Digitalisation and connectivity are twin-words shaping the new era of business transaction. There are gaps to be filled in the provion of financial services to adequately address the Federal Government’s financial inclusion goals for 2020. But financial technology (fintech) firms are springing up to close access gaps in the provison of financial services. LUCAS AJANAKU reports.

Technology-driven advances in providing financial services, widely known as “fintech,” are making it easier for ordinary people to gain access to new and more efficient financial products.

Like all technological advances, however, the benefits are distributed unequally and consumers worry about both their digital assets and the information about them that may circulate along with those assets.

At the weekend, the International Monetary Fund (IMF) released a policy paper on fintech that reviews the technology and considers fintech’s implications for the IMF and the World Bank. The paper is based on a survey of central banks, finance ministries and other government agencies in 96 countries that responded (out of 189 that were asked).

Top on the mind among respondents were security and data protection risks.

Nearly four of five (79 per cent)respondents in high-income jurisdictions said that fintech’s cyber risks were a problem for the financial services sector. However, only a third of all respondents have examined the “technological interdependencies between networks, systems or processes within the financial sector, or looked at concentration risks among big technology providers that could threaten financial infrastructure.”

The most famous cyberattacks of all time have affected millions of people.

The IMF cited positive impact on consumers in emerging economies brought on by the development of mobile payments.

Non-financial services firms are challenging traditional financial institutions by offering services such as AliPay and ApplePay. The IMF expects large technology firms (like Apple and Facebook) “to play an increasingly greater role in the provision of financial services” although it is not clear how this new competition will affect traditional financial services firms.

Both ApplePay and Facebook’s proposed Libra digital currency are backed in one way or another by a traditional payment (e.g., a credit card) or by a fiat currency.

The effect on monetary systems and financial stability from central bank-issued digital currencies is another concern for stakeholders.

The IMF noted that no clear case has yet been made for a central bank-backed digital currency, but that about 20 per cent of respondents are “actively examining” the possibility of doing so: “The main reasons cited in favour of issuing digital currencies are lowering costs, increasing efficiency of monetary policy implementation, countering competition from cryptocurrencies, ensuring contestability of the payment market, and offering a risk-free payment instrument to the public.”

One central bank-backed digital currency that is moving to a new stage of development is the Utility Settlement Coin.

The report also provided regional perspectives on fintech developments. Sub-Saharan Africa, for example, is the global leader in “mobile money innovation, adoption, and usage.”

Between 2014 and 2017, the share of adults in these countries with a mobile money account nearly doubled to 21 per cent. Mobile money transactions in sub-Saharan Africa represent nearly 10 per cent of total gross domestic product (GDP), compared with just seven per cent in Asia and less than two per cent in other regions.

The Asia/Pacific region “is ahead of other regions in nearly every aspect of fintech.” What’s missing is homogeneity in technology adoption. In Europe, the fintech market is “growing rapidly but is unevenly distributed,” with non-European Union (EU) countries trailing their EU peers in technology adoption.

In the Middle East and Central Asia, the fintech industry is now “growing rapidly” after a slow start.

In Latin American and Caribbean countries, the story is much the same.

The United States (U.S.) accounts for the vast majority of fintech patents registered and about half of the $85 billion in venture capital financing for fintech startups.

Most of the rest is divided roughly evenly between Asia and Europe. Nearly all the Western Hemisphere’s venture financing for fintech startups (97 per cent) is passed out in the U.S.

The IMF also recently took a closer look at the U.S. economy, voicing in particular concerns about trade and debt.

In Nigeria, during  the first quarter (Q1) of last year, the Central Bank of Nigeria (CBN) said to reach the goal of 80 per cent inclusion by 2020, an additional 7.6 million adult would need to be financially included.

Factors such as illiteracy, security challenges and slow penetration of financial services in rural areas had slowed the pace of inclusion.

General Manager of Mobile Financial Services at MTN Nigeria, Usoro Usoro, said by the end of the year, Enhancing Financial Innovation and Access’s (EFInA) biennial results illustrated that the progress made towards this goal had been modest, with only an additional 3.5 million individuals included between 2016 and last year.

He said it was imperative to look at the developments that brought about  the limited and provided a strong indication of what to expect from the various industry players, as well as the most suitable next steps to help realise the goal.

