NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Nigeria missed its central bank’s target of 80% financial inclusion by 2020, and a new one has been set for 95% inclusion by 2024. The 2024 deadline means Nigeria has another opportunity to achieve financial inclusion for its 38.1 million citizens (according to EfinA’s 2020 figures) who currently live without financial services.

Delivering financial services in an affordable and sustainable way is difficult and expensive. It requires long-term investments in infrastructure, human capacity, research and marketing, among other areas. Even with these investments, progress is usually slow, as financial service providers (FSPs) must try to convince low-income and historically marginalised demographics to adopt new ways of making payments, sending and saving money.

When providers are able to create products that have positive financial inclusion outcomes, it’s often due to partnerships. Partnering allows stakeholders to strategically leverage each other’s capabilities and resources, in order to overcome obstacles and generate synergies that enable the efficient delivery of financial services to the mass market. In Lagos Business School and the Sustainable and Inclusive Digital Financial Services initiative’s 2020 Digital Financial Services in Nigeria: State of the Market Report, our research identified partnerships as a critical factor that can enhance product innovation, optimise resources and improve digital financial service (DFS) delivery at the last mile. In 2021, our research further expanded upon the state of partnerships among FSPs in Nigeria and how this is impacting financial inclusion, and the results were published in the 2021 edition of the State of the Market Report.

Below, we’ll share some key findings from that report. These insights explore the motivations and critical success factors impacting FSPs’ ability to establish and sustain mutually beneficial partnerships that advance financial inclusion.

Two Ways Partnerships Can Increase Financial Inclusion

DFS implementations are structurally complex, requiring multiple competencies in banking, telecommunications, technology, marketing and distribution – competencies that may not be in the business model of a single operator. Thus FSPs must seek out other operators within the ecosystem who can help them achieve their organisational goals. These goals fall under two major categories:

• Enhanced value propositions: FSPs need to enhance their value proposition to retain and deepen their relationships with customers (and remain competitive). Whether this involves instant loan processing, faster complaints resolution, zero transfer fees or cash-back rewards, expanding the suite of products, services and perks available to customers will sometimes require FSPs to partner with other operators to reduce their costs and time-to-market. Enhanced value propositions become even more important when extending formal financial services to underserved customer segments such as women and youths.
• Business operation expansion/scale: Financial inclusion requires FSPs to extend their customer touch points to as many geographical locations as possible. Operators intending to scale their products and increase coverage across the country, especially in the northern regions of Nigeria where financial inclusion is highest, often seek out partners who can help them achieve this in a sustainable manner. These partners can be other FSPs, cooperatives and savings associations, agent networks and “super agents,” and even informal financial service providers with relevant knowledge and experience operating in those regions.

Critical Success Factors for Partnerships

Managing partnerships is difficult, and not every partnership works out. However, some organisations have managed long-term partnerships which yielded positive outcomes. Some of the critical success factors we identified in the partnerships we studied include:

• Trust: Trust between partners facilitated information sharing and the development of joint products, and enabled the organisations to compete against common adversaries both partners faced. In trust-based partnerships, the stakeholders approached their relationship in good faith, and focused on building a mutually beneficial relationship in line with their respective corporate objectives. In partnerships where there was distrust, it was because FSPs believed partnerships are a zero-sum game and were hesitant to share important information and resources that would impact their business – like suppliers, vendors, etc. – with the other party.
• Mutual respect: Mutual respect for the uniqueness and independence of each organisation in the partnership was essential for success. Organisations in successful partnerships recognised and acknowledged the intrinsic motivations, goals, core values and strengths of their partner organisations. However, partnerships with uneven power dynamics deteriorated over time, as the “bigger” player subsequently tried to enforce its demands at the expense of the other.
• Capability and experience: FSPs reported that when a partnership was successful, it was because some or all of their partners had prior experience working with other players within the financial services industry. In situations where organisations were entering partnerships for the first time with other industry players, synergy was harder to achieve and required active learning and agility to reduce mistakes among these newcomers.
• Clarity of roles and responsibilities: A partnership management structure led by executives with adequate relationship-building skills helped ensure that employees in partnering institutions had clarity about their respective roles and responsibilities. These findings show that leaders and other decision-makers need to be wary of creating roles that infringe on another manager’s area of responsibility, as this often creates friction. In addition to clarifying responsibilities, it is important to offer relevant compensations and rewards to managers for ensuring that partnerships achieved their intended objectives.
• A dedicated officer/executive responsible for partnerships: Having a dedicated officer (or executive) responsible for developing commercial and strategic relationships with other organisations enhanced partnership success. These dedicated officers/executives were also responsible for ensuring that existing partnerships remained in alignment with internal company objectives, while delivering a positive experience to partner organisations over the lifespan of the partnership. However, smaller FSPs revealed that having an officer dedicated to managing partnerships was usually not feasible due to their limited resources.

More insights from the survey can be found in our Digital Financial Services in Nigeria: State of the Market Report 2021. We hope this research will advance the state of partnerships among financial inclusion stakeholders in Nigeria and beyond.

Olayinka David-West and Ibukun Taiwo are members of the Sustainable and Inclusive Digital Financial Services initiative of the Lagos Business School.

Photo courtesy of KC Nwakalor for USAID / Digital Development Communications.