- Nigerian fintechs are driving a new wave of revolution in the financial industry by offering innovative solutions and bringing many Nigerians into the financial system.
- They receive significant funding from venture capitalists, accounting for a larger share of funding coming into the startup ecosystem in Nigeria.
- The competition between banks and fintech in Nigeria is ongoing, with some fintech expected to survive and become super fintech, while others may struggle or be acquired by banks. Banks need to adapt and constantly scan for new challenges to retain their customers and stay competitive in the evolving financial industry landscape.
Fintechs in Nigeria are driving a new wave of revolution in the Nigerian financial industry with innovative solutions that are bringing many Nigerians into the financial system. With their innovative ideas and the huge market in Nigeria, this fintech has also become the favourite of venture capitals seeking to invest in Nigerian startups, thus the fintech has been accounting for the bigger chunks of funding coming into the startup ecosystem in Nigeria
While their services have seen them competing with traditional banks in the past years, the recent cash scarcity has seen the fintech becoming the preferred bankers of many Nigerians.
In this interview with Nairametrics, a former Executive Director, Information Technology and Operations at Access Banka and the current President of the FinTech Association of Nigeria (FintechNGR), Mr Ade Bajomo, speaks, among others, on what the banks need to do to retain their customers and the lessons the fintech will have to learn from banks even as they compete.
Nairametrics: At the beginning of the fintech revolution in Nigeria, there was this stiff competition between them and the banks and it was like they were coming to take over the banks’ businesses. As someone that came out of the banking system and now championing fintech growth, what is the situation like right now between banks and fintech, is there any synergy going on?
Ade Bajomo: I think the jury’s out. Will some fintech survive? Yes. There will be super fintech and we’re seeing them already in Nigeria and across the world. Will many fintech die? Yes, because they will have to compete with other fintech and they will have to compete with incumbents.
Will banks survive? Yes, of course. And will some of them lose their customers in the process? Of course, they will. So, the jury’s out. They have to co-exist. Where there’s scope to cooperate, cooperate, where there’s scope to compete, you compete. It’s as simple as that.
You’re not going to wait for somebody to eat your lunch. But the way I see it is that certain banks can’t invest. Certain banks are not agile enough in their way of thinking, and the fintech would take them out. So, those banks will either sell off or rejig their strategy to compete in the space. And this is a global phenomenon, but probably more in Africa, because banking isn’t an easy thing. You have to follow regulatory governance; you have to fight cyber thieves.
You know, cyber thieves are much more dangerous than bullion van thieves. The maximum amount you can have in a bullion van is N1 billion and you know what you need to stop a bullion van and the thieves may not even be able to escape even after getting the money. But a cyber thief can be anywhere and within seconds steal billions. Of course, the planning could take months, but when it’s going to happen, it’s within seconds. The guy is not even in your country, so who are you going to hold?
The number of resources you need, and the investments you need to protect yourself become phenomenal. You will see that many banks can fight that but fintech is exposed to that. If you follow the recent FTX story–and I’m using FTX as an example because that’s a super fintech—In its last days, 500 million was stolen. A million dollars is not an easy amount of money.
So, I think banks will survive, and fintech will survive, though the ones that will survive will have to understand how to be black fintech; how to be agile, and all of that stuff. And the fintech has to be very careful because they have woken up the sleeping giants. When you’re competing, don’t go and compete where the banks are dominating because they will squash you.
Their whole system is geared towards doing payments. So, unless you can find a real niche for yourself and find that niche and before they all wake up generated enough mass, critical mass that when they wake up early, they say sorry, who’s that guy, so they’re now struggling to buy you. You’ve reached your valuation and that’s a cleaner way to attack the problem with your fintech.
So finally, the banks are not interested in this long-term thing, they don’t see the value because all their energies are to watch what they see. When you build value, then instead of trying to stay on your own, you will want to partner on a one-to-one level and selling is not a bad thing. If you’re an innovator, you could create something else.
Nairametrics: What does this mean for the financial industry?
Ade Bajomo: It’s good and bad because, in a practical context, you built your process around solving certain problems. And you’re very good at solving those problems. If a new challenge comes, it’s like turning the ship to turn everybody around. That can be a bad thing for the banks but it is good for the industry.
So, it’s so important if the banks are going to survive today and tomorrow, to constantly keep scanning for what’s going to eat their lunch, and then be adaptive. But how best can they adapt in that scenario? You can’t get this old ship to turn easily, by the time you are trying to, these guys with speed boats are gone. So, what you have to do is if you see that you have to go and get your speed boats, let the ship continue to turn while you quickly get your speed boat.
So, for the banks, it’s almost like setting up a separate company to compete with the fintech or partnering with the fintech to carry on with the journey.
The fintech can learn a lot from banks and the bulk of what they can learn is about governance and managing risk. It’s good to have an idea, but that idea without proper governance, and proper risk management control, will lead to the kind of situation witnessed in FTX.
So, what some of the more sophisticated fintech has done is they’ve got an advisory board with adults on it. These people are on the board to guard them based on their experience.
Nairametrics: Still on fintech, Nigeria currently has a large fintech ecosystem and they have been attracting lots of funding in recent times. Why is there so much interest in fintech by investors?
Ade Bajomo: There are many reasons for this. I always say that there was the first industrial revolution which started with the steam engine. When they perfected it, they started sending it to us in Africa; building the railway systems, facilitating telegraph communications, and all of this kind of stuff.
And the second revolution came and was about mass production. We have Henry Ford producing cars, you know, and all of that, and then the third one came around in the 40s and 50s. They started building electronics, computers, and all of that which led to the fourth one. But before we get to the fourth, if you pause for a moment, where was Africa in the first second, and third revolutions? So, this is the first revolution that Africa is participating in uniquely solving African problems as well as leveraging local partnerships and global collaboration.
