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There are 2 billion people in the world without access to a bank account, including 41.6% of the adult population of Nigeria adult population. These people are technically termed the “unbanked” and they are a source of untapped market in especially emerging markets.
We cannot examine the unbanked without talking about financial inclusion. Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way. Financial inclusion is how we bank the unbanked.
The unbanked are financially excluded from being able to have access to certain good and services and this limits this specific part of the population from being true consumers. The path from being unbanked (financial excluded to being banked (financial included) turns citizens into full consumers)
Digital finance has the potential to provide access to financial services for 1.6 billion people in emerging economies. With this in mind, delivering financial services through technological innovations, including via mobile money, can be a catalyst to facilitate the entry of millions of previously unbanked people into the formal financial sector.
Digital finance can boost annual GDP of emerging economies by $3.7trillion by 2025. Likewise, raised productivity of financial and non-financial business as a result of digital payments could be a major source of projected increase by decreasing the unbanked population.
The FinTech sector is experiencing explosive growth in Africa but African banks have been slow to adapt to this change. Thankfully, the outlook for mobile banking remains positive because the rapid spread of mobile phones is the game changer that makes financial inclusion possible.
What is it going to take for the widespread adoption and use of digital finance especially by those at the base of the economic pyramid?
First is the creation of a widespread digital infrastructure; across the board connectivity, powerful digital payments framework and a well-disseminated personal identification system. *looking at you NIMC*
Next is a strong agent network; an established distribution network, such as post offices or retail chains, or be built from independent, small-scale traders and other retailers. Agent networks that have been built, incentivised, and managed effectively. Agents that meet the customers where they are.
Third is an effective financial services market; Policy objectives will play an increasingly important role, as the scope of mobile money regulation broadens. Regulation and policies that promote interoperability and interconnectivity will be critical to the success of digital financial inclusion. Also, there needs to be synergy between banks and Telcos not competition. For instance, M-Shwari through the strategic partnership between Commercial Bank of Africa (CBA) and Safaricom has seen success in Kenya.
Last is digital products that offer true advantage in cost and utility for the people that use them.
It is difficult to say what the game changer will be, because of differences in market and regulations. Also, financial inclusion is comparable to a jigsaw puzzle. The various pieces have to be present to complete the jigsaw.
There is no one set way to approach the challenges or assemble the pieces. What’s certain is that the opportunity is colossal.
Focusing on this market and the impact it is projected to have in the Nigerian economy, we have invested in companies like Paystack and Payconnect and are on the lookout for companies using technology to design and deliver financial services. If you are someone/know someone, talk to us.
- Thrive Agric (VP C2) and Kudi.ai (VP portfolio) are a part of the first class of Google Launchpad Accelerator Africa. Details here
- Paystack just introduced a new feature; merchants can now use Paystack without a corporate bank account or a CAC. More announcements from them here
- Jalo (VP C1) have just launched their Marketplace. The Marketplace allows users to find and shop from retailers around them and get their orders delivered the same day. Users can shop for anything from, groceries, to food, to consumer electronics and more. Marketplace is currently only available to residents in Abuja. Go to Marketplace + They have also launched Jalo Retail which provides SMB retailers all the tools they need to run their operations — from selling (online and in store), to inventory management, to payments and delivery — on one platform. Platform available here
- Kudi.ai processed ₦1 billion in the first 19 days of March. See here
Thank you for reading.