Nigerian fintechs need more capital to compete with banks, gain trust – Uzoma Dozie

In 2019, Uzoma Dozie took a bold leap from his role as the Group Managing Director of Diamond Bank to embark on an innovative journey with Sparkle. Prior to this, he had orchestrated the successful merger of Diamond Bank and Access Bank in 2018.

In this exclusive interview with Nairametrics, the founder and CEO of Sparkle, a former figure in traditional banking now immersed in the dynamic realm of fintech, delves into the spirited competition between fintechs and traditional banks in Nigeria. He sheds light on the distinct advantages currently enjoyed by fintechs over their conventional counterparts and explores strategies for winning the trust of Nigerians.

Beyond the fintech landscape, Uzoma shares insights into the challenging landscape for Nigerian startups, highlighting the evolving criteria that investors scrutinize before committing funds. While acknowledging that funding opportunities persist, he emphasizes the evolving terrain that startups must navigate.

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Touching on the pervasive issue of fraud across both traditional banks and fintech platforms, Uzoma addresses a spectrum of issues affecting the financial system in Nigeria. Excerpts:

Nairametrics: Moving from leading one of the largest traditional banks in Nigeria to setting up Sparkle, a fintech, how has the journey been?

Uzoma Dozie: It has not been as hard as it could have been because when I was in Diamond Bank, we were driving retail and we had to work with a lot of fintechs in trying to build a complimentary platform so that we could reach the financially excluded people, build mobile solutions, and some digital solutions. So, it means that I had a good idea of how fintechs work.

Now, a startup is completely different from an established organization because you are starting from scratch. You are the head of HR, you are the head of business development, you are watching your costs, and many others like that. Secondly, the rules are completely different. Before, I was working with a commercial bank and now I’m operating with an MFB licence.

So, what you can do and how you do things are completely different. Also, the infrastructure is different. When I was in Diamond Bank, the technology was different; you had on-premises and you had cloud. With Sparkle, it’s been 100% cloud, which is great and which allows us to do so much more. I have learnt a lot about technology and how we can use it to make changes that impact the financial system.

One of the things that I know that I have an advantage of is that of all my colleagues in the banking industry, who are MDs of commercial banks, I have a better appreciation of how technology can drive financial services, how we can do so much more to help small businesses and individuals.

I am in the best place to tell you that unlike all my other colleagues in the industry who know technology, when it comes to the application in financial services with 20 years’ experience in corporate, and retail and a good appreciation for technology even in traditional banks, I think I am one of the best people in the industry that can talk about it and make a difference.

Nairametrics: Talking about the experience with traditional banks and fintechs, during the last cash crunch in early 2023, a lot of banks were having issues and it was very difficult to transfer money on the bank apps. Fintechs on the other hand were doing fine and they came to the rescue of many Nigerians at that period. Would you say this was because the banks have more customers or the fintechs were deploying better technology?

Uzoma Dozie: I won’t say it’s because of better technology. It’s probably the same technology but the design is different. First of all, if you take Microsoft, for example, you can either have Microsoft on-premises or on the cloud.

Now, the thing about the cloud is that it gives you the agility and flexibility to increase or reduce bandwidth. When you are doing on-premises, that is physical, you can also do that but it takes a lot of time because it’s not that agile.

Secondly, because all our customers are on the cloud, they are digital. When there was that cash crunch, people were moving from physical to digital. So, for the banks, there were lots of people moving to their digital platforms.

Now, if your system is static—you know there are cost implications to all these things—and your network is not configured to accommodate surges, there will be problems.

And I think that is a learning point for the banks. I think it won’t happen to the banks again—the banks that have learned from it. But for us, that is the way we were born; our system is configured to increase or decrease as demands grow or shrink.

And don’t forget, there was a learning point for many organizations during COVID, a lot of organizations globally suffered from the fact that a lot of people were moving from physical to digital. So, it just emphasizes that in terms of dramatic changes, digital is always good to go. Physical infrastructure can respond but not as fast as the consumers want.

Nairametrics: As someone who has been on both sides, would you say fintechs are competing for the traditional bank’s customers?

Uzoma Dozie: We are now in a world where everybody is competing, not just fintechs. Clearly, fintechs are competing for the share of the market for transactions. If there were no fintechs, the banks would have 100% of the customers.

Today, 80% of transactions are still in the hands of traditional banks. But for people who are coming into banking today, if I use my son, for example, he has not been to a bank, everything he does is on his mobile phone.

