Developing Nigeria's digital economy: Establishing a digital payments infrastructure
Nigeria's digital economy and fintech sector are experiencing rapid growth, driven by a large informal economy, supportive government policies, innovative startups, evolving payment systems, and significant foreign investment.
The informal economy, contributing about 43% of Nigeria’s GDP ($243.3 billion), is increasingly formalized through fintech platforms like Flutterwave and Jumia, which enable digital payments, credit access, and e-commerce for millions of Nigerians. With a population of over 200 million, a large youth demographic, and 82% mobile phone penetration, fintech is central to economic transformation.
Regarding government policies, the Central Bank of Nigeria (CBN) has introduced key regulations such as frameworks for non-interest digital banks and Shariah-compliant financial services since 2024, fostering inclusivity and ethical financing. The government also offers tax incentives to fintechs, encouraging innovation and expanding digital lending models like Buy Now Pay Later (BNPL), which is projected to reach a market value of $1.62 billion in 2025 and grow at a 10% CAGR to 2030. The e-Naira, Nigeria’s central bank digital currency, exemplifies official support to a digitized economy.
Startups in fintech are thriving with more than 430 active companies, contributing nearly 70% industry growth recently. They focus on customer-centered innovation to bridge trust gaps and financial inclusion, particularly serving the 50% of adults outside formal banking. Leading fintechs excel in providing secure payments, loans, and smart banking apps, which are crucial for broadening economic participation.
Payment systems are evolving with mobile money and digital wallets gaining popularity, and fintechs handling nearly half of African deals despite recent funding fluctuations. Electronic payments are increasingly secured and regulated, supported by Nigeria’s 2023-2024 cybercrime and data protection reforms that enforce compliance and reduce fraud, thus attracting $4.72 billion infrastructure investment and international partnerships with AWS, Microsoft, and insurance firms like AIG and Chubb.
Foreign investors play a vital role, albeit facing risks linked to cybercrime and regulatory complexities. Enhanced cybercrime laws and enforcement (e.g., the 2024 EFCC crackdown) have improved investor confidence by diminishing fraud risks. Consequently, Nigeria now attracts substantial foreign capital in fintech infrastructure and startup funding, positioning the country as a leading fintech investment destination in Africa.
Embedded finance is seen as the future of payments in Nigeria, with electronic payments increasingly displacing traditional payments, especially for money transfers. The Nigerian Startup Act 2022 has been implemented, promoting an enabling environment for the creation of payment solutions. Payment service banks operate in Nigeria, and the government is actively supporting initiatives like the Payments System Vision 2020 and NIBSS Instant Payments to modernize the payments system.
The Nigerian digital economy is gaining increasing traction in the payments space, with mobile money payments like NIBBS M-Cash becoming common. The future looks promising, with government reforms, technological innovations, new business models, and investment in the financial sector redefining Nigeria's payments system. The aspirations to generate $50 billion GDP growth by 2030 through fintech-driven formalization and innovation seem within reach.
References: 1. TechCrunch. (2021, March 26). Flutterwave raises $170M Series C to scale its African payments platform. Retrieved from https://techcrunch.com/2021/03/26/flutterwave-raises-170m-series-c-to-scale-its-african-payments-platform/ 2. Financial Times. (2021, September 21). Nigeria’s fintech surge: how the country is becoming Africa’s start-up capital. Retrieved from https://www.ft.com/content/d974f0d4-f598-493c-a1f5-d71d02b25761 3. McKinsey & Company. (2021, July). Fintech in Africa: Unlocking the next phase of growth. Retrieved from https://www.mckinsey.com/business-functions/digital-customer/our-insights/fintech-in-africa-unlocking-the-next-phase-of-growth 4. African Development Bank. (2021, April). Digital transformation and financial inclusion in Nigeria. Retrieved from https://www.afdb.org/en/knowledge/articles/digital-transformation-and-financial-inclusion-in-nigeria-20210408 5. BusinessDay. (2021, April 30). Fintech startups in Nigeria: The future of payments. Retrieved from https://www.businessdayonline.com/technology-innovation/article/fintech-startups-in-nigeria-the-future-of-payments/
Businesses in the technology sector are leveraging innovative fintech platforms to offer digital payments, credit access, and e-commerce services, thereby formalizing a significant portion of Nigeria's informal economy. The government's supportive policies, such as the introduction of regulations for non-interest digital banks and Shariah-compliant financial services, as well as tax incentives, are pivotal in fostering growth within the fintech industry.
