The year is 2024 and there are over 400 FinTechs in Nigeria offering different cutting-edge solutions, standing toe to toe in terms of speed, security and efficiency with state-of-the-art offerings in developed countries, with millions spent on software and marketing; but a bulk of its small business still prefer to be paid in good ol’ cash.
According to data on the informal sector collected and released by Moniepoint, one in every two informal businesses prefers to receive cash payments over cards or transfers.
The exact numbers come down to 53.8% of businesses who still want the hard legal tender pressed onto their hands. The question however is why is this so?
According to the World Bank, the FinTech industry in Nigeria is worth $9 billion. The industry is home to a handful of unicorns (companies with over $1b in valuation) like Opay, Interswitch, Flutterwave and Esusu. The industry contributes immensely to the banking sector
Investments in the Nigerian FinTech sector have increased in recent years. As per Statista, the Fintech’s Digital Investment market in Nigeria is projected to grow by 11.95% (2024-2028).
Projections show that fintech adoption is set to rise in coming years as more and more businesses and individuals adopt mobile banking, and other modern banking practices. Statista projects that by 2028, digital payments users in Nigeria are expected to reach 82.09m.
One would argue that a bulk of Nigerians still don’t trust the relatively new Fintech offerings. Those who have been around for long would vividly remember the collapse of Savannah Bank in 2002 and more recently, the revoking of Heritage bank’s licence by the Central Bank of Nigeria CBN. This raises the question, if conventional banks can go under what more a digital bank?
In 2023 alone, FinTechs in Nigeria suffered over N5b in losses due to hacks. In April 2024, news broke of a Flutterwave security breach. As per Tech Point, this hack cost the company about $ 7 million in losses. These hacks and security breaches threaten the very existence of these companies and the ricochet effect on customers is an overall lack of confidence in them. How am I sure my funds are safe with Fintech A when Fintech B has ceased operations following a devastating hack?
Gradually, it begins to make sense why 50% of informal businesses still want to receive payments in cash. I mean other than armed robbery and burglary incidents, monies stashed in cash cannot just “vanish”.
Generically, here are three reasons why informal businesses are yet to adopt digital transactions:
â—Ź Illiteracy: A sizable proportion of the Nigerian populace is still uneducated and can neither read nor write. In 2018 as per Statista, these numbers stood at 62.02%. Only 62.02% of Nigerians are literate. By 2022, these numbers have improved slightly with Dataphyte reporting literacy rates of 61%. Despite these slight improvements, millions of Nigerians are still uneducated. As per Moniepoint, the informal business sector consists of anything from small makeshift kiosks. A large number of this sample size are uneducated and are yet to appreciate the ease digital solutions bring to their business operations. For example, in Saminaka’s primary market(a huge grain hub in Saminaka, Kaduna), a bulk of the merchants there do not own smartphones. Due to the fact that they are uneducated, they stick to what they know; paper currency. To break this cycle, FinTechs would have to penetrate rural communities and offer basic education, such as reading and writing, to help them use their solutions. Also, most Fintech applications should consider translating their in-app interfaces to local dialects.
â—Ź Transaction downtime: Generally speaking, bank transfers are almost seamless in Nigeria but sometimes this downtime happens. In May of this year, undersea cables were damaged and Telcos, banks and other FinTechs struggled to service their customers. In May 2023, Carbon published a medium article addressing the public rectification of banking services following a 5-day outage. In today’s fast-paced business environment, lagging transactions can both slow and completely halt potential business transactions. In most cases, informal businesses prefer cash and accept transfers when they are left with no choice.
â—Ź Transaction fees: Bank SMS charges, transfer fees, stamp duties, and other hidden fees are not uncommon. These charges encroach into the already thin margin of these businesses. Moniepoint reports that 72.3% of businesses in the informal sector generated more that N250,000 in monthly revenue. These tight margins make no room for extra charges as business are struggling already. That extra N26 charge for a N10,000 transfer or the N100 monthly sms charge may add up to considerable sums.
â—Ź Lack of trust and confidence in digital solutions: To understand this perfectly, Moniepoint satistics show that informal businesses perform 80.2% of transactions via card as opposed to transfers. This in my opinion is an issue of trust as more informal business owners feel safe using cards which remind them of conventional banking. Most business owners in this sector would prefer the old and crude methods that work and are not necessarily interested in the new shiny solution. How then can they build trust with app transfers? Honestly, I believe it would take time before these businesses realize that some of these FinTechs are here to stay and will be around for the foreseeable future. Also, as the sector grows and adoption increases, we expect to see more trust as we have seen with the online retail sector in recent years. In 2020, Konga, Jumia and Jiji recorded over 28.9 million visits. A year before Nigeria’s B2C index stood at over 53 points. As internet adoption and “civilization” increase, we expect more trust in digital finance.
