Digital Banking in Nigeria is on the rise in 2023

Like e-commerce, digital banking has exploded globally since the pandemic. So much so that experts project digital banking users to reach over 3.6 billion globally by 2024.

In the United States, for instance, 203 million Americans used online banking services in 2022, according to bankrate.com, while 93% of users in Great Britain prefer digital banking, based on records from Statista.

Meanwhile, Nigeria was recently named Africa’s digital payments leader, and the country’s banking sector is also the most digitized in the continent. According to a 2022 press release, Nigeria recorded 3.7 billion real-time payments in 2021, earning the sixth spot among countries with the biggest real-time payments markets.

This would not have been possible without Nigeria’s advanced financial technology structure and the support of the public and private sectors—which continues to strengthen their collaboration for 2023 and beyond.

Let’s take a closer look at the country’s digital banking sector and discuss its current and future performance.

How big is Nigeria’s digital banking industry? 

One of Africa’s most vibrant economies has seen a steady rise in financial technology innovations in recent years. According to reports, over 200 fintech firms in Nigeria provide online access to mobile payments, digital banking, and commercial and personal finance activities. A separate report by PriceWaterhouse Coppers, or PWC, indicated that fintech investments in the country were valued at over USD$200 million from 2011 to 2018. A separate report from McKinsey showed USD$460 million worth of investments in the sector in 2019.

A strong fintech sector translates to an active digital banking industry. According to the Financial Consultancy Group or Fincog and BPC Banking Technologies, 80% of the 21 digital banks or neo banks in Africa were operating mainly in Nigeria and South Africa as of 2021. These institutions had 18 million users in the said period.

As a primary digital banking feature, the online payments sector is also big in the country, as mentioned above. Digital payment services rose to USD$3.2 billion in 2021, about 0.67% of Nigeria’s gross domestic product (GDP), according to a study by ACI Worldwide in collaboration with GlobalData and the Centre for Economics and Business Research (Cebr). The study also discovered that 64.7% of Nigerian consumers own and use a mobile wallet.

By 2026, the country’s transactions are projected to reach USD$6 billion or over 1% of the national GDP. The figure places Nigeria as the fourth largest real-time payment market worldwide.

What lies ahead for Nigeria’s financial technology sector in 2023

Nigeria’s digital banking sector will experience unprecedented growth in the coming years as the government strengthens its drive to develop the country’s technological infrastructure. The National Broadband Plan aims to increase national broadband access to 70% by 2025. As of September 2022, over 45% of the target has been achieved.

Digital banks will continue to use advanced technologies to meet customers’ various needs. For instance, one of Nigeria’s leading banks has launched a fully automated branch and tapped artificial intelligence to process high-volume transactions.

Besides the expected increase in online payment transactions and digital loan activities, Nigerians can expect more innovative digital financial product offerings in 2023 and beyond.

More importantly, fintech companies and digital banks will continue to improve their security measures, easing consumers’ fears of fraud and cyber hacking.

As it is, revenues from Africa’s financial services market could reach USD$230 billion by 2025, as projected by McKinsey. South Africa generates 40% of the total income, while emerging markets include Ghana, Nigeria, and Egypt, with growth rands predicted at 15% and 12%, respectively.

The history of digital banking in Nigeria

The First Bank of Nigeria Limited, or FirstBank, was established in 1894 and was Nigeria’s premiere bank until 1925 when Barclay’s Bank in Nigeria was formed. In 1948, the British and French Bank for Commerce and Industry opened, which has since changed its name to United Bank for Africa.

Until the early 2000s, financial institutions relied on manual processes and paperwork to facilitate local and international transactions, no matter how complex they may be. Nigerian banks had the same predicament but stood at the forefront when the opportunity for automation was raised.

ATMs were the earliest banking technology available, and Nigeria had its first machine in 1989. As of 2021, there were 16 ATMs for every 100,000 adults in the country, per the World Bank.

Banking on the success of remote banking machines, Nigeria introduced NIBSS Instant Payments (NIP), its real-time payments scheme, in July 2011. This technology played a significant role in Nigeria’s digital banking sector by making mobile and internet banking possible.

Six years later, the first digital-only bank opened its doors to consumers. And the rest, as they say, is history.

