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THE ROLE OF FINTECH ADOPTION IN ENHANCING FINANCIAL INCLUSION AMONG RURAL AND UNBANKED POPULATIONS IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background of the Study 

Financial inclusion, defined as the access to and usage of affordable financial services by all segments of society, remains a critical driver of economic development, poverty reduction, and social equity in emerging economies. In Nigeria, Africa’s most populous nation with over 200 million people, the pursuit of financial inclusion has gained momentum amid persistent challenges, including widespread poverty, uneven infrastructure development, and a significant urban-rural divide. According to the Enhancing Financial Innovation and Access (EFInA) survey on Access to Financial Services in Nigeria 2023, Nigeria’s formal financial inclusion rate increased to 64% in 2023 from 56% in 2020, largely driven by the adoption of non-bank financial institutions, including fintech platforms (EFInA, 2023). This growth, however, masks underlying disparities: 37% of rural Nigerians remain financially excluded compared to only 17% in urban areas, highlighting the acute challenges faced by rural and unbanked populations (EFInA, 2023). These groups, often comprising smallholder farmers, informal traders, and low-income households, are typically underserved by traditional banking systems due to high operational costs, geographical barriers, and stringent know-your-customer (KYC) requirements.

The advent of financial technology (fintech) has emerged as a transformative force in addressing these gaps. Fintech encompasses innovative digital solutions that leverage technology to deliver financial services more efficiently and inclusively. In Nigeria, the fintech sector has experienced explosive growth, fueled by high mobile phone penetration (approximately 80% of adults) and supportive regulatory frameworks from the Central Bank of Nigeria (CBN). Key innovations include mobile money services, which enable users to store, send, and receive funds via mobile phones without needing a traditional bank account, and digital wallets, which facilitate seamless transactions, bill payments, and access to microloans. These tools have proven particularly effective in reaching the unbanked, as evidenced by global precedents like Kenya’s M-Pesa, which has dramatically boosted financial access in rural areas. In Nigeria, similar platforms are reshaping the financial landscape by reducing transaction costs, enhancing convenience, and promoting economic participation among marginalized groups.

Prominent among these platforms are OPay and PalmPay, which have rapidly ascended as leaders in Nigeria’s fintech ecosystem. OPay, launched in 2018, has amassed over 50 million registered users in Nigeria by mid-2025, offering services such as mobile money transfers, bill payments, and savings products through an extensive agent network that penetrates rural communities (Ecofin Agency, 2025; Fintech News Africa, 2025). Similarly, PalmPay has grown to over 35 million registered users (with some reports indicating up to 40 million), focusing on financial empowerment by providing unlimited free transfers, target savings, and credit services tailored to underserved populations (PalmPay, 2025; Yahoo Finance, 2025). These platforms have capitalized on Nigeria’s digital payment surge, especially during periods of traditional bank disruptions, such as technology failures in 2025, which shifted daily payments leadership to fintechs like OPay and PalmPay, with mobile money transactions reaching ₦20.7 trillion in Q1 2025 alone (Ecofin Agency, 2025; TechCabal, 2025). A 2025 study on fintech’s impact in Southern Nigeria underscores how such innovations have expanded access to banking, savings, and credit, particularly for tech-savvy youth, though rural infrastructure deficits persist (Iroakazi & Bello, 2025).

Recent empirical evidence further illustrates the broader implications of fintech adoption. A 2025 study across emerging economies, including Nigeria, found that a 1% increase in fintech penetration correlates with a 0.1772 unit rise in the financial inclusion index, emphasizing its role in overcoming barriers like low education and income levels (Ndukaji, 2025). In sub-Saharan Africa, mobile money has been pivotal, with nearly half of the countries adopting fast payment systems to serve unbanked populations. In Nigeria specifically, digital wallets have formalized informal transactions, narrowed gender gaps (with women comprising about 40% of OPay and PalmPay users in various reports), and enhanced resilience during economic shocks. The International Monetary Fund (IMF) notes that digital financial services foster economic growth by enabling new business models and e-commerce, particularly in regions with limited banking infrastructure.

This thesis explores the role of fintech adoption in enhancing financial inclusion among Nigeria’s rural and unbanked populations, with a specific examination of mobile money, digital wallets, and platforms like OPay and PalmPay. By searching into these innovations, the study aims to contribute to the discourse on sustainable development, aligning with the United Nations’ Sustainable Development Goals (SDGs) and Nigeria’s national financial inclusion strategy.

1.2 Statement of the Problem

Despite Nigeria’s progress in financial inclusion, a substantial portion of the population, estimated at 36% in 2023 (EFInA, 2023), remains excluded from formal financial services. This exclusion aligns with broader trends where the financial exclusion rate stands at 26%, while formal inclusion is at 64%. The issue is disproportionately concentrated in rural areas, where high poverty levels, inadequate digital infrastructure, and the reluctance of traditional banks to expand due to cost inefficiencies create significant barriers. The unbanked population faces challenges such as limited access to credit, high transaction fees, and heightened vulnerability to economic shocks, which perpetuate cycles of poverty and inequality.

Fintech presents a promising solution to these challenges, yet adoption rates in rural Nigeria remain low due to persistent obstacles. Low digital literacy, unreliable internet connectivity, and gender disparities in mobile phone ownership hinder widespread uptake. A 2025 study illustrates this dynamic, noting that while fintech has positively impacted financial well-being in Northwestern Nigeria, its effectiveness is moderated by network reliability and literacy levels. Platforms such as OPay and PalmPay have achieved some success, but systemic issues including regulatory hurdles and uneven agent networks continue to limit their potential in bridging the urban-rural divide. Without targeted interventions, fintech’s capacity to enhance financial inclusion may remain unrealized, deepening existing social and economic disparities.

