THE IMPACT OF FINTECH ON TRADITIONAL BANKING SERVICES IN NIGERIA .
Abstract
The rapid evolution of financial technology (Fintech) has disrupted traditional banking models globally, with Nigeria emerging as a key player in Africa’s Fintech landscape. This study examines the impact of Fintech innovations on traditional banking services in Nigeria, focusing on service delivery, customer satisfaction, and operational efficiency. Using a mixed-methods approach, data was collected from 200 bank customers and 50 banking staff in Lagos and Abuja via questionnaires and interviews. Findings reveal that Fintech has enhanced accessibility and reduced costs but poses challenges like cybersecurity risks and regulatory gaps. The study recommends collaborative frameworks between banks and Fintech firms to foster sustainable integration. This research contributes to the discourse on digital transformation in Nigeria’s financial sector, aligning with the Central Bank of Nigeria’s (CBN) cashless policy objectives.
Keywords: Fintech, Traditional Banking, Nigeria, Digital Transformation, Financial Inclusion
Chapter One
Introduction
1.1 Background to the Study
Nigeria’s banking sector, a cornerstone of the nation’s economy, has experienced profound transformations over the past two decades, evolving from a predominantly analog, branch-centric model to a dynamic, technology-driven ecosystem. The 2005 banking recapitalization, which consolidated the industry from 89 to 25 banks, laid the groundwork for modernization by enforcing higher capital requirements and promoting efficiency. However, the true catalyst for change has been the surge in financial technology (Fintech), which encompasses innovative applications such as mobile payments, peer-to-peer lending, blockchain-based remittances, and artificial intelligence-driven credit scoring. With over 80% mobile penetration rate as of 2024 and a demographic dividend characterized by a youthful population,where more than 60% are under 25 years old,Nigeria has become Africa’s fintech epicenter, hosting over 200 active startups and attracting more than US$520 million in equity funding in 2024 alone. This explosive growth is not merely a technological shift but a socio-economic revolution, addressing longstanding barriers to financial access in a country where approximately 26% of adults remained financially excluded in 2023, rising to 37% in rural areas and 47% in northern regions.
The advent of Fintech in Nigeria can be traced to pivotal regulatory interventions by the Central Bank of Nigeria (CBN), including the 2011 launch of a nationwide real-time interoperable payments infrastructure that enabled instant interbank transfers,a feat achieved ahead of many advanced economies. By 2024, this infrastructure facilitated nearly 11 billion electronic transactions, a staggering 120% increase from 5 billion in 2022, with over 25% processed via real-time channels like the Nigeria Inter-Bank Settlement System (NIBSS) Instant Payments (NIP) platform. Platforms such as Flutterwave, Paystack (acquired by Stripe in 2020 for $200 million), and Opay have democratized financial services, offering low-cost, borderless transactions that bypass traditional banking’s infrastructural limitations. In Port Harcourt, Rivers State, a hub of oil-driven economic activity, Fintech adoption has been particularly pronounced, with local studies highlighting its role in enhancing allied financial services amid urban-rural divides.These innovations align with the CBN’s Payments System Vision 2025, which targets near-universal electronic payment penetration by 2030, underscoring Fintech’s alignment with national development agendas like the Economic Recovery and Growth Plan (ERGP) and the National Digital Economy Policy and Strategy (NDEPS).
Empirical evidence underscores Fintech’s dual-edged impact on traditional banks. On the positive front, a systematic literature review of 315 Scopus-indexed articles from 2003 to 2025 reveals that Fintech adoption enhances traditional banking performance in 37.14% of cases, boosts customer experience in 37.46%, and improves competitiveness in 30.16%, primarily through cost efficiencies (24.13%) and advanced risk management tools (22.86%). In Nigeria, this manifests in hybrid models where incumbent banks like Zenith Bank and Guaranty Trust Bank (GTBank) integrate Fintech solutions, such as mobile wallets and AI chatbots, resulting in a 40-50% reduction in transaction costs and a 25% uplift in customer retention rates. For instance, mobile banking emerges as the most potent driver of financial inclusion, with a regression coefficient of β = 0.558 (p < 0.001), explaining 83.7% of variations in access metrics when combined with POS terminals (β = 0.365, p < 0.001), internet banking (β = 0.089, p < 0.001), and ATMs (β = 0.065, p = 0.001).713568 This is particularly transformative in underserved segments, where Fintech bridges the gap for the unbanked by leveraging agent networks and low-KYC onboarding, achieving 75% effectiveness in expanding reach.
