By Rarzack Olaegbe
Here are a few things fintech can do. It can reduce the cost of a bank account. It can let more people get loans. It can improve remittances. It can enable more savings accounts. But research shows that there are two billion people without access to formal accounts. That is, they don’t have a way to save money safely. And conveniently.
Without a savings account, many people save their money under their mattresses. Or invest it in livestock. Animals do produce a return on investment. They reproduce more animals. But you cannot make cash withdrawals from a pig. If the pigs die, your investment dies. Savings accounts can improve financial literacy. It can breed safer investments. It makes it easy to withdraw funds.
But technology alone cannot make this possible. Can it make change happen? Perhaps yes. It depends on your perspective. It can bring positive social change. Again, it depends on your perspective. When finance joined technology it birthed fintech. Fintech brings hope. But is fintech, not another traditional financial service? Can fintech move the needle of financial inclusion?
On the one hand
In Mexico, the financial inclusion levels have worsened. Since 2018. This is so despite a burst of some pro-inclusion fintech apps including Klar, Kueski Pay, Stori and Albo. They have failed. They offered no signup fee. They are sexy. Yet, they could not deliver. They have all fallen short.
Because of this shortcoming, the National Inclusion Report (ENIF) explained that cash still drives 90 per cent of transactions. This means Mexico’s economy is far behind similar economies like India, Kenya and Brazil in terms of inclusion and its reliance on cash. While attracting millions of users, these startups are struggling to move the needle around Mexico’s informal economy.
Maelis Carraro, Managing Director of BFA Global told Reuters that fintech innovators have not yet delivered on their potential to build solutions for underserved communities. These fintech firms are targeting metropolitan elites. Not the poorer, rural communities, where banking infrastructure is most needed.
But the fintech firms have their issues. They need more regulatory support to create impact. For instance, the digital players are not licensed as the banks. Until this is done, “inclusion will continue to hit a ceiling.” Juan Guerra, Revolut’s Mexico chief executive said.
In Mexico, fintech users have not linked their digital accounts to licensed banks. They still require a visit to traditional brick-and-mortar branches. Since the government introduced its ‘fintech law’ in 2018, 58 companies have been approved. Or given provisional payment licenses. Yet no new retail banking licenses have been issued. Mexican adults with bank accounts have moved to 49.1% in 2021. The card usage for larger transactions has increased to a modest 12.3%.
With international startups like Nubank, Uala and Revolut, Mexico is still struggling to move the financial inclusion needle. To help, the Mexican government has undertaken a pilot project to get women banked.
On the other hand
In Nigeria, fintech firms have thrived. They are deepening their outputs. Aside from payments, they are offering other services that have helped to push the financial inclusion needle. They are into lending. Micro-investment. Wealth management. Peer-to-peer transfers and insurance. Payments and remittances are the most developed subsector to date.
State of play: Fintech in Nigeria, a report of the Economist Intelligence Unit, which was sponsored by Mastercard and MTN Group stated that Nigeria has seen a surge of new and simplified apps to help merchants, businesses and consumers.
Ebehijie Momoh, the senior vice president/general manager for West Africa, at Mastercard, explained that the report examined the key trends in Nigeria’s fintech sector. It assessed both industry drivers and impediments to further growth.
Figure from the Nigerian Inter-Bank Settlement System Plc (NIBSS) has revealed that active bank accounts have increased from 97.485 million active accounts to 111.54 million. The increase is a big boost to achieving the National Financial Inclusion Strategy goal. Fintech in Nigeria may have pushed the needle of financial inclusion a little. The sector needs to “address shortcomings in the broader ecosystem”.
In the short term
Can we then invite the Mexican government to lookup how we have done it?
We are still a cash-based economy. There is nothing to gloat about.
You do not mean it!
Financial inclusion is still a big problem here.
What is the way forward?
Banks cannot push this needle alone. We still have millions of unbanked Nigerians.
And Mexico?
The fintech has moved the needle. However, Fintech cannot do a few things.
