Digital & Payments Convergence; a catalyst for Financial Inclusion

Majority of Nigeria’s population are unbanked. However, digital adoption via mobile phone subscriptions, continue to exceed the number of active bank accounts in the country. Today, Nigeria has a 90% mobile phone penetration rate. This reality is a key driver for the growing convergence of mobile, payments and financial service providers. This convergence creates a unique opportunity to deploy innovative models that will drive financial inclusion in Sub-Saharan Africa’s largest economy.

One key outcome of the convergence has been the emergence of digital and branchless banks; sometimes referred to as Neobanks. These banks leverage digital platforms in providing a seamless experience to both banked, as well as previously unbanked citizens. The Neobank’s ability to potentially acquire, onboard, activate and manage a customer via the mobile phone makes them important partners in connecting people to the digital economy. Depending on the Neobanks business model, they also have the option to offer both smartphone solutions and analogue (i.e. SMS Menu) options.

Beyond the digital-led features, aspects of the core business model of leading Neobanks further support Financial Inclusion. Common elements include:

Freemium Service: No fees for the basic service but customers might pay fees for the premium segments.

Efficient Account opening: typically under five minutes.

High interest savings accounts.

Open banking is another innovative concept which supports convergence of digital and financial services. The solution enables third-party providers, such as fintechs, to connect to banks through application programming interfaces (APIs). This provides a secure and easy way for consumers’ financial data to be retrieved or for payments to be processed across multiple institutions, providing for an improved customer experience and new revenue streams for operators.

Open banking will consolidate multiple financial services relationships into a single fast, easy to adopt, and unified platform for a consumer. For consumers, open banking creates a completely new customer experience whereby bank customers will be enabled to access their multiple banking, payments, financial and investment relationships via a single platform. Further benefits of open banking is the streamlining of the Know Your Customer (KYC) process. This concept will certainly increase the importance of digital channels for banks from an acquisition and servicing standpoint.

For fintechs, the kind of account and information aggregation that is permitted through open banking will allow them to offer payment initiation services, which enable transfers from bank accounts on behalf of customers. For SMEs, more sophisticated APIs will handle large volumes of data and allow fintechs and cloud-based enterprise resource planning (ERP) software providers to efficiently automate payments and invoicing, while offering financial services like bookkeeping, asset factoring, debt financing, credit lines and supply chain management.

Open banking will also amplify value creation with tangible benefits for the end user. Given that mobile money adoption has grown rapidly in Sub-Saharan Africa, the region has for some time been moving through an exciting period of convergence.

Whilst a large number of consumers throughout Africa may still be without any access to formal banking products, they do have a phone which empowers them to transact. For millions who have never had a brick and mortar bank account, leapfrogging legacy banking to digital first banking services is an easy transition. And, it’s a transition that has been further accelerated in the age of COVID-19.

This dynamic makes it even more important for institutions in the financial payment space to adopt ‘Digital First’ platforms. The Mastercard Digital First program provides a complete digital experience in the world of payment methods. Digital First provides the customer with a 100% digital product: no paperwork, branch visits or snail mail. Customers can open a bank account immediately by uploading identification, apply for a card, activate the card and use it for all of their payment needs from their mobile devices. A physical visit to a branch then becomes an optional extra.

With the Mastercard Digital First program, banks can develop a state of the art, fully digital product that makes payments and banking instantly available to consumers. This means being able to instantly issue a card and enforce card controls in real time. Customers can access all banking features and benefits through the mobile banking app with support delivered via chat – secure, seamless, fast and efficient.

Though the financial sector is already digitally transforming, there are still some barriers to progress, which include a preference for cash in some segment populations (e.g. rural areas) where there is limited infrastructure. It is important to note that access to the internet and data (still very expensive in many parts of Africa) is a critical enabler for adoption of digital financial services. Digital inclusion is, therefore, a prerequisite for financial inclusion.

At Mastercard we are addressing this challenge through our partnerships with Samsung, Airtel and Asante to put digital devices in the hands of more people who can pay for them with small, manageable instalments while also building a credit history.

For Fintechs to continue to drive the digital transformation, they need a number of important enablers: funding, technology that can drive innovation, harmonised regulatory environment, a supportive ecosystem, and talent. These form the basis for a healthy and enabling innovation ecosystem, which fintechs need if they are to accelerate financial inclusion and drive economic growth across multiple sectors of the Nigerian economy.

So what other services can be developed leveraging the convergence of digital and financial services? The options are endless but the key is to understand user needs and behaviors through research, in-market assessment and cash journey mapping. Once we know the “why” and “what” of the consumer pain points, we can identify the solutions, consider the partners with the required expertise, and activate the innovation.

It is this convergence-led innovation and collaboration that will contribute to achieving Nigeria’s financial inclusion goals, connecting millions of people that are still excluded from the formal economy into a vibrant and thriving digital economy in Africa.