understanding the value proposition for fintech in nigeria & …€¦ · understanding the...

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Understanding the Value Proposition for Fintech in Nigeria & Deepening Fintech Services to Enhance Financial Inclusion

Presented by:

Ladi Asuni Associate Director

Technology Advisory & Digital Transformation

KPMG

November 2018

EFInA Fintech Challenge Fund RFP 9 Launch Event

2 © 2018 KPMG Advisory Services, a partnership registered in Nigeria and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Content

1. Market Context

2. Dimensions of Financial Exclusion

3. Emerging Fintech Ecosystem

4. Deepening FinTech Services

5. Conclusion

Market Context


The customer demography and technology adoption landscape in Nigeria is rapidly evolving…

Sources: https://internetworldstats.com (2017) ; NIBSS E Fact Sheet (June/March 2018)

~18K ATM (18 per 100,000 Adults)

~185K Active POS Terminals (185 per 100,000

Adults)

>25m Active Facebook Users

>25m Smartphone Users. Estimated

to reach 40m by 2020

63m 63m active monthly internet

connections

>150m active mobile

subscribers

https://internetworldstats.com/



Dimensions of Financial

Exclusion


The Financially Underserved in Nigeria

Literacy

• 38% are within the formal

employment segment.

• 62% are within the SMEs /

informal segment.

Working Population

E Commerce Adoption

Approximately 1.8 million

insurance policyholders

Insurance

Geographic distribution • 30% live in rural areas.

• 70% live in urban areas (mostly

in the South West region).

Access to Mobile

Access to Credit <5% have access to credit

facilities (from Bank and

other formal).

33+ Million Undeserved

• ~29 million active cards (including duplicates)

• <300,000 active e-commerce shoppers (80%

transact on mobile)

• 21% have no formal education

• 44% have secondary & above

• 35% have at least primary school

education

$ • 7.8+ million pension accounts

• Total Value of Pensions: 7.5+ trillion

• <N350bn in funds under

management for retail segment

Investment • 25+ million smart phones

• 20+ million feature phones

Sources, Nigeria Bureau of Statistics, CBN, NIBSS, Efina, ViewsWire, Konga/ Jumia Report, PENCOM

33+ million adults are formally banked with BVN. A significant portion are however underserved without access to services such as

credit, insurance, capital markets and investment management services.


The Financially Unserved in Nigeria

Literacy

• Mostly unemployed or self-employed

• <4% in formal/ informal employment

• ~84% have income below N20,000 per annum

• ~16% earn up to N200,000 per annum

Working Population

E Commerce Adoption

No access to insurance

Insurance

Geographic distribution • 23%19.3 in urban areas

• 77% in rural areas- predominantly

in the North West and North East

Access to Mobile

Access to Credit No access to credit

70 Million Unserved

No e-commerce adoption

• >40% have no formal education

• 60% have at least primary school

education.

$ No access to formal

investment products

Investment • >50 million feature phones

• Utilize basic feature phones

Sources, Nigeria Bureau of Statistics, CBN, NIBSS, Efina, ViewsWire, Konga/ Jumia Report

~70 million adults are financially excluded and depend on informal means to meet the financial service needs


Financially Excluded Demography

Adult Population

%

75k

350k

1.2m

11.5m

52m

42m

Source: Euromonitor, KPMG Analysis (2017)

10

7m

illio

n p

eop

le

Based on income classification of Nigeria’s adult population Banked Adult Population

UHNI/ HNI

>N46m

Upper Affluent

>N18m – 46m

Mass Affluent

>N4.6 – 18m

Middle Class

>N2.2m – 4.6m

Floating Middle Class

>N0.8 – 2.2m

Bottom of the Pyramid

<N0.8m

Most excluded

segments of the

population are the

lower income

segments

75k

350k

1.2m

11.2m

20.2m


Financially Excluded Demography

• 97% of the financially

excluded earn less than

N800,000 annually (lie in

the bottom of the

pyramid segment)

• Women constitute about

55% of the unbanked

adults, hence, the focus

by some banks and

multilateral agencies on

financial inclusion for

women

• Over 75% of the

financially excluded

population are in rural

areas concentrated in the

North

• 35.2% of the financially

excluded own mobile

phones 1. CBN Financial Inclusion target by 2020 (70%)

PROFILE OF THE FINANCIALLY EXCLUDED

Akwa

Ibom

Abi

a

Ana

-

mbr

a

Bauchi

Bayelsa

Benue

Borno

Cross River

Delta

Ebonyi

Edo

Ekiti

Enug

u

FCT

Gombe

Imo

Jigawa

Kaduna

Kano

Katsina

Kebbi

Kogi

Kwara

Lagos

Nasarawa

Niger

Ogun Ondo

Osun

Oyo

Plateau

Rivers

Sokoto

Taraba

Yobe Zamfara

Adamawa

North West

38.2% North

Central 13.2%

South West 9.8%

South 11.9%

South East 8.5%

North East

18.3%

M: 45% F: 55%

Banked

38.3%

Formal Other

10.3%

Informal Only

9.8%

Financially

Excluded

41.6%


Well-served (~2m) Financially Underserved (~31m)

o Access to bank account(s)

o Access to payments & savings

o Access to credit

o Access to securities and investment

products

o Access to insurance

o Access to pension

o Access to bank account(s)

o Little or no credit

o Little or no access to securities and investment

products

o Little or no access to insurance

o Little or no access to pension

o Limited access to smart phones

Financially Unserved (~67m)

o Financial illiteracy

o Lack of access to valid identification

o High levels of poverty

o Depend on informal means to meet their

financial needs

Key Stats

• ~1.2m investors in securities

• ~1.8m insurance policy holders

• ~2.5m have credit with Banks

• ~7.8m Pension account holders

with AUM of +N7.5tr 0%

10%

20%

30%

40%

Payments Savings Credit Insurance Pension

Percentage of Adult Population with Access to Financial Services

2010 2012 2014 2016Data Source: EFInA Access to Financial Services in Nigeria 2016 Survey

