At the bottom of the pyramid, every fintech’s major competitor is cash.

If you need confirmation, look at what is happening in Nigeria now. In November last year, the Governor of the Central Bank of Nigeria, Godwin Emefiele, announced a new redesigned currency to combat counterfeiting and cash hoarding¹.

Since the announcement in November 2022, the CBN has been tasked with replacing old notes with new ones. But, the new notes are in very short supply, with the CBN’s actions effectively reducing the amount of cash in circulation in an economy heavily dependent on it. Warren Buffett famously said, “Only when the tide goes out do you learn who has been swimming naked.” As the CBN drains the ocean of cash that has anchored our financial pyramid, it’s exposing Nigerians to the frailties of the banking and fintech ecosystem it helped create. By mid-February, the government recognised the position it had placed itself in, extending the use of the old N200 notes until April.

All payment channels — cash included — solve the same core problems for customers: buy stuff, get paid, get help, and send help. But there are trade-offs between these channels, with cash holding some powerful advantages over cards and digital transfers, and vice versa.

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A major reason why cash keeps winning at the “bottom of the pyramid”, with apps the champions at the top and the middle, is that its relative advantages outweigh its disadvantages in situations where both the transaction amounts and the customer’s total savings are small.

  • A N60 charge is negligible for a N100,000 transfer but is unthinkable on a N200 payment for a labourer’s lunch. That’s why people don’t appreciate fintech founders telling them to “just make transfers”.
  • Having your life savings safely in a bank vault (or server, really) is only an appealing feature for someone whose life savings can’t fit in their pocket.
  • The lower the amount in the bank account, the less sense it makes to go to the bank because of the costs. And that cost isn’t only measured in money. Lower-income customers can’t afford to spend much time away from productive work on errands like bank runs. The combination of ATM cards and ubiquitous POS agents was beginning to solve this by ensuring that access to one’s account was just a block away. But now, cash scarcity has forced half the POS agents nationwide to shut down, ironically making the banking system even less attractive.
  • Cash is the greatest beneficiary of network effects ever. Everyone is a cash user. We all accept it. No one is unfamiliar with the concept or suspicious of it. For the financially vulnerable, the safety this status brings outweighs almost every other drawback of cash. Again, POS agent networks were beginning to erode this advantage by making cash more accessible from the banking system. Yet, their business model relies on cash to exist. Nor can POS agent networks help the banking system drain currency from Nigeria’s cash ocean. Their existence is based on being a middleman between those wanting cash and those supplying it.
  • Killer UX/UI. In places like Nigeria, income is also strongly correlated with literacy and digital comfort. Everyone knows how to use cash, yet many of these people don’t know how to use apps, are too intimidated to learn and don’t trust the technology underpinning the banking system. This is the starting line. It’s taken almost a decade for wider society to become comfortable with the 4-digit ATM card pin, with the success of POS agents built on that comfort. The work to do the same with apps and USSD is still ongoing.

These are all tangible reasons why, unless we take some radical leap forward in fintech products that target the bottom of the pyramid in Nigeria, cash will remain king.

Maybe nobody told the CBN.

Necessity does not always drive adoption

Many fintech builders think the cash shortage in Nigeria will drive up the adoption of apps and services connected to the digitisation of cash. I don’t share that optimism.

Yes, we’ve seen an increase in electronic transactions, but the increased traffic is also knocking out apps whose backend does not match their customer promise. Card payments are failing. Nigeria’s cash crunch has tested the country’s digital payments infrastructure, and the results are not pretty. This is making more and more vendors refuse to take anything but cash.

Granted, we can assume this was simply because banks and fintechs were unprepared for the surge. Maybe in the coming months, they’ll roll out extra capacity, and failure rates will go back down from “almost all the time” to “very frequent”.

But, even if capacity improves, it can’t solve bad commercial fundamentals. If the transaction fee percentage is too high to be competitive, the business is dead in the water. People won’t eat a loss. It will force them to close their businesses, stop buying some things or go elsewhere.

Meanwhile, cash has no transaction fees. You can hold it, smell it, see it, count it and hide it. It is “online” for as long as you have it, and it’s yours.

Recognising this problem, Sterling Bank has temporarily waived transaction charges on all their channels. It’s a great move to keep businesses going during this cash shock, but evidence that a purely cashless Nigeria still doesn’t make business sense.

If the banks can’t get paid for cashless transactions at the pyramid’s bottom, their current models don’t work, and new business models are needed. Forced cashlessness won’t change that.

So what will? Instead of suggesting solutions in this article, I’ll draw from my career experience in Product and leave you with my summary of the problems facing the bottom of the pyramid in Nigeria.

  • Customers at the bottom won’t adopt cashless electronic systems because of prohibitive transaction fees and physical inconvenience.
  • Fintechs and banks can’t sustainably/profitably provide cashless options to customers at the bottom because their current business models rely on flat transaction fees, their products aren’t intuitive at certain education levels, and network effects are poor.

I believe the next fintech unicorns will unlock the value at the bottom of the pyramid by solving these problems.

Until then, attempts to force cashlessness through restrictions and policies will fail, but only after causing serious damage to the economy, businesses, and people’s lives.

Source: Andrew Obuoforibo


[1] Emefiele blames cash hoarding for Nigeria’s soaring inflation. He said in January that out of 3.23 Trillion Naira in circulation in October 2022, only 500 Billion (less than 16%) was within the banking industry. His critics point out that the remaining 2.7 Trillion in circulation still makes up only 6% of the total money supply of 52.14 Trillion Naira. A drop in the ocean that they say can’t be the major inflation driver. For that, they point to the CBN issuing over 20 Trillion to lend to the Government.

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