requests handled on one app.

The company has also applied for a digital banking license to offer services such as payments and taking deposits. In its 2021 Annual Report, it said: “As part of the evolution of our business strategy, the focus is increasingly on the retail segment and the underserved segment of the economy. .”

Global Accelerex, ranked 34th in the FT-Statista list, provides electronic payment technology to businesses and government agencies seeking to process transactions. It has grown by offering new ways to conduct transactions which Shalewa Alonge, head of brand and partnerships, has grown in volume by 55% over the past five years, according to Shalewa Alonge.

The company can capture payments through card distributors and bank branches, and digitally through QR codes and USSD (a communication protocol for exchanging data).

A vendor counts Nigerian naira banknotes for the purchase of a second-hand mobile phone at a market stall in Ikeja Computer Village in Lagos, Nigeria

Mobile phones have helped retail banking grow © Adetona Omokanye/Bloomberg

Alonge says Nigeria’s central bank has helped foster inclusion and foster growth in financial services over the past decade through policies that have created an industry-wide standard for identification customers, alleviating concerns about electronic fraud.

In 2012, it launched an identity system for bank account holders, under which everyone is assigned a “bank verification number”. Each BVN is backed by biometric information to ensure transactions can be traced. In the same year, the central bank also piloted a “cashless policy” in Lagos, under which a processing fee was imposed on daily cash withdrawals to make digital transactions more attractive. The policy, which imposed fees on withdrawals above NGN 500,000 ($1,200) for individuals and NGN 3 million for legal entities, was implemented nationwide in 2014.

Ongoing investments in Nigeria suggest that the trends that have propelled the growth of financial services are likely to continue. The country attracted most of the volume and value of venture capital deals in Africa in 2021, according to a report by the African Private Equity and Venture Capital Association, published in April 2022.

“The engine of Nigeria’s rapid rise to the top spot in the African start-up ecosystem is largely in fintech,” he said. “Deals in the financial sector dominate the history of investments in Nigeria, accounting for 38% of the volume of transactions in the country between 2014 and 2021.”

More growth for fintechs seems likely due to the pandemic. Analysts note that banks have expanded their digital services as branches closed during lockdowns – but this won’t be reflected in the inaugural FT-Statista ranking as it’s based on revenue from 2017 to 2020

“The biggest change in retail banking has happened because of the pandemic,” says Fitch’s Dissanayake. “Now all banks are deploying the technology to expand into retail.”


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