Deepening partnerships between banks, fintechs, and telcos for financial inclusion in Nigeria.

Nigeria’s National Financial Inclusion Strategy (NFIS) was first launched in October 2012 with the goal of reducing financial exclusion among adults to not more than 20%. The NFIS (revised in 2018), came with concrete strategies for financial institutions to follow to improve the number of banked adults. According to the NFIS, financial inclusion is achieved “when adult Nigerians have easy access to a broad range of financial services that meet their needs at affordable costs. The services include, but are not limited to, payments, savings, credit, insurance, pension, and investment products.”

In 2020, while progress had been made–the percentage of banked adults rose from 33% in 2012 to 45% in 2020—achieving the overall financial inclusion target proved challenging. Specific demographics remain underserved and the gender gap remained significant, with 8% more women excluded compared to men. Financial exclusion among youth is also a major hurdle, with 47% lacking access in 2020. This was particularly concerning considering that over half (55%) of Nigeria's adult population (106 million) is under 35. Additionally, only 3% of micro, small, and medium enterprises (MSMEs)—the backbone of the Nigerian economy—borrow from formal sources. This highlights the need for improved financial inclusion solutions for these vital businesses.

Compared to regional peers, Nigeria's financial inclusion strategy at that time faced a critical roadblock; the limited participation from the non-bank sector and also regulatory barriers. While some other African countries with low bank penetration have successfully reduced formal exclusion, they did so by leveraging alternative financial models. This includes mobile money platforms, regulated savings and credit cooperatives (SACCOs), and licensed fintech and microfinance institutions.?

Using the lessons from 2012-2020 the NFIS strategy was extended to 2024 with the plan of increasing financial inclusion to 95%. To achieve the goal of 95% financial inclusion in 2024 requires collaboration between financial services providers. These providers include banks, fintechs (financial technology companies), and telcos (telecommunication companies).?

The impact of partnerships on financial inclusion

There are a lot of benefits that can be gotten and have already been seen from the collaboration of financial stakeholders. According to Gbenga Paseda executive director at VFD Tech, ? a leading fintech service provider, “Collaboration is the key to unlocking financial inclusion in emerging markets. It is critical that banks, fintechs, and telcos, continue to foster collaboration to make the financial system more sustainable, secure, and inclusive for the common man.”

Banks bring a wealth of experience in managing financial risk, regulatory compliance, and a vast network of established branches. Fintech companies, on the other hand, excel at innovation and leveraging technology to reach underserved demographics. Telcos possess extensive reach through their mobile networks, a crucial asset in a nation where internet penetration is significantly improving . By combining these strengths, these three stakeholders can create a powerful ecosystem that fosters financial inclusion.

Several successful partnerships are already making a difference in Nigeria so far. For instance, collaborations between banks and fintechs have led to the development of mobile wallets and agent banking models . Mobile banking, accessible through basic feature phones, allows users to store and transfer money, pay bills, and access microloans without the need for a traditional bank account. Agent banking utilizes existing retail outlets as access points for basic financial services, bringing financial services closer to unbanked communities. Telcos are also playing a critical role. Their vast distribution networks and Unstructured Supplementary Service Data (USSD) technology provide a low-cost, user-friendly platform for basic financial transactions. Partnerships between telcos and banks have also enabled initiatives like mobile money transfers and airtime purchases using bank accounts.

Speaking of the benefits of collaboration, Kelechi Iwuagwu , associate director of business and strategy at FairMoney posits that there are 4 main benefits to collaboration in the financial industry. With collaboration comes enhanced integration across the customer journey and lifecycle; reduced pricing on services due to economies of scale; beneficial shared services such as a unified fraud reporting channel; and market expansion from accessing new and untapped markets.

The results of these collaborations are promising. Consumers who were previously excluded from financial services now have access to products like insurance, credit, and banking services, thanks to partnerships between fintechs, traditional banks and telcos. Ultimately, consumers and customers benefit the most when these collaborations occur.

Impediments to deeper impact

Despite the progress made from collaboration among financial services players, challenges remain. Regulatory hurdles stifle growth and make it difficult for new entrants—particularly fintech companies—to navigate the financial services landscape. “Because the financial services industry is very regulated with stringent requirements, finding partners becomes difficult. A lot of fintechs face the challenge of struggling to meet up with inflexible regulations and this stifles innovation and closes the door to partnerships with banks” says Gbenga Paseda.

A lack of understanding among players regarding the incentives to collaborate has created mistrust among players. The lack of clearly defined collaboration strategies and policies has also been a huge roadblock. In recent years there have been extensive conflicts between telcos, fintechs, and banks concerning products such as USSD and other innovative banking products.

Additionally, despite the introduction of an open banking regulatory framework to enable easier data sharing, fragmented data and a lack of interoperability between systems have created friction , hindering seamless user experiences. Concerns regarding data privacy and security can discourage industry players from embracing these new financial tools.

Deepening collaboration for a more financially inclusive future

To maximize the positive impact of partnerships, several key actions can be taken.?

Firstly, regulatory frameworks should be streamlined to foster innovation and financial security. Speaking of this Kelechi Iwuagwu says there needs to be a framework that outlines how different industry players can collaborate to expand the market. “There should also be a clear path to acquiring more customers and a demonstration of how the pie can grow when previously excluded individuals are brought into the fold. By creating a new consumer segment, all players—from fintechs to insurance, banks, and telcos—can deliver value and share in the benefits.”

Secondly, the regulatory authorities have to implement the policies already set. It is one thing to issue a regulatory guideline and another to implement it. The CBN stalling on Open Banking regulations and other policies has significantly hindered the progress that could be made from such policies. With reliable support from regulatory authorities, collaboration can be quickly achieved to improve financial inclusion.

Thirdly, fostering data collaboration, open APIs, and other financial innovations can enable seamless integration between different platforms. This allows users to access a wider range of services and promotes competition, ultimately benefiting consumers.

Additionally, establishing shared interest groups to promote the benefits of collaboration will help strengthen partnerships and improve the industry. “Players should form lobbying or shared interest groups that hold regular meetings to discuss challenges and share best practices, drawing on examples from both emerging and mature markets,” Kelechi Iwuagwu says.

Finally, promoting a culture of collaboration is essential. Gbenga Paseda recommends a commitment to consideration and understanding among players “There has to be willingness to understand the perspectives of partners. Financial parties should be willing to adapt to regulations that their partners face when implementing new ideas and technologies.” Regular dialogue and joint initiatives between banks, fintechs, and telcos can help them leverage each other's strengths and create innovative solutions that address the specific needs of the Nigerian population.

Conclusion

The benefit of collaboration between fintech companies, banks, and telcos is an ongoing conversion that needs to evolve as the industry evolves. Partnerships between these industry players hold immense potential for driving financial inclusion in Nigeria. By combining their unique strengths, these stakeholders can improve their technology and create user-friendly, accessible financial services for the unbanked and underbanked population. Addressing regulatory hurdles, fostering data collaboration, and nurturing a culture of collaboration are all crucial steps towards building a more inclusive financial ecosystem for Nigeria. As these collaborations deepen, millions of Nigerians will gain access to the financial tools they need to participate fully in the economy.