Recently, Nigeria has witnessed a remarkable economic transformation due to the rise of fintech and digital payments. But what exactly is fintech, and how is it reshaping the financial landscape of this African nation? This article will look into the rise of fintech and the impact of digital payments on Nigeria’s economy.
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Introduction to Fintech and Its Impact on the Nigeria Economy
The rise of fintech has been instrumental in transforming Nigeria’s economy, particularly in digital payments. With the advent of digital payment solutions, financial inclusion has become more attainable for all citizens. The fintech space has witnessed significant growth as digital assets and currencies become the norm. The central bank has established regulatory policies and guidelines to facilitate this shift to ensure a secure and efficient digital economy.Some popular digital payment systems in Nigeria include USSD codes, mobile apps, and online payment gateways provided by banks and fintech companies. Click To Tweet
Digital wallets have emerged as a popular tool for conducting financial activities. They offer convenience and ease of use, allowing individuals to seamlessly make bank transfers and engage in commerce. These digital platforms provide various digital solutions to meet multiple financial needs. As Nigeria strives for economic growth, integrating digital payments has played a vital role in driving development and enhancing financial activities.
In light of the COVID-19 pandemic, the importance of digital payments is further underscored. Digital wallets and offerings have become essential for conducting transactions safely. The ability to make contactless payments has safeguarded individuals and ensured the continuity of economic activities.
The regulatory framework surrounding digital payments has also been pivotal in fostering trust and security within the fintech industry. By implementing guidelines and policies, the central bank has created a conducive environment for the growth of digital assets and currencies. These regulatory measures have not only protected consumers but have also promoted transparency and accountability in financial transactions.The rise of fintech has been instrumental in transforming Nigeria's economy, particularly in digital payments. Click To Tweet
Furthermore, adopting digital payments has paved the way for increased financial inclusion. Previously underserved populations now have access to financial services through digital wallets. It has opened up opportunities for individuals to engage in economic activities and gain financial independence.
The transformation brought about by digital payments has also positively impacted businesses. With the ability to accept digital payments, merchants can expand their customer base and cater to a wider audience. It has led to increased commerce and economic growth.
Stats and Facts about Digital Payments and Fintech in NigeriaThe difference between fintech and digital banking is while fintech is a broad category that refers to the innovative use of technologies, products, and business models in the delivery process of financial services and products,… Click To Tweet
According to Statista,
- Total transaction value in the Digital Payments market is projected to reach US$19.13 billion in 2023.
- Total transaction value is expected to show an annual growth rate (CAGR 2023-2027) of 13.69%, resulting in a projected total amount of US$31.96bn by 2027.
- The largest market is Digital Commerce, with a projected total transaction value of US$16.59 billion in 2023.
- From a global comparison perspective, the highest cumulated transaction value is reached in China (US$3,427.00 billion in 2023).
The digital payments market is currently experiencing a surge in growth, driven by the increasing adoption of e-commerce and mobile payments and the rise of contactless payments due to the COVID-19 pandemic.
Digital wallets and mobile payment apps such as PayPal, Venmo, and Cash App have become increasingly popular among consumers, allowing seamless and secure transactions.The digital payments market is currently experiencing a surge in growth, driven by the increasing adoption of e-commerce and mobile payments and the rise of contactless payments due to the COVID-19 pandemic. Click To Tweet
Additionally, the growth of fintech startups and the integration of blockchain technology into payment systems have contributed to the expansion of the digital payments market.
Several factors are driving the growth of the digital payments market. Firstly, the convenience and speed of digital payments have made them a preferred payment method for consumers, particularly among younger generations.
Secondly, the increasing digitisation of businesses has led to a growing demand for digital payment solutions that can streamline transactions and reduce costs.
Thirdly, the rise of e-commerce and online marketplaces has increased the need for secure and efficient payment systems to facilitate cross-border transactions.
Finally, the COVID-19 pandemic has accelerated the adoption of contactless payments as consumers and businesses prioritise safety and hygiene.
The global digital payments market will grow positively in the coming years. The Asia-Pacific region is expected to dominate the market, followed by North America and Europe, owing to the increasing adoption of digital payments in these regions.