So, for people who are coming into banking today and tomorrow, if the onboarding is not simple such that you can do everything on mobile phones, they are not going to go to the traditional banks. They are not going to do anything like “come to your nearest bank to collect your card.”

So, the competition will continue because the banks are going to respond. But my view is that today, there are some things that the traditional banks do that will take a while before fintechs can really compete seriously. For example, people keep all their money in traditional banks because they feel safe and secure but a lot of people are doing their transactions on fintechs, which is very key.

In Sparkle, I will tell you that I am more interested in your transactions because your transactions tell me a lot about you, and if you give me your data, I will give you information and insights, and that is very key.

Now, with time, as I add more services, people will do more. The more services you have, the more people want to do business with you and that is how trust is built. And when we get a bigger license, this means more trust because you will have more capital.

So, when fintechs start building more capital base, that will give the market more confidence to do bigger businesses with them. And that is what we are doing at Sparkle; our long-term plan is to add more services and add more capital so that people can know that we are here because we want to contribute to the growth of the market.

This is why we are playing a big role in small businesses because they are the engine of growth in any society. There is no country in the world where small businesses are not the engine of growth; they are the biggest employers of labour and the biggest contributor to GDP. So, if we are successful in that space, Sparkle will be successful.

Nairametrics: There are currently over 200 fintechs in Nigeria today and the argument in some quarters is that the fintech market is already saturated. Yet millions of Nigerians are still financially excluded. What is your take on this?

Uzoma Dozie: First of all, they say there are over 200 million people in Nigeria and over 40 million businesses but those numbers are not verifiable as far as I’m concerned.

Then, we have many players in the market; we have many fintechs who are doing many things, which is good for the market, but in the end, there will be consolidation. There are lots of fintechs, but the question to ask is what problem are they solving? What is the technology being used for?

It is not about how many customers you have on your platform. So, there are a lot of players and to be a fintech is easy; you can just wake up, set up a company and call yourself a fintech. There are lots of companies that are doing a lot of things that we don’t understand.

That is why I became a part of FintechNGR and I am also the Chairman of the CEO Committee of the Association. What we want to do is, first of all, ensure that we come up with governance standards and structure so that people know exactly what FintechNGR stands for and people who are in the financial service space can also come up with governance standards that will build trust because if you don’t play your role in ensuring that there is a level playing field and a common standard, the industry will not grow.

Being part of the traditional banking system, banking in Nigeria began to grow when we came together and said ok, we are competing with each other, we cannot just be building resources, we need to have shared resources. So, instead of everybody buying ATMs, you have a company that everybody invested in to provide ATMs for people to share, the same with security.

So, the fintech space has to mature to that level. And I think that is why I am part of that group so that I can also bring learning from the traditional banking space. Right now, it is everybody for themselves in the fintech space.

Nairametrics: Innovation is always ahead of regulation. How has the regulatory environment in Nigeria impacted the fintech ecosystem?

Uzoma Dozie: I think that we have a very progressive regulator. When you look at the policies and the statements that have been made over the last few years; when you look at open banking, for instance, Nigeria is the only country in Africa where we have open banking document that we are now implementing.

We have the eNaira, and the federal government appointed somebody from the fintech space to be the Minister of Digital Economy, confirming that digital is the future.

Now, in any clime, the onus is on the players to make the regulator understand what they are doing and also satisfy the regulator that this will not create any instability or problem in the system. You have to be proactive and more transparent

If the regulator is scared, they would come out with some draconian policy that would affect the fintech space. So, one of the things that we have to do as players is that we also have to shout out when things are going wrong in our space so that we can address it with the regulator.

For me, technology is a key driver for financial services and socio-economic development. One of my own personal responsibilities is to make sure that I work with my colleagues in this space to have a better relationship with the regulator so that we all grow this economy together.

Nairametrics: Last year, African startups witnessed a steep decline in funding. Specifically, startup funding in Nigeria was down by 67%. Can we say the party is over for African/Nigerian startups? What challenges do you foresee for Nigerian startups as a result of this development?

Uzoma Dozie: There has been a global downturn and also a shutdown of some startups. Before now, the metrics people were using to invest in startups were the number of customers, number of transactions, etc. Nobody was looking at profitability, nobody was looking at when you are going to be profitable and how much you are spending. No matter what anybody says, financial services is very predictable.

So, funding dropped, one, because of the macro-economic condition. Two, companies are folding, so investors are going back to the fundamentals.

You have to ask the questions; how much are you spending and when are you going to become profitable? This company that you are acquiring, who are they, what do they do?

What I use as an example is that when you are building a skyscraper, you have to build it down first before you build it up, so people will not see that you are building a skyscraper at that point.