According to Usoro, the establishment of agent networks served as proxy channels for banks, to enhance their reach of marginalised communities. Yet, despite having up to 10,000 agents in 2017, the impact of this reach was yet to be felt, as most of these agents delivered their services in semi-urban or urban areas. The slow growth of this initiative led to the launch of the Shared Agent Network Expansion Fund (SANEF) Initiative – it was designed to introduce an  extra 500,000 agents by 2020, to cater to an additional 60 million Nigerians in rural and underdeveloped areas.

According to him, with the limited time, there was some skepticism about how quickly the agents could be trained, on-boarded, licensed and begin to operate, especially as the process of establishing 10,000 agents had taken up to seven years. This initiative, while capable of enhancing access for the financially excluded, lacks the required trajectory that will enable Nigeria to meet the 2020 target.

Unified financial data base

The Know-Your-Customer (KYC) requirements of 2015 which was largely anchored on the Bank Verification Number (BVN) had provided a way to achieve the primary objective of creating a unified national financial database; enhancing e-payments and reducing fraud risks.

Last year, the effective implementation of the Tiered KYC Requirements still required an additional review – the challenges remain for customers based in rural areas, who have limited access to physical bank branches, and the capital intensive nature of BVN registration also reduces the ability for banks to ease this challenge. The enforcement of BVN registration for these groups of customers (usually Tier 1 account holders with the lowest verification requirements and account limits) potentially reduces the rate at which financial inclusion is achieved.

Other stakeholders

Usoro said with banks dominating the activities of the financial inclusion agenda, key stakeholders in other industries identified the need for collaboration to accelerate efforts.

Nigeria’s largest telecoms operators – MTN, Globacom, 9mobile and Airtel  under its umbrella body, the Association of Licensed Telecoms Operators of Nigeria (ALTON) resolved to leverage their vast reach and resources to deliver access to financial services to 90 million customers by 2020, and deepen financial literacy across the country. This readiness for participation by non-financial stakeholders was timely, as it coincided with the CBN’s launch of the Payment Service Banking (PSB) licence months after.

This development was significant, considering that the licence would enable non-banks – including telecommunications companies, retail chains, postal and courier service companies, mobile money operators, and FinTechs – to obtain a licence to operate in the financial sector.

Lenders kick

But the PSB initiative doesn’t appear to go down well with commercial banks in the country the way they resisted resort to operator-led mobile money scheme.

Guaranty Trust Bank (GTBank)  said the decision of the apex bank to license telcos for payment services is a threat to banks’operation.

In a report, titled:  Nigeria Macro-Economic and Banking Sector Themes 2018, the banks said PSBs will compete with commercial banks for earnings.

“A more compelling threat, however, relates to the recent decision by the CBN to license PSBs to facilitate transactions in remittance services, micro-savings and withdrawal services in rural areas,” it said in the report.

Though it’s a positive move for customers, the report said it would improve customer service and digitalisation of banking services while enhancing financial inclusion.

Last year, MTN Nigeria and Airtel  announced plans to delve into mobile money services with the former expressing hopes that it would get the CBN’s approval and launch in Q2 of this year.

The PSB licence will, however, not allow the telcos to offer lending services and participate in the foreign exchange market.

In the report, the tier 1 lender said the capacity of FinTech firms to gain a significant market share would be limited in the absence of collaborations.

But Usoro said these developments set the pace for the years ahead. While optimistic about the progress made so far, there should be an increased alignment between the need and the delivery of the required services. By ensuring that more seamless approaches to BVN registration and account opening processes are established expediently using agents, industry partners, and other available networks; and providing an enabling structure and environment for the participation of payment service banking licensees.

“As we approach the 2020 deadline for achieving the financial inclusion targets, our current position is prime for making significant headway towards 80 per cent financial inclusion.

”The CBN recently launched a revised National Financial Inclusion Strategy, which will tackle the challenges that have thus far hindered a quicker pace of inclusion – data privacy and security; a lack of transparency; and limited financial education and literacy. There might be need for additional policies to support these new entrants that are mobilised to address these challenges and bridge the gap in financial inclusion.

“The feasibility of a 20 per cent financial exclusion rate over the next 11 to 20 months may appear doubtful; but if the participating stakeholders are able and encouraged to effectively leverage their positions in the national financial inclusion agenda for the ultimate good of the Nigeria populace. We just might be closer to seeing the needed changes that would enhance our economy and society,” Usoro said.