When it comes to finance in Nigeria, a lot has happened since 1960. From the bustling city of Lagos to remote corners of the country, Nigerians’ handling of money has evolved dramatically, and there have been substantial innovations in Nigeria’s financial sector.
Gone are the days when banking was a luxury for the elite. Today, even street vendors can receive payments through their phones. Access to financial services has definitely improved greatly.
But the journey from traditional to modern finance hasn’t always been smooth sailing. It’s been marked by bold experiments, game-changing technologies, and a fair share of growing pains.
According to a 1989 paper titled The Evolution of the Nigerian Financial System: Problems, Challenges and Prospects, finance in Nigeria went through a painful evolution, especially from the colonial era to the post-colonial era.
Before Nigeria’s independence and the establishment of the Central Bank of Nigeria (CBN), most of the banks that existed in Nigeria were mainly local branches of foreign companies. They added very little economic value to Nigeria because they focused mostly on foreign companies that did business in Nigeria.
Due to this, some local merchants in Nigeria who needed access to banking services like loans decided to create 25 Nigerian-owned banks between 1925 and 1952, but unfortunately, they failed due to inadequate capital base and imprudent banking practices.
Things began changing for the better when the CBN came in 1958. Established under the CBN Act of 1958, Nigeria’s apex bank changed the views of the government on the proper role of the financial system in the economy.
As a result, the country saw initiatives like the Rural Banking Expansion Programme; the requirement that banks should allocate specific proportions of loans to designated sectors and sub-sectors of the economy.
Rigorous government control of the economy was also reduced. The exchange rate was floated, and banks were given room to thrive.
Today, Nigeria has one of the most rapidly developing financial ecosystems in the world. Its NIBSS Instant Payment (NIP) system was ranked as the sixth most developed instant payment system, recording 3.7 billion real-time transactions.
The biggest innovations in Nigeria’s financial sector
Let’s take a trip down memory lane, exploring the pivotal moments and innovative ideas that have reshaped Nigeria’s financial sector from the birth of the naira to the rise of fintech startups.
Certainly, I’ll provide more detailed explanations for each of these innovations:
Online Banking – early 1980s
Online banking marked a significant leap in Nigeria’s financial sector, allowing customers to access their accounts and perform transactions via the internet.
Introduced in the early 1980s, it initially faced challenges due to limited internet penetration and concerns about cybersecurity. However, as internet access improved and banks invested in robust security measures, adoption grew steadily.
Online banking enabled services like fund transfers, bill payments, and account management from the comfort of one’s home or office. This innovation not only enhanced convenience but also reduced operational costs for banks.
It laid the foundation for a digital banking ecosystem, encouraging the development of more sophisticated online financial services and promoting financial literacy among Nigerians.
NIBSS (Nigeria Inter-Bank Settlement System) – 1993
NIBSS, established in 1993, is a crucial infrastructure in Nigeria’s financial system, facilitating interbank payments and settlements. It operates as a shared service infrastructure for the financial industry, significantly improving the efficiency and security of electronic transactions.
NIBSS introduced several key services: the Nigeria Automated Clearing System (NACS) for cheque clearing, the NIBSS Instant Payment (NIP) for real-time interbank transfers, and the NIBSS Electronic Fund Transfer (NEFT) for same-day transfers.
These innovations dramatically reduced transaction processing times from days to seconds in many cases.
NIBSS also plays a vital role in combating fraud through its centralized management of customer information. Its establishment marked a significant step in modernizing Nigeria’s payment system, fostering trust in electronic transactions and supporting the growth of digital finance in the country.
ATMs (Automated Teller Machines) – 1990s
ATMs revolutionised banking in Nigeria by providing 24/7 access to basic financial services. Introduced in the 1990s, these machines allowed customers to withdraw cash, check account balances, and later, make deposits without visiting a bank branch.
This innovation significantly reduced queues in banks and improved convenience for customers. As ATM networks expanded across the country, they became a cornerstone of modern banking infrastructure in Nigeria. However, their rollout faced challenges such as power supply issues and security concerns.
