Nigeria’s Low Banking Penetration Creates Opportunities for PSBs

Nigeria was ranked as the fifth African country with low banking penetration, due to its high proportion of unbanked population compared to other African countries such as South Africa, Kenya, Botswana and Ghana.

A report by Endeavor Nigeria titled “The Inflection Point Report” listed the five African countries with the highest banking penetration. South Africa has 67% of the population with bank accounts, Kenya 56%, Botswana 45%, Ghana 42% and Nigeria has 39% of its population representing the fifth African country.

The data of the Nigerian Interbank Settlement System (NIBSS) shows that the number of bank account holders was 55 million as of May 29, 2022. The results also show that 37 million adults, representing 36.8% of the adult population, are financially excluded.

Many of these Nigerians who are financially excluded are low income, low literacy people who reside in geographically inaccessible areas characterized by weak or absent information technology and communications infrastructure.

However, banks are struggling to deploy their infrastructure in these areas. Gloria Fadipe, Research Manager, FCMB. said that every bank wants to break even and increase profitability, which is its benchmark.

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The establishment of ATM branches and galleries by the bank will require higher demand from its customers. This will lead to greater penetration of banks, which rural areas cannot guarantee.

She further stated that “the inaccessibility of banks bridges the gap for telecom operators to exist, thereby giving them the opportunity to take advantage of its space of financial markets in such a geographical area.”

According to an EFINA report on Payment Service Banks (PSBs) in Nigeria, the Central Bank of Nigeria (CBN) requires PSBs to allocate 25% of their business to rural areas.

Its financial implication is to establish these access points for people who lack sufficient liquidity. However, PSBs should focus on the unbanked population and the financially excluded.

Ajibola Olude, Executive Secretary, Association of Telecommunications Companies of Nigeria (ATCON), said, “A PSB license operator has an opportunity to mobilize untapped resources in rural areas.”

The CBN and other regulators also have a major role to play in educating and sensitizing people who are unaware that the lack of a digital ecosystem that facilitates customers’ advancement through the user journey could greatly affect their evolutionary potential.

Digital channels such as mobile money and prepaid cards provide an alternative for penetrating the large financially excluded population.

The success of the PSBs will largely depend on new investments in telecommunications infrastructure in rural areas, he said.

PSOs are likely to face the same challenges as existing financial service providers. This will significantly hamper their ability to advance financial inclusion.