How Fintech Companies Revolutionised Banking

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The advent of financial technology (fintech) companies have changed the dynamics in the nation’s banking and financial service landscape with Nigerians hitherto financially excluded now being able to access banking services from anywhere and everywhere without breaking a sweat. Ibrahim Apekhade Yusuf in this report focuses on the different innovations by fintech companies that have changed the face of banking

anking and financial services until the recent past have been largely deployed through a brick and mortar approach with many prospective customers required to go into the fall walls of the banking halls to access its services. But not so any more.

Enter Fintech companies

Financial technology is one of the new waves of disruptions in the financial sector that is fuelled by the internet of things and the increasing digitalisation of the world.

Fintech refers to the ecosystem where technology companies as well as financial institutions use the innovations in technology to foster financial services and increase access to finance in the market.

With the advent of fintech companies into the nation’s financial ecosystem, many people who were hitherto excluded from accessing banking and financial services have now been adequately captured with the ratio of the unbanked population now considerably low compared to the over 70million statistics recorded some 10-15 years ago.

Almost every corner of the world has been touched by fintech in as little as 20-25 years of its existence with the likes of PayPal charging at the front by helping people make seamless money transfers across the world and facilitating online payments.

In the last decade, the industry has grown by more than 100 times from $1.8billion in 2010 to $19billion in 2015. Recently, the size of the global fintech industry has been valued at $127.66 billion and is expected to grow at an annual average of 24% to amount to $309.98 billion by 2022.

The advent of fintechs in Nigeria and regulations

In Nigeria, the presence of fintech is equally notable, and like its ecosystem, there is a continuous rise in the number of fintech startups looking to offer better services than pre-existing ones. Fintechs in Nigeria are looking to expand the tentacles of the financial sector to reach its un-banked population of 60 million people (more than a quarter of its estimated 200 million population) through mobile apps that make services.

The preliminary works of the pioneer fintech firms set the stage for Nigeria commercial banks to ride on. The fintech industry has been evolving as more companies leveraging on technology to drive financial inclusion in the country.

The Central Bank of Nigeria is the main regulatory body for fintech institutions in Nigeria and in 2018, it established a licensing regime for what it called Payment Systems Providers (PSP) which covers all fintech institutions (e.g. Payment Terminal Service Providers (PTSP), Mobile Money Operators (MMOs), Payment Solutions Service Provider (PSSP), and switches, etc.) in an effort to tackle emerging issues such as cyber risks, risk management, and capital adequacy, etc.

Nigeria is now home to over 200 fintech standalone companies plus a number of fintech solutions. It is estimated that there are about 210-250 fintech operators/companies operating in the Nigerian space, the bulk of their services—as much as 60%, is clustered within the lending and payment sector and these players brought about the valuation of the industry to $153.1 million in 2017 and are projected to rise up to $543.3 million by 2022.

Between 2014-2018, the cumulative investment in the Nigerian fintech sector exceeded $250 million and the upward trend will likely be sustained for a few more years. Various factors have led to the growth of fintech in Nigeria, including efforts by the CBN to drive up financial inclusion by up to 80% in 2020; an increase in the penetration of smartphones; as well as an increase in the rate of e-commerce in Nigeria.

While many people are aware of the growth of fintech in Nigeria, many—including potential investors and company owners, are not necessarily familiar with the process of establishing a fintech company or the process of acquiring a license to run one. In 2018, while announcing a new requirement for fintech companies in Nigeria, the CBN stated that their presence could compound existing risks within the Nigerian financial system. The CBN then went on to establish a requirement for Nigerian fintechs to have a minimum shareholder fund that ranges from $275,000-$14 million before they can obtain the necessary operating licenses.

Besides CBN, the FinTech Association of Nigeria (FintechNGR) is a self-regulatory, not-for-profit and non-political organisation incorporated in Nigeria by the Corporate Affairs Commission CAC and a member of the global body Global Fintech Hubs Federation.

Since inception, the Association has consistently been interfacing with the regulators such as CBN, SEC, National Insurance Commission, and the government at all levels with a view to developing the fintech ecosystem.

Categories of fintech companies

A financial expert, Gideon Okorie, while speaking on the five categories fintech companies in Nigeria said they are come in form of agritech, savings, and investments (financial instruments), Crowdfunding, mobile payments, and cryptocurrencies.

Rising profile of fintechs

Fintech firms in Nigeria have witnessed huge success recently. Patronage of these fintech firms has been on the upside because of the less cumbersome requirements for opening an account and higher interest rates compared to regular financial institutions.

Fintech firms are able to offer this because of lower operating costs, driven by an emphasis on technology. Banks have a higher cost outlay due to the costs of running brick and mortar operations.

While many on both sides, regard banks and fintechs as competitors, in reality both are complimentary in Nigeria. Fintechs do not hold depositors funds but merely serve as an intermediary.

Increased patronage of fintech firms, thus increases the volume of money available to banks for onward lending.

Many mobile finance providers including Zedvance, Carbon, Fairmoney, Branch, others too numerous to mention have made banking very inclusive.

Echoing similar sentiments, the Managing Director and Chief Executive Officer of Globus Bank Limited, Elias Igbinakenzua, said the charges on PoS transactions are cheaper and it’s a way to motivate Nigerians to embrace the cashless policy.

Benefits of PoS

Also speaking on the numerous benefits of the PoS, Mallam Abdulganniyu Mushafiu Abiodun, CEO, Al-Amanah Ventures said before the advent of the payment system bank customers endured all forms of drudgery just to access banking services.

