Fintech MFBs v Commercial Banks in Nigeria: Competitive or Complementary Institutions?

– By Chinedu Okoye 

                        Executive Summary:

• The Nigerian banking sector is currently and increasingly being defined by a structural split between capital-heavy commercial banks and distribution-driven fintech MFBs. This divide points out institutional differences, and a deeper separation between balance sheet strength and transaction velocity.

• Commercial banks dominate deposits, assets, and long-term credit, while fintechs are rapidly capturing payments, user activity, and short-term lending.This divergence is driven by differences in funding structure, regulatory constraints, and cost of capital.

• Fintech MFBs, with lower reserve requirements and minimal legacy costs, price risk at a premium, and are able to offer higher savings yields from significantly higher lending rates. 

• On the flip side, Commercial banks operate within tighter regulatory corridors, maintain lower margins and have greater systemic stability and scale. Hence, what appears as a fierce competition in the retail deposit and Consumer lending space is but a form of market segmentation.

• Whilst Fintechs are monetizing the underserved, and underbanked retail and SME segments, commercial banks remain concentrated in corporate, public sector, and long-duration financing.

• This is interpreted by Zero Equilibrium Economists as a system evolving toward convergence, and long-term winners determined by the ability of these [Commercial and Fintech] Banks to combine balance sheet depth with control over transaction flows.

1.0 Introduction

Banking fundamentally revolves around financial intermediation, where funds are channeled from the surplus side of the economy to the deficit areas. 

In Nigeria, this role has traditionally been dominated by commercial banks, whose models are built on deposit mobilization, credit creation, corporate finance, and participation in broader financial markets.

Over the past decade, technology and mobile penetration have reshaped this landscape. With the rise of fintech-driven MFBs and digital lenders lowering entry barriers leading to an expanded access to financial services, particularly for underserved and informal segments of the economy.

These fintech institutions are redefining banking services, through data-driven lending, mobile-first platforms, and agent networks, and have essentially restructured how savings, payments, and credit are delivered and priced.

At the same time, macroeconomic and regulatory developments (such as FX liberalization and bank recapitalization), have reinforced the importance of scale and capital adequacy for traditional banks. This has created a layered banking system, where fintech MFBs and commercial banks operate with different strengths, constraints, strategy and focus areas.

2.0 The Value Proposition, Comparison and Competition:

The Nigerian Banking industry over the past decade has seen two stages of evolution in it's ever expanding ecosystem. First, is the recapitalization prior to 2015, the emergence of brick and mortar small-scale Microfinance Banks (MFBs), most notably Fortis MFB, Hassal, etc.

With the increased access to internet by the Nigerian population, came a change in the business model of banks in the MFB Space, from brick and mortar to technology based Microfinance Banks (and non-bank) financial institutions.

In 2023/2024 the central bank of Nigeria ordered a total banking recapitalization, following the windfall profits from banks FX positions post the Naira devaluation. Thus, Nigeria's banking systems has evolved into a two based system: (i). asset heavy incumbents (the likes of Guaranty Trust Holding Company, Zenith Bank, Fidelity Bank, Access Holdings, FCMB Group, and First Bank of Nigeria.), and (ii) distribution heavy Fintech MFBs (Opay, Moniepoint, Kuda, Cowrywise, Piggyvest, FairMoney.

These MFBs, operating on financial inclusion, efficient payments and/or distributional finance, have been able to increase their out reach (for instance Opay accounting for over 40 million customers and 20 million daily active users,l), have been able to compete directly with traditional banks in the retail banking space.

The advantage of these MFBs lies not in size but in the divergence in funding structure, regulatory perimeter, and cost of distribution.

Product Offerings (Savings & Loans):

Fintech MFBs compete primarily on yield (savings) and speed (credit), while commercial banks compete on balance sheet depth (which enables volume), pricing stability and other banking services such as international payments, Letters of Credit, Bank Guarantees, etc).

Absent legacy cost structures, these Fintechs can deploy funds into high-yield lending or Treasury positions (at auction yields which are higher).