It’s a very good time to be part and parcel of this revolution. And I think if there is a continent with problems to solve, it is Africa. The beauty of this revolution is that normally, people will solve problems for years then they finish solving and they are looking for other countries to solve their problems.
Right now, everybody’s solving the problems in their country. So, if you’re waiting for somebody to finish their problem in the US, UK, or France and then come to you, you will miss the game.
So, while they are solving their problems, we are solving our problems, and we are all collaborating, solving the global problems, and I think it is a great thing. I think if we do it right, we will set Africa up for the fifth Industrial Revolution. And we won’t be a participant, we will be the drivers in that lane as well.
So the attraction to fintech in Nigeria is pretty simple. We have so many problems to solve. We have a huge growing population. Don’t underestimate our population, we tend to underestimate it. You know, just imagine if people in the 70s understood that this population growth was going to be like this and they started investing in power generation, everybody would say they were crazy. It is now that they would be laughing. The point I’m making is that when you see that population growth, you bank on the right levels of investment to take the opportunities. The investors saw it.
The second reason is that just before COVID, the economies in the West were down, COVID made it worse. So where is the next best place to put my capital? If I can’t save it in my country, because I’m not getting much interest. You look around and you see that the trends in Africa are great. So, you run into and that’s partly why we’ve seen targeted funding initially. When you look at telecoms which started about 20 years ago, that led to another wave of funding into payments primarily, because cash was still prevalent at that time.
And when you look at the start of last year when Putin’s war against Ukraine started, you could see very clearly that things were going to change. It’s not that the funding will dry up, but the funding globally will be a lot more intelligent. There will be no more stuff like, gosh! I like this story, here’s the money, go play with it. No, no, no, because now if I part with my money, I should be getting something tangible from it. Inflation is increasing around the world, so that means interest is increasing. So, emerging market is no longer looking as interesting as before because if I bring my money in, by the time I take it out, it has lost 20% of its value of last year, even if you are promising me 15% And it looks interesting, by the time I convert it back, it has lost 20%. So, all of those little things matter.
Nairametrics: There is a growing trend of Nigerian startups, especially, fintech, registering their companies abroad. This has also sparked concerns that most of the dollars they are raising may not impact the Nigerian economy. Why is this so?
Ade Bajomo: You’re right. Most of those companies are not registered in Nigeria. But let’s be honest if you’re an investor putting in dollars where would you rather do it? Again, these are economic agents. Let’s look at Delaware, where many of them are based, it is a tax-free environment. So even if you’re a US company, you’re not going to–with wide eyes wide open—register in a jurisdiction that’s going to bombard you with taxes. So, there are good reasons for registering outside the country. There is the ownership factor as well. You want to be comfortable with the laws and the jurisdiction where you play. So, the onus is on us to now find a way to get Nigerians to be part and parcel of this story.
So, maybe we need a new generation of something that the millennials are comfortable with and want to be part of to take a slice of. And maybe from that, we might start seeing these companies registering in Nigeria. It may be in slices to start with and then goes into something much more robust.
Nairametrics: There have been some concerns over the interoperability of the eNaira and bank accounts and the CBN also recently accused the banks of not cooperating, is there a reason why banks are somehow lethargic about the eNaira?
Ade Bajomo: It’s an economic decision. The banks have to see what’s in it for them. Whatever they’re doing, they are not doing it because they love social cause, they’re doing it because their shareholders must get returns. If they don’t see real value, they may not want to embrace it. Ideally, you don’t need to convince them. They’ll jump on it if there’s value in it. I think the banks are looking very carefully and saying, we want to understand this better. If we understand this better, then we will facilitate it. Moving money from a bank account to an eNaira wallet is a very simple thing, and vice versa, and it’s good to see that most banks have implemented that.
So, that’s one part of it. What else do I need to do as a bank, discriminate? I need customers to deposit money for me to generate a better return. So economically, I struggle to do that. Now let’s say you have N100 million as a businessman, where will you put the money, eNaira or a bank?
So, if I leave my money in eNaira, will I earn more money than in a bank? No. But if I earn interest from a bank, even if it’s 1%, that is an incentive. So, for eNaira, I’m saying you just want me to give you my money for nothing. It’s okay if you say put your money in eNaira and I will give you a certain percentage. If you do that, nobody will go to the bank. The CBN’s job is to stimulate the economy, that’s why they’re given the independence to manage the monetary policy. And so that goes back to my first point that it needs to be thought through properly rather than just pointing an accusing finger at one party. It is not the answer.
Now, Let me swing it the other way. Imagine you’re super rich like Dangote or Otedola and a few others, where will you put your money? Bank of course.
So, we need to look at it carefully and ask ourselves: What problems are we trying to solve? How does central bank digital currency solve this problem without distorting the rest of the economy or in fact, enhancing the rest of the economy? If we continue to do it the way we are trying to do it as a replacement for cash or competition for deposits it will not work. My money is electronic now.
Nairametrics: Can we say the eNaira was not well thought out?
Ade Bajomo: One of the things we know for sure is that our regulators have some of the best minds around. There’s no question about that. But we have to recognize that this is new, everybody’s learning. The trick is to learn fast and to collaborate in the learning, not to keep the learning within a box. You learn fast, make mistakes and correct them. I mean, there are a lot of innovations around the eNaira. A lot of fintech is coming up with some really interesting use cases for merchants.
Banks need a faster broadband and larger memory
Banks should work on their server,
If CBN, says, open an enaira wallet account and get a #20000 naira federal govt grant, more than 300, million Nigerians will start using the enaira app
Nigerians are smart people, if the federal government proposes N20,000 grant for every eNaira account opening, Nigerians will definitely open then after withdrawing the N20,000 abandon the eNaira