Nigeria’s agency banking landscape is facing a crossroads, with Kippa’s recent decision to shut down its agency banking arm sparking discussions about the industry’s future. Despite having a solid foundation of 500,000 merchants using Kippa for bookkeeping and inventory management, the startup has recently succumbed to the pressures of the market.

In a surprising move, Kippa, originally a bookkeeping and finance startup, ventured into agency banking by obtaining a Super Agent License in September. Its aim was to compete with the industry giants Opay and Moniepoint, who collectively hold 57% of the agent market in Nigeria. However, Kippa’s agency banking journey came to an abrupt end, shedding light on the challenges faced by the industry as a whole.

Kennedy Ekezie, Kippa’s CEO, cited profitability as the primary reason for their exit. He pointed out that “our projections changed significantly in the past six months due to changes in the macroeconomic conditions in Nigeria.” KippaPay’s struggles were attributed to small business hardships, naira devaluation, and the evolving market. The Nigerian economy has seen its GDP shrink to 2.51% in the second quarter due to inflationary pressures and a stringent fiscal regime. The official market’s nearly 40% naira devaluation further squeezed small businesses and agency banking operations.

In July, the Lagos chapter of the Association of Mobile Money and Bank Agents in Nigeria (AMMBAN) proposed fee hikes to offset rising operational costs. However, these proposals faced opposition from consumers and fintech operators alike. The backlash to such fee hikes suggests growing resistance within the market.

The agency banking landscape in Africa is reaching saturation levels. According to GSMA, the number of global mobile money accounts per active agent dropped from 113 in March 2017 to 85 by the end of 2021. While the number of active agents in Sub-Saharan Africa grew by 39% in 2022, the number of active accounts and transaction values increased by 21% and 15%, respectively. This trend indicates that the number of agents is outpacing the growth in customers.

Nigerian fintech’s ultimate goal extends beyond profitability. It aims to expand the distribution of financial services, but this gap has been narrowing over the years. The current agency banking landscape resembles the decline of airtime recharge card vendors, who once played a pivotal role in smartphone penetration. Banks and fintech companies have taken over the distribution of airtime and mobile data, leaving the agents with fewer income sources.

In a country where cash still dominates the financial services landscape, there is a push to change the order. Measures taken by the Central Bank of Nigeria (CBN), such as launching a Central Bank Digital Currency (CBDC), limiting over-the-counter cash withdrawals, and creating artificial cash scarcity, have aimed to promote digital payments. However, these efforts have been met with mixed success, as people continue to rely on cash. Major players in the industry, including Opay, MoniePoint, Paga, PalmPay, MTN, and Airtel, are intensifying efforts to make digital transactions a part of daily life, slowly edging towards a future where cashless payments become the norm.

The future of agency banking in Nigeria hangs in the balance as economic challenges, market saturation, and changing consumer behaviors present significant obstacles. Kippa’s exit serves as a stark reminder of the complexities within this industry. While cash may still rule the Nigerian financial landscape, the ongoing efforts to promote digital payments indicate a shift that could reshape the future of agency banking as we know it.