So, what we are seeing is that a lot of people are not building their foundation and they want to build 5, 6, or 7 floors. So, you see them collapse. Since November last year, what you are seeing is this fintech that raised XYZ collapsed, that one collapsed, which is making investors shaky.

Investors are always looking for returns, so if the returns are shrinking because of the macroeconomic conditions, and there are failures because of some fundamental problems, then there is going to be a rethinking. Money is still going to come but it is not going to be as easy as before. There’s going to be real harder questions, ticking of the boxes, and deeper scrutiny.

But definitely, money is going to come to Nigeria, why? Because the opportunities here are great, we have over 200 million people and we have a lot of problems that technology can solve in food, health, education, transportation, and business. So, it’s not going to rain dollars as before, but you will get funding if your story and your numbers are right.

Nairametrics: For many Nigerian fintech customers, the issue of fraud has always been a major concern. Even while fraud happens in traditional banks as well, what are you doing as Sparkle to mitigate fraud, and what do you think the fintech ecosystem should be doing to address this concern?

Uzoma Dozie: Let me first clarify that the banks are also experiencing fraud and it’s not just the fintechs. Anybody who uses technology is experiencing fraud.

Now, if you look at 20 years ago, transactions in banks were physical, so what the criminals were doing was to go and raid and rob banks.

Now that there is no cash and business has moved to the cloud, the criminals have also moved there. Now, the thing about digital and cloud is that you can do so much more. You can do so many good transactions and you can suffer so much loss when attacked and that is one thing that is not going to change.

So, risk management has also moved from operations risk, which is people and physical to cyber risk, which is cloud. So, everything has moved there and that is why you are hearing more about internet fraud than physical fraud.

But the good thing about it is that you have numbers, you can see the numbers. For physical, until you go to the vault, you cannot tell how much was stolen. But in digital, immediately it happens, you can see the damage. And because you can see the problem immediately, you can also use technology to circumvent it.

And the Central Bank has also come out to enhance KYC level 1. Before, you could open a bank account without BVN, now you can’t do that.

But beyond that, we are also using technologies such as Artificial Intelligence to look at people’s patterns. We at Sparkle are investing in technology to make sure that the people who are on our system are unique.

Secondly, we are also able to authenticate the people before any transaction, technology allows us to do that. Just as we are looking at new technologies to enhance customer experiences, we are also investing in technology to keep our ecosystem safe.

Nairametrics: Tell us about Sparkle and the role it is playing in the fintech ecosystem, what sets the company apart from others?

Uzoma Dozie: First of all, Sparkle is a bank, we are not a fintech. Why I said we are a bank is that we have gone through the rigour of acquiring a banking licence and we got a microfinance banking licence. That means that have secured the trust of the Central Bank.

The CBN giving us a licence means that people can trust us to keep their money with us. So, we are not like other fintechs. Some can do only transfers and everybody can do transfers, but not everybody can store people’s money.

When you keep your money with us, it is safe. If anything happens to it, you have a guarantee that you will get it back.

But we use technology to deliver financial services and that is one thing we are good at because we understand banking and we understand technology; that is why we are different. When I was in Diamond Bank, all we did was develop new things, we were entrepreneurial.

Our customers are not everybody. We believe that there is an aspiring affluent segment of the market that wants premium banking services that they get from traditional banks but from a digital perspective.

So, our customers are aspiring individuals and small businesses, who want premium banking services; they want to get loans, they want to transact businesses, they don’t just want to do transfers.

On the small business side, we are providing services for startups, people who are one-man or two-man businesses that don’t want to handle cash.

These are the people who already have businesses using Instagram, Facebook, and so on. So, they are already digital.

What we have done now is to buy an environment for them not just to do banking services, but to be able to do payroll, inventory, invoicing, and even tax. We have built that ecosystem, not just a banking service but a business support service.

Nairametrics: Looking ahead, what is Sparkle’s long-term vision for the Nigerian banking sector, and how does the company plan to be a driving force in shaping a future where trust is a cornerstone of financial services?

Just as I said earlier, we are going to invest more capital in people, systems, technologies, and licence so that we can be trusted more and use technology to provide services that will compete and make us an alternative to traditional banks and for the new generation who want to do their banking in the same way they live their lives, which is digital.

Secondly, we know that small businesses are the engine of growth, so we are going to continue providing the best services to help them start, manage, and grow their businesses. So, in five years, for me, what will be a success is when you think of who helps small businesses in Nigeria, you will think of Sparkle.