We don't care about "digital banking" as much as we think we do

folarin okunola

May 24, 2017 12:14 AM

In reality, Nigeria is still just a “potential market” of 200+ million people. Nothing more.

When you merge the reality and perception of Nigeria's fintech/banking industry, something doesn't add up

Nobody likes going to the bank. The wait times drive you crazy, the service is slow, below par and there is enough paper-filling to make a book — none of which anybody likes to deal with.

To solve this problem, several kinds of ‘digital’ banks and solutions have been peddled from Lagos to Silicon Valley. But does anyone really care?

First, for any of these solutions to truly matter, there has to be a problem being solved and an audience large enough to take advantage of the solutions being proffered for said problem. Nigeria is the most mobile-forward country in the world with one of the highest levels of internet penetration in Africa so there is a case to be made for market readiness.

Except that is not the case. In reality, Nigeria is still just a “potential market” of 200+ million people. Nothing more. Yes, there are more fintech startups than I can count and every bank in the country has some kind of digital solution or the other, but recent numbers from the Nigerian Inter-Bank Settlement Plc. (NIBSS) and the Twinpine report from 2016, say otherwise.

I’ll explain. In 2016, just 553,000 cards were used for POS transactions in 63.72 million transactions with a value of N759 billion. Surely, there aren’t only 553,000 banked people in Nigeria.

ALSO READ: Two African fintech startups just got $50k in funding from Village Capital

Assuming majority of the population is still unbanked and assuming that an appreciable number of those that do do not have bank apps on their smartphones, that would mean there are more card holders using POS than there are card holders using [or who have used] banking apps.

Let’s keep that aside for a moment. Excluding other payment and fintech solutions (because lets face it, they aren’t banks nor do they function like banks), that would mean the closest thing to a traditional brick and mortar bank available to consumers are bank apps and 'DIY' apps like Alat and PayWithCapture.

Now, tying back into the former point [versus the latter], it’s safe to say platforms like Alat and PayWithCapture only have a current target market of roughly 500,000–1 million people to work with. That is not a big market (let’s not forget that they also have competitors). In fact it’s a tiny market. So tiny, it would probably become unprofitable real quick.

So, if there is no market, and the metrics don’t align to make a dent in the industry bottomline, why is everyone scrambling to get the next “digital bank” out there? Early long-term investment in the space? Misguided idea of what the market’s true value is? Perhaps, this is simply a blind race?

I don’t have the answers to these questions. Perhaps you do. Let me know in the comments below.

folarin okunola

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