Significant Market Opportunities in Financial Services


Access to Credit in 2017

• 2.3 million customers accessed credit (of up to N16trn) from the Banking sector - 2% of the adult

population.

• 95% (2.2m) had loan values of under N1 million (Avg N55,000 and 1% of total loans)

• 0.1% (<4,000) had loans >N1billion (Avg N4bn and 83% of total loans).

Up to N1.0m 1%

>N1m - N10m

2%

>N10 - N50m 2%

>N50m - N100m

1% [CATEGORY

NAME], [PERCENTAGE]

[CATEGORY

NAME], [VALUE],

[PERCENTAGE]

>1N1b 83%

Up to N1.0m 95.0%

>N1m - N10m 3.8%

>N10 - N50m 0.7%

>N50m - N100m

0.1%

>N100m - N500m

0.2%

>N500m - N1b 0.1%

>1N1b 0.1%

% Distribution of Borrowing Customers % Distribution of Loan Amounts

2.3million

Customers

N16 trillion

Credit

Emerging FinTech

Landscape


Players from various industries are competing for the future of Financial Services

Institutional FS Players • Trust, Security

• Competence in: regulation, products, processes

Tech Giants and Emerging E Commerce • Dominant player in their respective digital market segments

• Convenience (integrated experience)

• Big Data Analytics – Customer behavior insights

FinTechs • New approach: usability

Telcos • Competence in mobile, network of agents/ distributors, big data

analytics etc.

• Exploiting Payment Service Bank licensing opportunity

* *

Travel Insurance


FinTechs are leveraging emerging technologies to deliver financial services in more convenient ways than traditional financial services

Blockchain

Cyber Security

RegTech

Platforms

Data Analytics & Artificial Intelligence

Retail Lending Payments &

Transfers

Investment and

Financial Mgt

Insurance

En

ab

lers

FinTech Themes

They are driving the disaggregation of financial services value chain by offering niche services across various

themes


The FinTech Ecosystem in Nigeria

Investment Management

Personal Finance Digital Bank Payments & Transfers Insurance

Alternative Financing

Blockchain/ CryptoCurrency

FinTechs are driving the disaggregation of financial services value chain by offering niche services across

various themes and with the aim of improving access to financial services

Deepening FinTech Services

“The utmost challenge before Financial Institutions is to address the

constraints of poor connectivity, non-existence of credit history, diverse

profile of consumers and to scale up operations in unbanked sectors”


FinTech Development Challenges

Collaboration

Enabling regulation Investment

Intellectual Property (IP)

protection

War for

Talent

Consumer & data

protection

Identity

management

Fintech adoption will be mostly impacted by availability of reliable and accessible infrastructure in

urban and rural areas

Financial Literacy


Globally, regulators identify the need to enable and support emerging Fintech ecosystem

Regulators need to ensure the stability

of the financial services system as a

whole by managing any emerging

bubbles and potential systemic risks.

Exploring efficiency improvement

opportunities for general industry utilities

such as (KYC, AML, credit scoring, digital

identity management etc.)

Regulators are stimulating

competition through licensing of

new entities and regulations (e.g.

challenger banks, payment

service banks, open banking).

FinTech provides new opportunities to

expand the reach of financial services

to the underserved or excluded

population

Increase

financial

inclusion

Improve

Efficiency

Ensure stability Stimulate

Competition

Motivation

for

supporting

FinTech


Emerging Fintech Regulatory Challenges

Financial System

Risks

Money

Laundering

Consumer

Protection

Cross Border

Transactions

Cyber Security

& Data Privacy

Compliance

Monitoring &

Reporting

Conclusion


Bank FinTech Collaboration - What a good partnership looks like

Extensive

networks

Start-ups

Robust

infrastructure

Brand

reputation

Launch

capabilities

Willingness to

invest Disruptive ideas

Latest

technologies

Entrepreneurial

mind-set

New business

models

Distribution

channels

BanksG

Source: Alex Ball

Regulation and Consumer Protection


Key imperatives for deepening FinTech services to enhance financial inclusion

Customer-centric products

Employ advanced customer research techniques and design thinking

approach for solution development

Ecosystem Collaboration

Develop strong ecosystem partnerships and collaboration that will help to

drive the required distribution and scale

Knowledge of Risk & Compliance

Develop baseline knowledge of risk issues (e.g. data, security, fraud,

regulatory, consumer protection) and entrench good risk governance and

management practices from the start.

Dare to explore unchartered areas!!!

Thank You!

© 2018 KPMG Advisory Services, a partnership registered in Nigeria and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (‘’KPMG International’’), a Swiss entity. All rights reserved.

Printed in Nigeria.

The KPMG name and logo are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International").

Ladi Asuni Associate Director

Technology Advisory & Digital Transformation

[email protected]

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