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Nigeria has over 200 million populations, according to Worldometer, and an adult population of 99.6illion (18 years and above). About 39.5 million banked people have access to formal financial services such as savings, credit, remittances, pension, insurance, and 36.8% unbanked who do not have access to formal financial services. In Nigeria, cash (Naira) is still King. Most people prefer to do their financial transactions, such as make payments for goods and services using physical money.

People use cash for various purposes. One is that it is quicker to settle. Secondly is that there is no need for argument over payment. Thirdly, there are no transaction fees and lastly, it gives instant gratification. However, now more than ever, Nigeria has started a top-down drive towards the digitization of payments focusing on POS Terminals, Mobile APPs, USSDs, Debit and Credit cards, and ATM. It has given birth to a ‘cashless society’ which describes an environment wherein money circulates without the need to lug it around, fostering an environment where the demand for physical cash is gradually declining. NIBSS E-Payment Factsheet recorded as much, stating that between 2018 to 2019, Mobile Money transactions, a measure of financial inclusion, grew from 2trn to 5trn.

These strides are a credit to the level of technology advancements witnessed in recent times. Technology has brought so much ease and accessibility to spending money, and people have started adopting the use of cards to withdraw at an ATM or an Agent location, pay for their purchases via the Point of Sales (POS) or transfer the money to make payment. The culmination of technology intervention in financial transactions leads to a massive disruption of the financial services ecosystem referred to as FinTech. This term testified to the recent intimacy between finance and technology.

According to the EFina report 2018, affordability (64.9%) and institutional exclusion (38.4%) ranked the highest reasons people are financially excluded. An instance of unbanking the banked phenomena manifests in the September 2019 injunction from the CBN instructing that N50 stamp duty be charged on all merchant purchase transactions. Without needing to belabor the obvious, the excluded customers from the poorer demography are unwilling to take these costs when agents passed it. However, it is pertinent to note that CBN’s instruction that Merchants bear this charge did not align with market realities. Anecdotal research evidenced that Customers still pay these charges. While CBN exercises their regulatory powers, FIRS (Federal Inland Revenue Services) further exacerbated the malaise in their January 2020 directive stating that a duty of N50 is paid on all inbound transactions of N10,000 and above. For every N10,000 I receive in my account, I will be debited N50 no matter the plans I already have for the total sum. The government has taken this as a revenue source as stated by the Federal Inland Revenue services boss Muhammad Nami who says they generate about 3m weekly from stamp duty. This is kicking against the stipulated target of having only 20% exclusion by the year 2020. It was also stated that transfers between the same owner’s accounts in the same bank are to be exempted. This will discourage interoperability which is very crucial to enhancing financial inclusion as people will prefer to only receive money from people who use their bank to escape the N50 charge.

The issue of identification is another major issue bringing about excluding the already excluded. Mobile Money has been an excellent service to bring the unbanked into the formal financial services through the first level Know Your customer (KYC), which does not need identification to onboard customers; they only need to have a mobile number, full name, and date birth. However, most customers quickly outgrow KYC level 1 as the transaction limit is just N50,000 daily. It leaves customers with no option than to upgrade their accounts to KYC 2 or 3. One of the primary requirements is a valid identification, which most do not have because it is difficult to access. The national identification, which is a bit easy to register, still requires a valid identification before it can be gotten. They end up abandoning the wallet and returning to using cash, which does not suffer these trappings of avoidable inconveniences. User experience is as necessary as convincing a new user to adopt the service. If the banking application is not user friendly, and customers cannot navigate easily to perform their financial transactions, it can lead to unbanking the banked. They will be discouraged from continuing using it as they believe their money is held in the account without them being able to access it as at when needed.

Digital fraud is another factor that scares people from using formal financial services. There have been situations where customer accounts were debited without them initiating the transactions, and the bank operator appears to be as mystified as to the victim, the customer. Some of them get debit alerts of withdrawals from their card while the card is physically present with them. People have lost monies which they could not recover as the bank usually tell them they performed the transaction or use their card to purchase products online. They end up abandoning the account and return to their informal ways of keeping their money. It erodes the fragile trust people have on the formal financial system.

Institutional Failure is also a significant factor. There is the fear that the bank or the microfinance institution can become illiquid or fail while their money is still trapped therein. The Central bank has put some regulations in place like the commercial banks’ recapitalization to increase the shareholder funds to guide against bank liquidating. The Nigerian deposit Insurance Corporation (NDIC) also insures the funds of registered financial institutions customers. Customer Service is another crucial area to look at. The unbanked have been on boarded on the formal financial system and getting acquainted with using the system; the way he is treated, either friendly or otherwise, will go a long way in keeping him as a continuous user. Some people have stopped using a bank account or a bank app because they are being treated like second-hand citizens and not treated with courtesy when they have issues to be resolved by customer service personnel. They end up believing their status or educational level is below the level of those using a valid account. They withdraw from the service to their old ways of saving and performing their everyday financial transactions.

Financial education/advocacy is crucial to keeping the banked people using the formal financial service and reducing attrition from banked to unbanked. Customers need to be educated to use the service, protect their PINs and passwords, invest their money for acceptable returns, insure their business, health, and other properties and get the most out of all the formal financial services available.

To enhance financial inclusion and prevent attrition of banked to unbanked in Nigeria, government and regulators has a lot to do. Government should use the present Conditional Cash Transfer program to on board all the beneficiaries on formal financial service, ensure they are registered and the funds are disbursed via their registered accounts/wallets. Regulators should formulate policies that will make it affordable for people to transact within the formal financial service. Fees like the N50 stamp duty from CBN on merchant transaction and N50 charge on every funds above N10,000 received in a bank account should be discontinued while they work with financial service providers to give incentive for usage. Government should also ensure that registration of National Identity is compulsory for all citizen of the country and can be easily done in every community in the country as valid identification is very important requirement in on-boarding people on the formal financial service. Financial education should be given more attention from regulators, government, financial service providers and NGOs.