Innovations in Digital Banking and Payments to Reach the Unbanked Population

What are some of the most promising innovations in digital banking and payments that have shown potential in reaching the unbanked population?

Based on the definition of innovation as a concept that has recorded successful outcomes, I would say that mobile money remains the most promising innovation in digital banking and payments and more specifically, the USSD platform that allows feature phone users enjoy payment and transfer services. The simple set up and easy to follow steps drives quick adoption across all income classes.

The advent of mobile money has been a significant gamechanger for accelerating access to formal financial services and closing the exclusion gap globally and in Nigeria. It has been recognised as a key entry level platform to drive formal inclusion among the unbanked population through the adoption of Digital Financial Services (DFS). This assertion is due to the increasing availability of mobile money agents and ownership of mobile phones amongst the low-income population in Nigeria, especially ownership of feature/basic mobile phones. Moreso, an increased adoption of mobile money enables access to other formal programmes such as government-to-person (G2P) cash transfer programmes, which all together strengthen the interest to use mobile money and in turn accelerates formal financial inclusion. 

As mobile devices become more affordable, mobile network coverage expands, and digital ID is easily accessible, digital financial inclusion of the unbanked through DFS will improve significantly.

How can these innovations address specific challenges faced by the unbanked, such as lack of access to traditional banking services or financial literacy?

From the demand-side, mobile money addresses the limitation of availability of and accessibility to bank branches; while on the supply-side, it creates a non-bank platform to provide financial services to the unbanked. It essentially has accelerated door-step banking over the years for excluded groups in Nigeria. According to the 2023 A2F Survey findings, non-bank players, particularly fintech companies, contributed significantly to financial inclusion growth, accounting for about 90% of the 64% growth in formal financial inclusion.

The adoption of financial service agents who are responsible for onboarding new customers or providing mobile money services, has seen an extraordinary increase from 4.4% to 54% in 2023, benefiting 11 million financially excluded Nigerians. These agents are also a low-cost channel to deliver financial literacy programmes to their communities in a language they understand. In a nutshell, digital channels provide convenient access for this class of customers at a lower cost for financial service providers including banks and have therefore been instrumental in helping them overcome the challenges related to infrastructure and geographical location.

In what ways can governments and regulatory bodies support the implementation and scaling of digital banking solutions for the unbanked?

The evolution of the regulatory environment in the Nigerian financial services ecosystem has played a crucial role in driving financial inclusion. The Central Bank, over the years has progressively created an enabling environment for various Fintech players to grow and spurred the growth of financial service agents through the implementation of various initiatives such as the Shared Agenet Network Expansion Facilities (SANEF), all in response to the objectives of the various iterations of the National Financial Inclusion Strategy (NFIS). However, the financial inclusion ambitions for Nigeria cannot be achieved by the Central Bank alone as Financial Inclusion in and of itself is a multifaceted issue that requires an active multi-agent approach from a policy and regulatory standpoint to address.

For this reason, the most important way that government and regulatory bodies can support the scaling of digital banking solutions for the excluded is through collaboration – creating robust policies and regulations across departments and agencies that are not counter-intuitive or counter-productive at the detriment of the vulnerable groups. The Central Bank of Nigeria (CBN) for instance must ensure that its regulations or policies complement the National Identity Management Commission’s (NIMC) processes or policies. For example, enrolling for the National Identity Number should not be undermined as it serves as the foundational ID for all Nigerians and a key enabler for financial inclusion for all, and this can only be achieved through committed collaborations – therefore, the ongoing mandatory NIN/BVN requirement for all Nigerians symbolises this type of collaboration for scaling access.

What role do partnerships between fintech companies, traditional financial institutions, and non-profit organizations play in advancing financial inclusion through digital banking?

Multi-stakeholder partnerships in a multidimensional ecosystem like financial inclusion is always a great idea. As I mentioned prior, financial inclusion is a multi-dimensional issue that requires multiple actors working together to address robustly and sustainably. 

Partnerships between the highlighted parties promote the following:

  1. Access into new market segments among the un(der)banked populations.
  2. Spurs the development of Innovative products that are useful and valuable. 
  3. Increased ways of using data to drive customer engagement and product usage.

The Fintechs wouldn’t be able to create easy access to banking services at a more affordable cost without an enabling regulatory environment. The regulatory environment may not have been inspired to act if there were no non-profit-organisations actively advocating for the inclusion of the most vulnerable groups. The traditional financial service providers may still not be able to play in the low-income market without the existence of the Fintechs, and thus an increased risk of leaving them behind. In essence, partnerships, either directly or indirectly are necessary for financial inclusion to thrive.

What are the potential risks and barriers associated with adopting digital banking solutions for the unbanked, and how can they be mitigated effectively?

The risks associated with the adoption of digital banking are the same nature of risks associated with technological innovation, ranging from data insecurity, cyber-security risks and so on, which can impair a consumer’s trust. Trust is the main currency in any banking system, be it formal or informal, and even more so for the vulnerable groups where there’s usually a language and illiteracy barrier. Below are some of the challenges highlighted in the 2023 A2F Survey report with digitally enabled platforms that customers use:

  • 6% of those using microfinance banks experienced losing money/money missing from accounts e.g. card/PIN fraud while using their microfinance account.
  • 52% of formally served Nigerians do not feel that information on financial products or services is consistently provided in a clear and easily understandable manner.
  • 19% feel that the bank platform is always down.

These occurrences do not strengthen trust and as such it is critical to ensure they are reduced to the barest minimum if not to zero occurrence. To drive trust levels, financial service providers have a responsibility to ensure that their solutions render more up-time than down-time, the government and relevant agencies must also have the enabling infrastructural environment to support more frequent up-times; and the regulators must have strong consumer protection redress mechanisms which can be easily adopted by or extended to the unbanked. There must be  policies  that take into account the nuanced barriers the unbanked populations are typically faced with, as well as hold the service providers accountable. The CBN’s Consumer Protection Department currently has this in place and continues to ensure all formal (bank and non-bank) financial services consumers’ interests are protected. Finally, a data protection law that guards against all Nigerians’ exposure to unlawful and illegal use of their personal data with dire consequences for any infractions. Nigeria recently signed its data protection act in 2023.

Chinasa Collins-Ogbuo is the Advocacy & Communications Lead at EFInA (Enhancing Financial Innovation and Access) where her primary mandate is to lead strategic advocacy and communications efforts to enable financial inclusion deepening In Nigeria. I4ALL (Inclusion for all) is a multifaceted advocacy platform affiliated to EFInA (Enhancing Financial Innovation & Access), with the primary goal of ensuring that the poorest and most vulnerable Nigerians excluded from formal financial services are given a pathway to digital and financial inclusion. 

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