Benefits of digital over traditional banking

Digital banking enables users to transact online. Using a desktop computer or a smartphone, an account holder can perform balance inquiries, fund deposits, transfers, or payments, among many others.

To this end, digital banks provide the following benefits versus traditional brick-and-mortar financial institutions:

• Low transaction fees to zero transaction charges

Leading traditional banks in Nigeria reportedly earned an accumulated income of ₦554.23 billion in 2021, substantially higher than ₦428.3 billion a year before. These earnings are mainly from the bank charges and commissions imposed on specific transactions.

Transaction fees vary from bank to bank and are subject to government regulations. For example, debit or credit card issuances cost up to ₦50 quarterly, whereas bank transfers range from ₦50 to ₦300, depending on the amount involved. Digital banks, on the other hand, offer free debit cards and transfer fees as low as ₦10.

Both traditional and digital banks are subject to weekly cash withdrawal caps of ₦100,000 for individuals and ₦500,000 for corporate entities, effective 09 January 2023.

• Convenience and ease of use

By downloading the bank’s app on your phone and creating an account, you can log in anytime, even on the go. Bank apps are user-friendly and easy to navigate, making every transaction a breeze.

With online banking, Nigerians don’t have to stress over the rollout of new naira notes. Nigeria released the new currency on December 2022, and it will be accepted until January 2023. So far, the Central bank of Nigeria has encouraged residents to deposit their old notes before this period.

• Time and costs

Transactions are purely online and can be over in a few seconds to a few minutes, so long as the user has access to a fast internet connection. Instead of going to the bank, account holders with internet-connected smartphones can perform several transactions without the hassles of commute and long queues.

This is especially helpful when you’re currently located in Nigeria’s rural areas, where transport costs can be prohibitive. Note that Nigeria has one of the highest inflation rates in the world, pegged at over 21% in November and December 2022.

With online transactions, there’s no need to spend on transportation fees, and you don’t have to waste time waiting to be served.

• Easy account opening

Conventional banks require identification, income source, and other documents from their clients. On the other hand, digital bank applicants only need to prepare and take photos of their identification cards containing the user’s name, address, and contact details. A validation or transaction number is then issued, and online applications are almost always approved within hours.

• Service efficiency

Unlike humans, machines are less prone to errors and delays, excluding technical glitches. One of the primary benefits of transacting with online banks is increased efficiency. By automating processes, digital financial institutions can reduce transaction times considerably while maintaining transparency. These entities also have built-in cyber security systems that detect and combat fraudulent transactions.

• Operational cost reduction

Full-fledged digital banks don’t need high costs to operate. There’s no need to pay for building rentals and tellers, which allows them to maximize their profits. This benefit is passed on to their consumers through lower transaction rates.

Because of the digital banking boom in Nigeria, multinational banking firm Standard Chartered has decided to close down 12 of its 25 physical branches to save costs.

• 24/7 service

Traditional banks operate from 8 AM to 4 PM on weekdays and are closed on weekends and non-working holidays. On the upside, clients can still perform certain transactions via ATMs even after bank closures, but it would still require consumers to find the machine nearest them.

On the contrary, digital banks are always open, so you can avoid the stress of going to the branch early to fulfill your financial obligations like bill payments or fund transfers. Online banking stays reliable when time is of the essence.

• Promoting greater banking access

Nigeria covers about 923,768 square kilometers of land, making it the 14^th largest African country. It’s the continent’s most populous nation, though, with over 213 million people as of the latest count.

Data from the Enhancing Financial Innovation & Access (EFInA) showed that 51% of Nigerian adults have access to some form of traditional financial services, while 45% have banking access as of 2020. The survey also discovered that 38 million adult Nigerians, mostly in rural areas, have no access to any financial services.

However, the government and private sectors are optimistic that more residents will have access to online banking in the coming years, owing to the expanding broadband coverage in the country.

Final thoughts

While most financial transactions in Nigeria still involve physical notes, indications show a continuing shift toward digital banking. This movement is driven by a strong collaboration between the government and private sectors, paving the way for a more robust infrastructure. The benefits of digital banking, namely convenience, unlimited access, and cost savings, are also significant drivers.

On the other side, financial service providers, especially digital banks, must provide fast, secure, simplified, and customized services to cater to consumers’ needs. Doing so ensures longevity and resiliency in the highly competitive online banking sector.