As a result they can offer higher yields, and price loans significantly higher absent regulatory tape around the MPRs assymentric window. It also reflects the higher risksz for with loose regulations, come little to no backing by the central bank.

Commercial banks offer lower rates on deposits on savings as the table below shows, it still have a tighter net interest income spread than Fintech MFB counterparts, as they operate under tight regulatory constraints that compresses margins.

| Institution   | Type                |Savings % | Loan %

• OPay           |Fintech MFB   |8–25%.      | 36-120%

• Moniepoint | Fintech MFB  |5–12%       |30-90%

• Kuda            |NeobankMFB |4–15%        |24-60%

• FairMoney  |Digital Lender  |6%            |36–120%

• PiggyVest | Savings/Wealth |8% – 18% | N/A

• GTCO         | Comm. Bank      |1– 6%      |18-35%

• Zenith         | Comm. Bank     |1–5%        |18–30%

• Fidelity       | Comm. Bank     |2– 7%.      |20– 35%

• Access      | Comm. Bank      |1– 6%       |18–32%

• FCMB        | Comm. Bank.      | 2– 8%     |20– 35%

• First Bank    |Comm. Bank        |1– 5%.    |20– 35%

Now, we move to the business of Banking, analysing segments and Business Models of both categories of banks.

3.0 Banking Segments & Business Model Dominance:

Types of Banking Segments include; Retail banking, SME/Commercial Banking, Corporate Banking, Investment Banking, Transaction and Payments, Digital Lending and Consumer, Treasury and Markets.

3.1 Retail Banking: Banking services provided directly to individual consumers/households, e.g., savings, current accounts, personal loans, Denit card payment services (and possibly mortgages).

Driven by deposits and consumer fees, Fintechs seem to be winning on the both.

3.2 SME/Commercial Banking:

This serves small and medium sized businesses, providing corporate accounts through which business loans, working capital and trade can be financed. Rates are not paid on the deposits of such accounts so theres a healthy spread, which is negotiable for same reasons - demand deposits of corporate accounts cost zero on interest.

3.3 Corporate Banking: Here the focus is on large cap companies, miltitmationals, and government-linked entities. Thenofferongs on such accounts include; large scale syndicated loans (where one customer requires an amount above the banks single obligor limit, the amount could be spread across as many banks as it will take to bring the sum lent per bank below that threshold, project ad structured finance, and cash management are the other major services and offerings of this product.

3.4 Investment Banking:

This is aimed at capital market operators in need of advisory and Investment execution, e.g., Initial Public Offering(s), Mergers and Acquisitions, Financial Advisory, Debt and Capital Restructuring.

It is largely fee based, and not interest based unlike.the above, and requires highly skilled advisory teams. Essentially banking for investors.

3.5 Transaction/Payments Banking: This is the infrastructure layer of banking that has transformed the sector the most. It focuses on payment processing (POS, transfers, cards), Mobile Banking Platforms that are reliable, and quick settlement systems.

The business depends on; extreme high transaction volumes which translates to more fees, a sub-ecosysystem in the form of POS terminals, and agents). This is where Fintechs dominate.

3.6 Treasury & Markets: This segment handles liquidity management, funding investment and trading axtivites, mainly: Forex, Money Markets Operations, Government Securities Trading, etc.

Banking for the financial markets investor.

3.7 Digital Lending / Consumer Finance:

This is another angle Fintechs dominate based on volume as it involves the expedient and reliable datadribene lending, instant personal loans, salary advances, and Micro-credit (albeit to a lesser degree).

The tenors are short, and interest rates high, with risk assessment made stronger by available credit information, ratings, and history.

Now we table these Banks selected (Fintech an Commercial Banks), side by side the primary or dominant banking segments they operate as well as the lesser dominant or secondary Segments.