Despite these, ATMs played a crucial role in familiarising Nigerians with digital banking concepts, paving the way for future innovations.
BVN (Bank Verification Number) – 2014
The Bank Verification Number, introduced in 2014, was a landmark development in Nigeria’s financial sector. It’s a unique identifier linked to an individual’s biometric data (fingerprints and facial image) and personal information.
The primary goals were to combat fraud, enhance the security of banking transactions, and create a robust identity management system for the financial sector.
BVN made it possible to link a customer’s accounts across different banks, preventing identity theft and reducing fraudulent activities. It also facilitated easier account opening processes and improved credit reporting.
Despite initial implementation challenges, BVN has become a crucial component of Nigeria’s financial infrastructure, enhancing transparency and trust in the banking system.
USSD Banking – 2016
USSD (Unstructured Supplementary Service Data) banking, widely adopted around 2016, was a game-changer for financial inclusion in Nigeria.
This technology allows users to access banking services using basic feature phones without internet connectivity. By dialing a short code, users can check balances, transfer funds, pay bills, and purchase airtime.
USSD banking bridged the gap for millions of Nigerians who lacked smartphones or reliable internet access, especially in rural areas. It’s simple to use, works on any mobile network, and doesn’t require a data plan.
This innovation significantly expanded access to financial services, supporting the government’s financial inclusion goals and providing a vital link between traditional and digital banking for a large portion of the population.
Digital Payment Platforms – 2012-present
Digital payment platforms like Interswitch, Flutterwave, and Paystack have transformed Nigeria’s financial landscape since the early 2010s.
These platforms facilitate online payments, enabling e-commerce and digital transactions across various sectors. Interswitch, founded earlier, pioneered electronic payments in Nigeria. Flutterwave and Paystack, emerging later, focused on simplifying payments for businesses of all sizes.
These platforms have made it easier for Nigerian businesses to accept payments both locally and internationally, fostering the growth of startups and SMEs.
They’ve also played a crucial role in integrating Nigeria’s financial system with global digital commerce. Their success has attracted significant international investment, positioning Nigeria as a fintech hub in Africa.
Mobile Money – 2018
Mobile Money services gained significant traction in Nigeria around 2018 when regulators allowed non-bank entities to offer these services.
This innovation enables users to store, send, and receive money using their mobile phones, even without a traditional bank account. Mobile Money agents act as human ATMs, facilitating cash deposits and withdrawals.
This system has been particularly impactful in serving the unbanked population, especially in rural areas with limited banking infrastructure. It has fostered financial inclusion, facilitated remittances, and supported the growth of small businesses.
Mobile Money has also played a crucial role in digitising payments for various services, from utility bills to government payments, contributing to the reduction of cash dependence in the Nigerian economy.
eNaira – 2021:
The eNaira, launched in October 2021, is Nigeria’s Central Bank Digital Currency (CBDC) and one of the first of its kind globally.
This digital version of the Naira aims to enhance financial inclusion, facilitate easier cross-border remittances, and reduce the costs of financial transactions.
The eNaira is designed to complement cash, offering features like programmable payments and offline functionality. It’s expected to boost the digital economy, improve monetary policy effectiveness, and potentially reduce currency counterfeiting.
While adoption has been gradual, the Central Bank of Nigeria continues to promote its use and develop new features. The eNaira represents Nigeria’s bold step into the future of digital finance and positions the country at the forefront of CBDC innovation in Africa.
Open Banking – 2021
Open Banking, initiated in Nigeria in 2021, is a system that allows third-party financial service providers to access consumer banking, transactions, and other financial data from banks and non-bank financial institutions through APIs (Application Programming Interfaces).
This innovation aims to foster competition and innovation in financial services by enabling the development of new products and services.
It allows customers to securely share their financial data with other financial institutions and service providers, potentially leading to more personalised financial products, improved customer experiences, and enhanced financial decision-making tools.
While still in its early stages in Nigeria, Open Banking has the potential to significantly transform the financial services landscape, encouraging collaboration between traditional banks and fintech companies.
