Nigeria's Cash-Based Economy and the Rise of Bankly

Nigeria continues to be a nation where cash transactions are dominant. Over 100 million adults in Nigeria reside, with a significant portion – exceeding 50% – having limited or no access to formal financial services.

Bankly's $2 Million Seed Funding

Bankly, a Nigerian fintech company focused on digitizing cash for the unbanked population, has recently secured $2 million in seed funding. Established in 2018 by Tomilola Adejana and Fredrick Adams, Bankly is modernizing traditional informal savings systems like esusu or ajo, which are prevalent throughout Nigeria.

The Challenges with Traditional Savings Systems

Many Nigerians without access to traditional banking rely on these informal systems due to their offline functionality. These systems involve pooling cash with a collector who then distributes funds when they are due.

However, these traditional methods present inherent risks. Security concerns arise when collectors abscond with the funds, or their whereabouts become unknown. Accessibility is also limited, as consistent saving can be difficult for individuals who are not consistently in one location. Furthermore, a lack of digital records means there is no customer data available.

Digitizing the Savings Process

Bankly addresses these issues by digitizing the entire process of collecting and saving money, enabling unbanked individuals to save through both online and offline channels.

Expanding Access Through Agent Networks

Over the past 18 months, the company has focused on building a robust network of distribution agents. Customers can deposit and withdraw cash with a Bankly agent at any time. This expansion provides access in communities heavily reliant on cash transactions.

By collecting customer information and storing it on its platform, Bankly fosters engaging communities where individuals can collectively save their income with the assistance of agents. This gradually establishes an online banking presence for these users.

Driving Online Transactions

As more of their funds are held in bank accounts and less cash is readily available, customers are more likely to utilize online services via their mobile phones for tasks like purchasing airtime or making payments.

Financial Inclusion and Access to Credit

Onboarding these new customers encourages increased savings and transactions over time. This, in turn, opens doors to credit opportunities and contributes to broader financial inclusion.

Bankly's Three-Phase Approach

“The initial phase of building agent networks is important, but it isn’t the ultimate objective,” explained CEO Adejana to TechCrunch. “Similar to the evolution of mobile inclusion, the focus must shift to acquiring customers who, after transferring cash to their mobile accounts, utilize it for purchases like airtime or payments. We define this as a three-phase process: distribution first, then consumer focus, and finally, complete digitization. This is how we can achieve financial inclusion.”

Data-as-a-Service for Tailored Products

Leveraging insights into customer behavior and transaction data, Bankly also offers “data-as-a-service” to other service providers, enabling them to create customized products and services for Nigeria’s informal sector.

A Lean Operational Model

Bankly functions similarly to a traditional bank, but with significantly lower asset levels, revenue, customer numbers, and operational costs. By minimizing customer acquisition and physical infrastructure expenses, the company can pass on cost savings to customers in the form of interest rates while maintaining healthy profit margins.

Agent Commission Structure

Agents on the platform earn commissions for each transaction processed through their services. The company has experienced substantial growth in its agent network, increasing from just over 2,000 agents last year to 15,000 currently.

Future Expansion Plans

With the new investment, Bankly intends to further expand its agent network and introduce direct-to-consumer products in the coming months to reach its target of 35,000 customers in cash-dependent communities.

Overcoming Challenges

Adejana highlights the challenges faced during Bankly’s three years of operation, specifically finding the right partners, talent, and investors. She emphasized the importance of aligning with investors who shared the company’s vision for serving the unbanked population and declined investments that didn’t fit this criteria.

Investor Confidence

“We had to exercise patience to ensure we were engaging with individuals who possessed a profound understanding of the problem and a genuine passion for solving it, rather than solely prioritizing quick returns,” she stated.

Key investors include lead Vault, the parent company of VANSO (acquired by Interswitch in 2016), Plug and Play Ventures, Rising Tide Africa, and Chrysalis Capital.

Investor Perspective

Idris Alubankudi Saliu, partner at Vault, commented, “Drawing on our extensive 20-year experience in Nigeria’s fintech sector and successful exits, we are confident that Bankly possesses a deep understanding of the unique needs of this market – coupled with a strong team, strategy, and technology – to succeed in delivering affordable financial services to the unbanked. We are pleased to participate in this financing round as Bankly enters its next phase of growth.”

Long-Term Goals and National Financial Inclusion

Bankly aims to expand its customer base to 2 million unbanked Nigerians within the next three years. The company supports the Central Bank of Nigeria’s National Financial Inclusion Strategy, which aims to increase the percentage of banked Nigerians from 60% to 80% by 2020. While this target hasn't been fully met, Adejana indicates that Bankly is collaborating with regulators to establish a more achievable goal for 2025.

“We are excited to have secured this milestone funding and to collaborate with experienced fintech investors who share our commitment to banking Nigeria’s unbanked population. We have now established the agent network and are prepared to serve customers directly through both offline and online channels. Partnerships, collaboration, and a thorough understanding of the needs of the unbanked will be crucial to our success,” Adejana concluded.

From Investment Banking to Fintech

Prior to founding Bankly, Adejana worked as an investment banker. Her interest in fintech was sparked during her master’s program in Sydney. Upon returning to Nigeria, she worked on a loan product for small businesses and later joined Accion Venture Lab, a program dedicated to fostering financial inclusivity. It was during this time that the concept for Bankly originated.

A Unique Position in the Market

The product has gained significant traction. While numerous fintech companies in Nigeria are targeting the unbanked, Bankly is among the few that can confidently assert its focus on this demographic.

The Importance of Long-Term Vision

Adejana believes that achieving true financial inclusion in Nigeria requires fintech companies to adopt a long-term perspective, mirroring the strategies employed by telecommunications companies and fast-moving consumer goods businesses in the past. This approach focuses on expanding the overall customer base rather than simply capturing a portion of an existing market. “For financial services to reach the last mile, it must be distributed in the same manner as fast-moving consumer goods are distributed,” she added.

Update: A previous version of this article incorrectly identified Flutterwave as a co-lead investor without confirmation from the company.