N/o. Bank   Dominant Segments  Sec.Segments

1 Opay Retail payments, Agency banking Consumer savings

2 Moniepoint SME payments, Agency banking Merchant Lending

3 Kuda Retail digital banking Consumer lending

4 FairMoney Consumer Lending Retail Deposits

5 PiggyVest Retail savings/wealth Treasury placements

6 GTCO Corporate, Retail Investment banking, Payments

7 Zenith Corporate, Treasury Retail

8 Fidelity SME, Retail Corporate

9 Access Retail (mass), Corporate

Pan-African expansion

10 FCMB SME, Retail Investment Banking

11 First Bank Retail (legacy), Corporate Public sector

4.0 The Banking Sector Dichotomy:

From the above, Fintech MFBs concentrate more on SME and Retail Payments, Retail Savings, and Consumer Lending (FairMoney MFB). On the other hand, the top commercial banks listed above concentrate on corporate, Mass Retail, SME, with Investment Banking, Payments and Public Sector as secondary segments offered.

The above table clarifies the interest of these financial Institutional lenders, and by extension the banks business model. With Corporate Banking the major target market for the FUGAZ banks, hence the little incentive to provide more loans to retail customers, deemed higher risk.

4.1 Premium Offer Rates Compensating for and Enabling Higher Risk Pricing:

This neglect created an opportunity for the above Fintech MFBs in the retail banking, (consumer lending and savings) space, pricing the loans at a premium (taking into account structural constraints and possible headwinds) as table 1 illustrated, and this enables them offer higher returns on consumer savings and with a higher net interest income.

4.2 The Fintech MFB Advantage in the niche Consumer, SME and Retail Banking:

Whilst commercial banks are restricted to a high cash reserve ratio of 45%, and a tight assymetric corridor benchmarked to the monetary policy rate, these Fintechs (and non-bank lenders) have a lower reserve requirements, and looser interest rate policy allowing for premium money pricing (interest rates), for short-term Loans, reducing liquidity risks, whilst being supported by monetary infrastructure that enforces compliance or deter willful insolvency.

5.0 Asset Size and Assets Under Management (AUM)

The table below indicated the the size advantage of Commercial Banks over Fintech MFBs with asset Under management dwarfing that of their Fintech counterparts on the Volume/ absolute figures .

Bank          | AUM 2025 | y-o-y%∆ |(Trn NGN)

Access      | N42.5         | +0.02%

Zenith        | N31.9         | +6.71%

GTCO         | N17.82       | +21.08%

First Bank  | N27.1         |+2.26%

FCMB         | N7.54         | +6.95%

Fidelity       | N10.5         |+19.04%

5.1 Fidelity Caught in the Middle:

Upon the new recapitalization, over the last year, Fidelity outsizes FCMB in total assets, which indicates that the Bank (Fidelity) is in transition from a top-tier 2 bank and a top-tier 1 Bank. It is also the second largest AUM % growth in 2015, coming a close second to a GTCO’s +21%> AUM growth.

5.2 Fintech MFBs [Opay, Kuda, PiggyVest FairMoney]:

For the Fintech Microfinance Banks (MFBs), balance sheet and financial statements are difficult to obtain given the opacity if an institution not required to publish their earnings to the general public.

As a result, we use aggregated revenue/transaction volume to determine the value of its assets inFY 2025 for Opay, Total Assets for Kuda, Total value of loans disbursed for FairMoney (as it is an asset to the MFB. FairMoney, and for PiggyVest,

5.21 Opay:

• Revenue Focused,

• Processed over ±N140 billion in transaction in the year 2025,

• With 40 million customers and 20 million daily active users.

5.22 Kuda:

• $125 million in assets.

• Daily transaction volume of N14.3 trn.

5.23 PiggyVest:

Asset under management as at Q1 2026 approximately N4 trillion(Savings), a +110% annual growth from 2024.

5.24 FairMoney:

• N150 billion in assets (loans) in 2025,

• Interest cost of N7 billion in savings interest. Another case of wider margins and competitive rates.

The exponential growth of some of the aforementioned Fintech MFBs, is indicative of an increasingly more debt dependent consumer, firm, or public sector (government Institutions) .

6.0 ZE Insights on Competitive Edge and Strengths of both Banking Categories:

Other advantages or competitive edge is the large globals network in the form of dual listing foreign investment, and correspondence relationships with banks to facilitate trade.

