Print
Email
Many banking customers in Nigeria remain underserved for loans due to lack of access to services in rural areas, affordability, and poor user experience. Despite being an attractive financial services sector in the country, banks fail to provide sufficient credit to their customers. This credit gap creates a market for fintech startups that can increase credit access for businesses. Rising non-banking companies leveraging the possibility to become fintech companies are providing growth opportunities for embedded finance in Nigeria.
As per the Central Bank of Nigeria, the volume of consumer loans was US$3.54 billion in 2020 and increased by 37% year on year to US$4.82 billion in 2021. Credit appraisal and the diversity of products offered by banks and other lenders are key drivers of the growth in consumer loans. As of 2020, Nigeria's credit gap was US$4.09 billion, and there is still a huge gap to be filled. Capitalizing on embedded finance can bridge this gap significantly.
Embedded finance simplifies the traditional complex financial process for consumers by enabling them to make purchases and obtain credit at the point of service. According to PayNXT360, the embedded finance revenues in Nigeria will increase from US$ 1.6 billion in 2022 to US$ 8.9 billion in 2029 by registering a CAGR of 35.9%.
Key companies operating in the Nigerian embedded finance space such as OnePipe, Lendsqr, PiggyVest, CowryWise, and Klump are actively raising funds for their market expansion in the country. For instance,
Obtaining a loan traditionally from a bank involves a lengthy financial documentation process, which is time-consuming. The business owners need to gather all financial documents and hand them to the bank, and then the credit team analyses the business information to make a credit decision. On the other hand, in embedded finance, online lenders will analyze the business data that is readily available digitally and make a quick credit decision.
Embedded finance will provide viable means to small and medium enterprises (SMEs) to raise capital and access credit programs to help finance their businesses that can drive economic growth. When SMEs' demand for working capital persists, embedded finance ensures that the loans will be offered primarily based on the already established relationship between other entities within the supply chain.
Many Nigerian companies prefer technology-driven financial services, with embedded finance as a driver. They offer hassle-free API solutions, customers timely access to financial services with minimum human intervention, and gain insights into customers' spending habits. Businesses can be integrated with embedded finance to improve their customers' operations and financial well-being. For instance, OnePipe has worked closely with Releaf Leverages digital financial services to increase the financial well-being of its partners, farmers. With OnePipe's network of multiple banks and a reliable digital lender has made it possible to improve the operational process of Releaf to provision bank accounts for farmers that could be accessed via the web, mobile, and USSD. With Releaf Wallets, smallholder farmers can benefit from credit programs and digital lending services.
Loans offered by the banks are generally with steep interest rates, guarantee requirements, and a lengthy application process that small businesses or entrepreneurs find difficult to fulfill. Hence, consumers and small businesses are inclined toward embedded finance services for easy credit options. Increasing investments in Nigerian fintech companies coupled with the exponential growth of embedded finance in the country is expected to bridge the credit gap significantly.
To know more and gain a deeper understanding of the embedded finance industry in Nigeria, click here.
Sign up for The PayNXT360 Insights, and get a weekly roundup of market events, innovations and data you can trust and use.
Sign Up Now