The rising number of partnerships and collaborations among payment service providers and the implementation of advanced technologies such as blockchain and artificial intelligence are also expected to drive market growth in the coming years.The growth of fintech startups and the integration of blockchain technology into payment systems have contributed to the expansion of the digital payments market. Click To Tweet
How Fintech is Reshaping the Financial Landscape of Nigeria
According to this source, the Nigerian Inter-Bank Settlement Scheme (NIBSS) led this digital revolution in Nigeria by introducing the NIBSS Instant Payment (NIP) system 14 years ago. NIP enables swift transactions across multiple channels, such as mobile apps, web/internet banking, and ATM transfers.
While banks initially led the way in adopting digital payment platforms, younger companies and startups have emerged as key players in the market. Resulting in a surge in digital payments, with Nigerians completing an average of 818.4 million monthly transfers in the first five months of 2023. Resulting in a significant increase compared to 2016, when the average monthly transfers were 12.9 million.
The volume and value of digital payments in Nigeria have been steadily increasing over the years. A report by payments firm ACI and GlobalData projected that Nigerian real-time payments would reach 8.9 billion transactions by 2027. However, data from the first five months of 2023 already show 4.1 billion payments, indicating a potential total of 9.7 billion transactions by the end of the year.
The value of digital payments in Nigeria has also seen remarkable growth. From 38.2 trillion in 2016, the total worth of naira transfers reached 387.1 trillion by the end of 2022. In the first five months of 2023 alone, the transaction activity amounted to 211.1 trillion naira, signalling further acceleration.The convenience and speed of digital payments have made them a preferred payment method for consumers, particularly among younger generations. Click To Tweet
The average transaction amount has decreased over time, indicating greater adoption of digital payments for everyday transfers. In 2016, the average Nigerian customer sent 247,337 naira; by Q4 of 2022, it dropped to 75,393 naira. In 2023, the average transfer amount dipped even further to 51,592 naira, reflecting the increased penetration of digital payments.
While the revenue of NIBSS, the leading provider of real-time payments in Nigeria, is not publicly disclosed, it charges a fee for each transaction. The fee per transfer has been reduced from 50 to 3.75 naira, resulting in a projected revenue of 25.6 billion naira in 2022. Data from the first five months of 2023 suggest that NIBSS has already generated 20.5 billion naira in revenue and could potentially double this figure by the year-end.
Despite the impressive growth in digital payments, the industry still faces challenges and vulnerabilities that must be addressed. However, the progress made so far demonstrates the increasing reliance on digital payments in Nigerian society.
In conclusion, the rise of fintech and digital payments has revolutionised Nigeria’s economy. Integrating digital solutions and adopting digital wallets have enhanced financial inclusion, economic growth, and overall development. With regulatory policies and guidelines in place, the digital economy in Nigeria is poised for further expansion and innovation.The digital payment system in Nigeria refers to the electronic payment platforms and infrastructure used for conducting financial transactions in the country. Click To Tweet
Frequently Asked Questions (FAQs)
What Is the Digital Payment System in Nigeria?
The digital payment system in Nigeria refers to the electronic payment platforms and infrastructure used for conducting financial transactions in the country. It includes various methods such as mobile banking, internet banking, mobile money, and electronic payment cards. The system allows users to make payments, transfer funds, and perform other financial transactions without physical cash. Some popular digital payment systems in Nigeria include USSD codes, mobile apps, and online payment gateways provided by banks and fintech companies.
Is Opay a Fintech Company?
Yes, Opay is a fintech company.
What Is Fintech in Nigeria?
According to McKinsey, Fintech is a portmanteau of “financial technology” and refers to using technology to improve and automate financial services. In Nigeria, fintech has become a rapidly growing industry that is transforming the country’s financial landscape. According to a report by McKinsey, Nigeria is home to over 200 fintech standalone companies, plus several fintech solutions offered by banks and mobile network operators as part of their product portfolio. 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.
What Is the Popular Fintech Company in Nigeria?
Some of the most popular fintech companies in Nigeria (in no particular order) are Flutterwave, Piggyvest, Paystack, Interswitch, Kuda Bank, Carbon, Paga, Lidya, pay, Remita, Moniepoint, eTranzact, etc.
What Is Fintech?
It is the use of technology to improve and automate financial services. Fintech companies provide mobile payments, money transfers, loans, insurance, and investment management services.
What Is Fintech and Digital Banking?
The difference between fintech and digital banking is while fintech is a broad category that refers to the innovative use of technologies, products, and business models in the delivery process of financial services and products, digital banking is a step up from the traditional banking system to digital channels such as online, social and mobile.
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