The effect of fintech and bank competition on digital financial inclusion in Nigeria

Digital financial inclusion is increasingly recognized worldwide as a solution for reducing poverty and improving people’s lives. Its importance in Nigeria, where the World Bank estimates that 40.09% of the population lives in extreme poverty, cannot be overstated. Various factors influence the adoption and penetration of digital financial inclusion in Nigeria, with supply-side players being the most significant. The recent surge in the adoption of digital financial services is driven by supply-side players such as fintech firms and traditional banks. Fintech firms, newcomers to the financial landscape, either compete, collaborate, or coopete with traditional banks. Business-to-consumer (B2C) fintech firms compete with banks for clients, while business-to-business (B2B) fintech firms cooperate with banks in areas such as cloud computing and information management. This research examines the competition between B2C fintech firms and banks and its effect on deepening digital financial inclusion. It adopts a quantitative methodology, utilizing secondary data from the World Bank’s Findex database, Enhancing Financial Innovation and Access (EFinA), the IMF, CBN, and NDIC. Relationships between variables are analyzed to answer the research questions and test the hypothesis. The research findings reveal a highly concentrated market, indicating low levels of competition between fintech firms and banks. The findings also show a positive effect of fintech on bank performance, suggesting that Fintech firms focus on the excluded population rather than the established market of banks. Additionally, the research reveals that the design of digital financial products and their adoption in Nigeria is in response to infrastructural impediments in financially excluded areas.