Fintech MFBs however are evidently smaller (see table 3 above), with balance sheets ranging from N100bn to N4 trillion (depending on deposits and float). Their focus is on massive transaction volume rather than return from assets (loans).

With hundreds of thousands agent bankers (or POS machine Operators), Opay and Moniepoint have gradually taken over the POS and online payment market, limited only by volume.

As a result, it is safe to say that; Commercial banks dominate stock variables (large asset and deposit base), whilst Fintechs dominate” “flow” variables -i.e., transactions/money movement.

7.0 Market Focus and Share of each Target Market Per Banking Group:

Fintech MFBs       | Commercial Bank

• Underbanked            • Corporates &

/Unbanned,                 • Multinationals

• Informal Sector.       • Government, Oil & Gas

• Youth Demographic • High Networth Individuals.

In reality, between the years 2004 and 2026, deposits have been heavily concentrated in commercial banks, whilst transactions increasingly captured by Fintech MFB channels.

7.1 Scaling Prospects and Constraints:

Fintechs run a high risk, asset light model,with modern cloud native infrastructure, viral distribution networks and regulatory arbitrage.

However, constraints accompany this MFB banking modle as given that they already pay higher interests on deposits, scaling deposits would most likely raise funding costs and compress margins.

On the flip side, Commercial Banking posses deep capital base, and ability to scale through International expansion, corporate banking relationships, with FX advantages from access to the EFEMS.

Constraints include high operating costs, slower product iteration due to the existence of legacy and proven systems.

As a result of the Fintechs having unique advantages and niché offering products that are either not appealing to commercial banks, or have regulations that places constraints on their ability to participate in such segments.

Coupled with the fact that Commercial Banks have the necessary capacity to take on heavier longer-term loans in a different segment of the credit market, a case can be made that it is more a convergence than competition.

7.2 Competition or Convergence?

Though there is an element of competition especially in the retail deposit and Consumer Lending space,the competition is nonlinear and mostly indirect. For Fintechs are essentially serving a market that the commercial banks are not inclined to.

With the dependence on transaction/payments, Fintechs are essentially focus on user friendly mediums (Apps), for payments and deposits. Hence disrupting the distribution and pricing at a premium, however banks remain the core financial intermediation mechanism.

With banks building and/or acquiring digital subsidiaries, and Fintechs increasingly applying for full banking license, and collaboration in occurrence, this is more of a convergence (or supplementary) between both banking categories.

The Nigerian Banking Sector remains on an ever eveolbing structure, in three

• Layer 1: Balance Sheet Core (dominated by commercial banks)

• Layer 2: Distribution and User Experience (dominated by Fintech MFBs), and

• Layer 3: Capital Markets (Asset Managers, Treasury, etc.

8.0 ZE Analyst Remarks:

The Nigerian Banking landscape as analysed above, is not undergoing a displacement cycle but a structured rebalancing of intermediation roles, with Commercial Banks serving the banking segments that the Fintech MFBs do not have sufficient capacity to. In the same vein the MFBs serve the more risky and less appealing retail and consumer savings and lending. 

However, Commercial Bank remain the systemic anchor of the Nigerian financial system, giving their dominance in capital formation, corporate lending, public sector financing and global financial market integration from relationships with international banks and dual listings of some banks notably GTCO.

The regulatory backing and access to funding markets, position them as indispensable, and more stable in periods with macroeconomic volatility.

The distinction can best be described as velocity versus scale, as Fintech MFBs maximize high frequency transactions and rapid and credit deployment to the underbanked. On the other hand Commercial bank maximize depth, which enables longer duration credit at a scale that ensures lower interest compared to Fintech MFBs.

Neither market or segment is capable of independently serving the fill spectrum of Nigeria's financial needs, making both categories of banks complementary rather than supplementary.

It is our [ZE] view that the long-term winner(s) in either space, wouldn’t be the one who offers the highest interest rates, but the group or entities that control consumer flow and balance sheet health simultaneously.