The sheer necessity of embedded finance in Nigeria

Despite being an attractive financial services sector in Nigeria, the majority of bank customers remain underserved, creating a market for fintech (financial technology) startups.

The rise of non-bank technology companies capitalizing on the possibility to become fintechs has generated a market opportunity for embedded finance in Nigeria. And if you are wondering what exactly embedded finance is, here’s a breakdown.

What is embedded finance?

Embedded finance is a catch-all term for simplifying traditionally complex financial processes for consumers, allowing them to make purchases and obtain credit all in one place: the point of service. GTB’s Quick Credit, PiggyVest, and CowryWise are some of the most well-known examples of embedded finance in Nigeria.

With a projected market value of $1.6 million by 2022 and a 54.5% annual growth rate, embedded finance is gaining traction in Nigeria, according to Research and Markets. Given its seamless experience, its market value in Nigeria would climb to over $8 billion in 2029.

In my experience, by removing consumer pain points, customers are more likely to complete a purchase, resulting in higher profit margins for businesses. For instance, in a strategic poll of 21 young and digital-savvy respondents, 60% prioritize quick iteration and convenience over price. “I want to be able to pay my utility bills without having to leave my home. I don’t want to have to go into an office to do this,” one respondent explained.

Embedded finance is being championed by Nigerian innovators who offer specialized financial services through application programming interfaces (API) integration. For example, OnePipe, a Nigerian fintech business that creates and manages APIs, hit a major milestone last year when it recorded 6.3 million transactions totaling $46.3 million. The startup has seamlessly integrated customized banking APIs for both traditional and financial service businesses, including Releaf Africa, Omnibiz, and Migo among others.

More than just a trend: The benefits of embedded banking

A new generation of Nigerian companies is prioritizing tech-driven financial services as part of their overall strategy, using embedded finance as a driver. These companies can now tap into a larger pool of hassle-free API solutions, offer customers timely access to financial services with minimal human intervention, and gain insights into customers’ spending habits.

Another key benefit of a thriving embedded finance sector for a developing country like Nigeria is the potential to attract foreign direct investment. The global embedded finance market is predicted to rise by 9.7% between 2020 and 2025, indicating that the sector has the potential to drive increased productivity and capital. Indirectly, the sector could strengthen the digital economy and help Nigeria achieve its development goals.

In spite of its proliferation in Nigeria, McKinsey estimates indicate that fintech contributed only about 1.25% of the country’s retail banking revenues in 2019. The embedded finance concept will, hopefully, continue to thrive in Nigeria, given the increasing reliance on technology for navigating financial livelihoods.

The bottom line? As Africa’s largest economy, Nigeria’s financial services sector may find its future in embedding digital financial systems into entire business processes.

References

Kene-Okafor, T. (2021). Nigeria’s OnePipe raises $3.5M to double down on its embedded finance offering. TechCrunch. https://techcrunch.com/2021/11/23/nigerias-onepipe-raises-3-5m-to-double-down-on-its-embedded-finance-offering/

Kola-Oyeneyin, T., Kuyoro, M., Olanrewaju, T. (2020). Harnessing Nigeria’s fintech potential. https://www.mckinsey.com/featured-insights/middle-east-and-africa/harnessing-nigerias-fintech-potential

Research and Markets. (2022). Nigeria Embedded Finance Business and Investment Opportunities Databook – 50+ KPIs on Embedded Lending, Insurance, Payment, and Wealth Segments – Q1 2022 Update, 2022. https://www.researchandmarkets.com/reports/5547724/nigeria-embedded-finance-business-and-investment#src-pos-1

Shevlin, R. (2020). Uber’s Departure From Financial Services: A Speed Bump On The Path To Embedded Finance. Forbes. https://www.forbes.com/sites/ronshevlin/2020/08/03/ubers-departure-from-financial-services-a-speed-bump-on-the-path-to-embedded-finance/?sh=724abdc07673#484180287673