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A Tale of Financial Disruption

A Tale of Financial Disruption

A Tale of Financial Disruption- The Spark

With its mass adoption and the exponential rate of innovation, technology has caused dramatic changes to society. The idea that millions of people are connected with mobile devices that have the unprecedented processing power and access to unlimited knowledge across the world, creates endless possibilities. While Uber and Bolt threaten the traditional taxi services and Airbnb takes on the hospitality industry, it’s become very clear that no industry can avoid the disruption of the digital age, and the financial industry is not exempt. 

Nigeria’s Current Fintech Space

The pervasive nature of technology, our youthful population and a focused drive from regulators to increase financial inclusion together sets the perfect stage for FinTech Start-ups to disrupt the financial industry. In 2019, Nigeria’s FinTech sector alone raised $122 million in funding, claiming the 25% of the $491.6 million raised by all the tech start-ups in Africa [1]. Investors, both foreign and domestic, are starting to realise that the Nigerian FinTech space is definitely one to watch.  

The financial services industry is arguably one of the most important and influential sectors. The sector drives a nation’s economy by providing the free-flow of capital and liquidity. A strong financial sector tends to lead to a nation’s economic growth by directing funds from savers to borrowers. Borrowers can range from corporate giants that wish to fund new Research & Development (R&D) projects, to your neighbour that just wants to buy some land. The financial services sector can be broken down into more specific activities, such as banking, investing and insurance. 

However, despite the integral role this sector plays for a nation, many consumers in Nigeria and all over Africa, are still in the dark. With the lack of availability of financial services, particularly in rural areas, poor customer service, and extortionate fees, many consumers have become frustrated with the sector. This frustration has created the opportunity for many FinTechs to enter the market and address some customer needs, like affordable payments, loans and flexible saving and investment solutions. We will look at some of the key players in the FinTech space and how they are addressing some of these consumer pain points. 

Tech Turns Problems Into Opportunities 

One pain point for banking consumers in Nigeria is the restricted availability of options for savings. Without technology, consumers are forced to use savings accounts offered by traditional banks by depositing large sums on cash in person at their local banking branch. Not only are there safety risks with carrying large sums of cash, but savings accounts that are being offered also are not able to help individuals reach financial goals. 

The average interest rate on savings accounts offered by traditional banks is around 4-5% per annum and with inflation at 11-12% before COVID-19, it is clear that traditional savings accounts are just not the best options. 

Some key players in the FinTech space that are offering an alternative to the traditional savings account are CowryWise and PiggyVest. These particular companies are using technology to redefine how consumers all over Africa can save their money, by offering an accessible and intuitive mobile application and higher interest rates compared to traditional banks (10-15% versus 4-5%). Furthermore, they offer financial management tools for their customers to help them reach their financial goals. The value proposition of these FinTechs make them an attractive alternative to traditional banks and also a noteworthy competitor. 

Another pain point is the difficulty faced by consumers and SMEs to get loans from traditional banks. With approvals to loans offered at the discretion of banks, many customers are charged extortionate fees or are even declined for arbitrary reasons. Technology can be used to democratise lending. We can see FinTechs like Carbon and Renmoney utilizing credit score algorithms to determine lending risk and provide short term unsecured loans to individuals. 

Another noteworthy start-up is Migo, which provides unsecured loans to SMEs that have limited documentation. Making this accessible to more people will have a direct impact on improving financial inclusion. We can also see leading traditional banks reacting with their own digital lending solutions, like GTBank launching QuickCredit and Access Bank launching Quickbucks. 

FinTech’s Future is Promising 

I believe that it is very clear that the adoption of technology has been improving the financial sector. FinTechs are entering the market to provide attractive alternatives to the services offered by traditional banks. They are also entering the market to improve the lives of the consumers. 

In 2018, financial inclusion in Nigeria was 30% [2], which means that only 1 in 3 adults have a bank account. It is fair to say that some work needs to be done, however, I also believe that some of these FinTechs are taking us in the right direction, using technology to drive more financial inclusion and provide more solutions to the pitfalls of traditional banking.

[1]Disrupt Africa, “African Tech Startups Funding Report,” 2019.
[2] Finclusion, “Nigeria,” [Online]. Available: http://finclusion.org/country/africa/nigeria.html.
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