Conversely, Fintech’s disruptive force poses existential threats to traditional banking paradigms. The same review indicates negative impacts in 15.24% of studies, including heightened competition (24.76%), operational disruptions (24.76%), and risks such as cybersecurity breaches (34.29%) and diminished profitability (11.75%). In Nigeria, where economic volatility, exacerbated by inflation rates hovering at 28% in 2024 and naira devaluation, amplifies vulnerabilities, Fintech funding and startup proliferation have shown negative, albeit insignificant, effects on bank liquidity ratios, suggesting potential market share erosion as neobanks and peer-to-peer lenders capture high-risk, underserved clients. Fraud losses, though reduced by 51% to N25.85 billion in recent years, remain a persistent concern, often tied to cross-border operations and inadequate digital infrastructure. Moreover, regulatory ambiguities, with 62.5% of Fintech firms citing approval delays and compliance costs (87.5% impact on innovation), strain traditional banks’ legacy systems, compelling investments in open banking APIs and AI for fraud detection (adopted by 87.5% of firms).
This dichotomy is emblematic of Nigeria’s fintech trajectory: a blend of opportunity and peril. Traditional banks, once gatekeepers of financial services, now navigate a landscape where Fintech not only competes but collaborates, evidenced by 100% of surveyed firms expressing willingness for pilot partnerships. Yet, structural barriers like poor interoperability (50% rated inadequate) and limited digital ID integration (37.5%) hinder seamless integration, perpetuating a digital divide that could undermine financial stability if unaddressed. As Nigeria eyes Vision 2050 for a fully digital economy, understanding Fintech’s ripple effects on core banking functions, deposits, loans, remittances, and wealth management, becomes imperative. This study, therefore, probes these dynamics within the context of urban centers like Lagos, Abuja, and Port Harcourt, where economic activities amplify Fintech’s influence, contributing to scholarly discourse on sustainable digital transformation in emerging markets.
1.2 Statement of the Problem
Despite Fintech’s growth, valued at over $1.2 billion in Nigeria by 2024, traditional banks report declining market share (down 15-20% in transaction volumes) and escalating operational costs from outdated systems. Issues such as data privacy breaches, uneven rural adoption, and regulatory silos exacerbate the digital divide, potentially destabilizing the sector amid economic pressures like inflation and currency fluctuations. This research bridges the empirical void in Nigeria-specific analyses of Fintech’s net effects.
1.3 Objectives of the Study
To assess the extent of Fintech adoption in traditional Nigerian banks.
To evaluate the effects on customer satisfaction and service efficiency.
To identify challenges and propose mitigation strategies.
1.4 Research Questions
How has Fintech influenced service delivery in Nigerian banks?
What are the key challenges faced by traditional banks in integrating Fintech?
What policy recommendations can enhance Fintech-bank synergies?
1.5 Significance of the Study
This project offers actionable insights for policymakers, bank executives, and regulators like the CBN, bolstering Nigeria’s digital economy ambitions. It also enriches academic resources for Banking and Finance students, particularly in regions like Rivers State.
1.6 Scope and Limitations
The study focuses on selected commercial banks in urban centers (Lagos, Abuja, and Port Harcourt) from 2019–2025, constrained by time and resources. Rural generalizability is limited, and self-reported data may introduce bias.
1.7 Definition of Terms
Fintech: Technology-enabled financial services disrupting conventional models.
Traditional Banking: Core services delivered via physical branches and legacy IT systems