1.3 Objectives of the Study

The general objective of this study is to examine the role of fintech adoption in enhancing financial inclusion among rural and unbanked populations in Nigeria.

The specific objectives are:

1. To assess the impact of mobile money services on access to financial services for unbanked Nigerians in rural areas.
2. To evaluate the contribution of digital wallets in promoting savings, credit, and transaction efficiency among underserved populations.
3. To analyze the effectiveness of platforms such as OPay and PalmPay in bridging the financial inclusion gap through agent networks and innovative features.
4. To identify barriers to fintech adoption in rural Nigeria and propose strategies for overcoming them.

1.4 Research Questions

The following research questions are formulated to guide the study and align with the objectives:

1. What is the impact of mobile money services on access to financial services for unbanked Nigerians in rural areas?
2. How do digital wallets contribute to promoting savings, credit, and transaction efficiency among underserved populations?
3. How effective are platforms such as OPay and PalmPay in bridging the financial inclusion gap through agent networks and innovative features?
4. What are the barriers to fintech adoption in rural Nigeria, and what strategies can be proposed to overcome them?

1.5 Significance of the Study

This study holds substantial value for multiple stakeholders. For policymakers and the CBN, it provides evidence-based insights into leveraging fintech for national financial inclusion targets, potentially informing regulations that enhance rural penetration. Fintech companies like OPay and PalmPay can use the findings to refine their models, focusing on user-centric innovations that address rural challenges. Academically, it contributes to the growing body of literature on digital finance in emerging markets, building on studies like those from the World Bank and IMF. Ultimately, by highlighting pathways to inclusion, the study supports broader economic empowerment and SDG achievement in Nigeria.

1.6 Scope and Limitations of the Study

The study focuses on Nigeria’s rural and unbanked populations, emphasizing mobile money, digital wallets, and specific platforms (OPay and PalmPay) from 2020 to 2025. It draws on secondary data from surveys, reports, and academic studies. Limitations include reliance on existing data, which may not capture real-time dynamics, and potential biases in self-reported adoption rates. Future research could incorporate primary data for deeper insights.

1.7 Definition of Terms

• Financial Inclusion: The process of ensuring affordable, timely, and adequate access to a range of quality financial services for all individuals and businesses.
• Fintech: Financial technology that uses software and digital platforms to provide financial services.
• Mobile Money: A service allowing users to conduct financial transactions via mobile phones, often without a bank account.
• Digital Wallets: Electronic devices or online services that allow individuals to make electronic transactions, including storing funds and making payments.
• Unbanked Populations: Individuals without access to formal banking services, often in rural or low-income areas.

References

1. Enhancing Financial Innovation and Access (EFInA). (2023). Access to Financial Services in Nigeria 2023: Key highlights. https://efina.org.ng/wp-content/uploads/2024/03/A2F-2023-Event-Day-Presentation-Version4-1.pdf (This report documents formal financial inclusion rising to 64% in 2023 from 56% in 2020, with rural exclusion at 37% compared to 17% in urban areas.)
2. Enhancing Financial Innovation and Access (EFInA). (2024). Beyond access: Putting financial health at the core of Nigeria’s financial inclusion strategy. https://efina.org.ng/wp-content/uploads/2025/09/Beyond-Access-Why-Financial-Health-Must-Be-Nigerias-Next-Inclusion-Goal.pdf (Provides updated insights on financial health and inclusion trends post-2023 survey.)
3. Ndukaji, A. (2025). Fintech and financial inclusion in emerging economies: Evidence from digital payments, mobile banking, and entrepreneurial finance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.5968274 (Empirical study showing fintech penetration’s positive correlation with financial inclusion indices in emerging markets, including Nigeria.)
4. Central Bank of Nigeria. (2022). Digital financial services and financial inclusion in Nigeria: Milestones and new directions. Economic and Financial Review, 60(4). https://www.cbn.gov.ng/Out/2024/RSD/Digital%20Financial%20Services%20and%20Financial%20Inclusion%20in%20Nigeia,%20Milestones%20and%20New%20Direction.pdf (Discusses mobile money, agent networks, and rural challenges in digital finance.)
5. International Monetary Fund. (2023). Nigeria—Fostering financial inclusion through digital financial services (Selected Issues Paper No. 2023/020). https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023020.pdf (Highlights digital services’ role in inclusion, mobile penetration at ~80%, and rural-urban gaps.)
6. Iroakazi, E. C., & Bello, S. A. (2025). The impact of fintech on financial inclusion in Southern Nigeria. International Journal of Research and Innovation in Social Science, 9(2), 256–273. https://rsisinternational.org/journals/ijriss/articles/the-impact-of-fintech-on-financial-inclusion-in-southern-nigeria (Examines fintech’s effects on access, savings, and credit in Southern Nigeria, particularly for youth and underserved groups.)
7. PalmPay. (n.d.). About PalmPay. https://www.palmpay.com/company/about (Official source stating over 40 million users and 1 million merchants as of recent updates, with focus on underserved access.)
8. Ecofin Agency. (2025, September 8). In Nigeria, bank technology failures pushed OPay and PalmPay to leadership in daily payments. https://www.ecofinagency.com/insights/0809-48489-in-nigerian-bank-technology-failures-pushed-opay-and-palmpay-to-leadership-in-daily-payments (Reports OPay at over 50 million registered users and PalmPay at 35+ million by 2025, with transaction leadership shifts.)
9. Punch Newspapers. (2025, September 23). PalmPay marks 6th anniversary, reaches 35 million users. https://punchng.com/palmpay-marks-6th-anniversary-reaches-35-million-users (Confirms PalmPay’s growth to 35 million users by mid-2025.)