Abiodun who went into full operation as a mobile money agent working with a number of payment platforms in 2019, said PoS has indeed redefined banking services.

According to him, ”Before PoS came into being customers, especially the unbanked population could hardly ever access banking services except through proxies. But these days, with the PoS anybody can enjoy optimal banking services, hitherto the exclusive reserve of a few. You don’t have to spend man hours in the banking premises for those who have accounts. With a PoS, you can get access to your bank account at your earliest convenience.”

Pressed further, he said, “A lot the customers who use the PoS are encouraged to do so because of the convenience it offers them as well as the added advantage it offers in places where commercial banks may not be located. In some residential areas or hard-to-reach-communities where you don’t have access to commercial banks, you’ll certainly find a PoS by the time you move around. That way you’re saved the agony of having to move to town just to enable you have access to your bank. During emergencies too, the PoS becomes the best option for you.”

PoS agents, according to Abiodun make marginal profits from volume sales whether on withdrawals or transfers because they earn commissions from the different platforms they deploy.

Adherence to standards

The CBN has urged fintech, payment service providers and banks in the payment system to ensure that they adhere to policy framework and standards that guide their operations.

The Director, Payment Systems Management Department, CBN, Mr. Samuel Okojere explained that the CBN was trying to build an ecosystem that allows everyone to have opportunity to present and run its own system, adding that fintechs were introduced into payment system with the aim of deepening financial inclusion in Nigeria.

Okojere, who was represented at the event by the Deputy Director, Payments System Policy and Oversight, at the CBN, Mr. Musa Itopa Jimoh, stated that the apex bank made a commitment in 2011, to bring those that are outside the banking sector closer, hence the introduction of fintech companies into payment space.

According to Okojere: “What CBN expect from the operators in the financial payment service providers is compliance with set standards, and this is the only thing that can make fintechs and payment services providers integrate to global best practices.”

Fintechs vs banks

The CBN may have unwittingly taken sides in the Bank vs Fintech debate by labelling Fintech as a threat to banks.

Governor of the apex bank Godwin Emefiele made this known during the investiture of Uche Olowu as the 20th President of the Chartered Institute of Banker of Nigeria (CIBN) recently.

Represented by the deputy governor on Economic Policy, Joseph Nnanna, Emefiele advised banks to step up their service delivery.

“Banking has a common threat. The enterprise risk posed by fintech is real and there is need to be at the forefront of sensitising the banking sector about the real threats posed by fintech.”

However, Igbinakenzua said Payment Service Banks and financial technology companies are not a threat to banks despite getting a nod from the CBN to start operating as payment channels in order to reduce financial exclusion and serve the underbanked in Nigeria.

The PSBs are expected to drive financial inclusion in Nigeria as it was done in Kenya where mobile banking has been greatly successful due to the effect of the telecommunication firms in the East African country. In Nigeria, MTN and Airtel have shown interest, and MTN Nigeria has already started its mobile banking operation.

“What the PSBs are doing will still end up in the bank. So, banking remains banking. They are all collaborators; they have come to help the banking space to move from what it used to be to what modern banking should be. I don’t see the PSBs as a threat at all or competing with banks. The PSBs won’t give the loans to individuals but they can facilitate payment and make it seamless.”

Fintech ventures lucrative

In the view of Babatunde Adesayo Samuel, a Fellow Chartered Accountant (FCA) and chief executive officer, TGR Limited, a fintech service provider, the service sector such as ICT has remained the driving force of the Nigerian economy in the non-oil sector.

While speaking on the prospect of ICT, Samuel said, TGR Limited is a registered company established to eradicate poverty by even distribution of economic wealth to all partners of company; locally and globally through reselling of telecoms products using technology advantage.

“Telecoms industries among others are good companies that we can ride on their products to have fair share of the telecoms profit to better the lots of millions of Nigerians. It is a business of kobo and kobo which can effectively transform someone’s life to his dreamed life style. Nigeria is a populace of over two hundred million people. If one can effectively have only 20000 people interconnected under one’s network; and one is getting N1.5 daily from their activities. Such person will be making an average of N900, 000 per month and N10.8 million annually. We need to understand that 20,000 Nigerians is 0.01 per cent of the entire population of our great country Nigeria. With this analysis you can imagine how much money is exchanging hands daily.”

Threat of cybercriminals

Meanwhile cybercriminals have been known to create phish websites to defraud unsuspecting victims, including those trying to use mobile payment platforms.

On how to prospective operators like the PoS agents can safeguard themselves from such cyber threat, Abiodun said certain precautions if taken are bound to address such threat.

“Cyber threat is real. But if you are careful, you can forestall any of such infractions against your operations. You have to lock up your SIM card and prevent access to your PIN. Clearly, with these two measures, you can guarantee the security of your operations.”

Besides cybercriminals, Abiodun who recalled his harrowing experience with some unscrupulous individuals who tried to swindle him last year shortly after making transfer to a third party account, said as a rule he has stopped to make transfer for a third party account especially if the amount crosses certain limits.

“However, if you must do transfer for third parties you must take some measures like capturing the image of the person making the withdrawal from the third party account. This becomes necessary to avoid collision with the authorities,” he admonished.

For many customers and industry operators, despite the few hiccups, the fintech industry is not just an idea whose time has come but the different opportunities and benefits far outweigh the disadvantages therein.

– The Nation

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