The World Fintech Report 2020 has highlighted the need for banks to enter into partnership with fintech players in order to transform into agile and customer-centric organisations and remain appealing in a shifting business landscape. The report by McKinsey Africa, stated that banks should also take on a specialised role, rather than a universal one by opening up their infrastructure for fintech players to integrate with and drive innovation that would apply specific solutions to sectors that are most resilient and more likely to be receptive to digital activities.

“The increase in fintech activity in Nigeria has already spurred incumbent banks to adopt new strategies to remain competitive and the COVID-19 crisis has only made this imperative more urgent.

“At this time, banks could consider not just competing in concentrated pools, but collaborating in new, blue-sky spaces with fintechs to grow the pool,” the report said, adding that banks should identify new revenue pools, reinvent their business model to serve new segments more effectively and leverage on partnerships and acquisitions to scale operations.

The report also called for the collaboration of the multiple financial market regulators in Nigeria, namely the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC), the National Insurance Commission (NAICOM), as well as the National Communications Commission (NCC) to unlock the next wave of fintech innovation.

It stated: “Given the value at stake for the broader society and economy, our analysis shows it is vital that ecosystem participants work together at this time to protect gains and accelerate growth in this sector. We highlight key considerations and actions that regulators, governments, and development partners could take to create the conditions that will support recovery and unlock the next wave of innovation in the sector.

“We also discuss how market participants could position themselves for growth by leveraging their unique strengths and capabilities within the context of a rapidly changing landscape. For those who act now and act decisively, the rewards are likely to be significant.”

The reported noted that the COVID-19 crisis has revealed some challenges and the awareness that the investment required to foster innovation in order to meet these challenges and realise fintech’s potential in the longer term could be significant, “but positive results could be achieved through collaborative action if all stakeholders in the fintech ecosystem, including government regulators, infrastructure players, private organisations and providers of capital work together, the country can start to unlock the potential of its fintech assets.”

The report stated that the development of the fintech industry has been a bright spot in the Nigerian economy with the potential to get brighter even with the challenges posed by the ongoing COVID-19 crisis. “The sector (fintech) has been gaining momentum, as agile and innovative startups move to take advantage of increased technology penetration and high levels of unmet needs in the traditional banking sector to seize market share.

“In the past three years, fintech investments in Nigeria grew by 197 percent, with the majority of investment coming from outside the country,” the report said adding that “fintechs have led with innovation in product development, designing useful, convenient and affordable financial products and services for millions of Nigerians. “In the process, they have created a multiplier effect across the economy, unlocking new business models beyond financial services, fueling the growth of e-commerce, increasing the STEM talent pipeline and moving the needle on progress towards the country’s development goals.”

The report stated further that the Nigerian financial services landscape is ripe for fintech growth, largely due to lack of access to financial services, “especially in rural areas, issues of affordability, and poor user experience all contribute to the frustration consumers experience right across the customer spectrum. This has created an opening that fintechs have been quick to take advantage of, with many stepping up to develop enhanced propositions across the value chain to address pain points in affordable payments, quick loans, and flexible savings and investments, among others.”

Nigeria, according to the report, is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. It stated that between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.”

Fintech activity, according to the report, is also expanding into the savings and investments segment, “As consumers seek means to earn better returns locally and gain access to offshore investments, fintechs are helping to democratise their options by offering flexible products with attractive interest rates,” the report said.

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