The seed of value
Vividly, I can recall an interesting advert by ValuCard in the early 2000s; the same period automated teller machines (ATMs) and payment cards got introduced to the Nigerian financial space. It was a memorable moment for the nation, and that advert did a good job selling the benefits of the new innovation.
The advert educated Nigerians on the opportunity to travel around the country without carrying heavy cash, as all you needed was cash in your card. One of the value propositions was that roadside robbers would have nothing to steal from you. Today, there are over 18,000 ATM locations across the country and they processed about N5Trillion ($14Billion) in transaction value between Jan and Sept 2018.
With the new kids (fintechs) on the block, this era is often forgotten when discussing the development of the Nigerian digital financial services even though it is the first seed of the Nigerian fintech value chain. Years that have come after this have seen the introduction of various digital financial services, from USSD transactions to automated savings and micro-loans. These innovations have helped improve the propensities for various economic actions tied to financial inclusion.
Is the innovation actually valuable?
Although some would love to argue that not much has been done with financial inclusion, given that only 40% of Nigerian adults have bank accounts, we cannot take away the deepening impact of fintechs. It is one thing for a person to have a bank account, and another to enjoy the ease of actually making savings, receiving payments and accessing loans. For instance, of what use is a bank account to a local farmer who cannot access affordable loans based on his savings credibility? Financial inclusion goes beyond just providing people with bank accounts but granting them actual access to financial services that can help improve their living standards. Deepening financial inclusion can help boost the needed productivity required to create economic prosperity for millions of people.
Providing financial access to the excluded, enabling convenience, engineering affordability, business model innovation and deepening the experience of those already under financial net are fundamental value propositions of fintechs, and they do so at a competitive cost to their users.
The economic saviour
In layman terms, fintech is simply any financial service you can access using technology whether it is provided by a bank or not; so non-bank fintechs are not banks’ enemies as many would like to think. Both parties need each other to survive. It is a symbiotic relationship necessary for the Nigerian economy to experience the growth and development it desires.
So what impact has fintech had on the Nigerian economy and what potential impact can it have in the coming years? To answer this seemingly simple question, we would have to visit a few basic economic theories, starting with savings. According to basic economic growth models, a great part of economic development can be attributed to savings. The higher the savings of citizens, the higher their ability to build wealth and drive capital accumulation. The more people save, the more money there is that can be directly invested in productive activities. In essence, savers can be seen as lenders to the drivers of production in the economy.As you might have guessed, the lower the savings over time the lower the rate of capital accumulation which can significantly affect the cost of accessing capital by those who need them. Think of scarcity of Lagos buses during the morning rush and how prices shoot up. The same thing happens when there is not enough capital. The cost of capital shoots up.
Hence, there is a large benefit in getting more people to save. But that can lead to big questions. Why should I save my money with you? What do I get in return? Everyone, including the man who just wants to save around N100 or 25 cents, asks these questions. Given the higher costs than benefits that come with helping these small savers, traditional banks would naturally focus on the big cash holders.
Resultantly, on the aggregate level, these little monies unsaved and not invested for millions of users deny the formal economy the required fund to drive productive activities. To cover this gap, some fintechs like Cowrywise have chosen to ride this path of providing fintech value propositions (access, convenience and affordability) by helping people keep their money longer in the formal system, thereby driving needed capital accumulation and generating competitive interests reserved for the top 1% of the society.
Another aspect of the financial experience that has been strongly made better by fintechs is access to loans. This has had a significant impact on access to credit for small businesses and individuals. Given the cost of operations, acquiring loans through traditional channels can be a nightmare for any small business owner. In recent times, that nightmare has started to give way for sweet realities as such small scale entrepreneurs can now access loans in five minutes with fintech platforms like Paylater and Branch. Such small scale businesses do not need to close down anymore because of poor access to much-needed loans for necessary investments. They have been able to help people who never dreamt they would be able to access loans at their present income levels do so. Even though the cost of credit is still high due to the cost of risk, the trend is most likely downward as risk data get richer.
What if I told you that beyond savings and loans, there is an actual understudied economic problem with providing change for purchases. MrEzekwesili did a brilliant job analyzing how this can affect purchase decisions in an article he wrote for Stears Nigeria. This little hiccup can affect your purchase decisions. Now think of the number of times you wanted to make a purchase but could not. Not because you did not have the means to but because there was no change. All these are gradually becoming issues of the past with the rise of payment innovations from amazing companies like Paystack and Flutterwave.
One commendable act of fintechs is their commitment to consumer education. Through the provision of free financial advice and product education, their users are equipped with strategies to lead better financial lives and tweak product offerings to serve their unique needs.
Spreading the new life
Let me illustrate this a bit. Bola is a young Nigerian lady who now saves better because of the ease and flexibility that comes with a digital savings platform she uses.She also earns a fair and stable interest payment from this platform. Bola would not only get the opportunity to improve her living standard at a faster rate, due to higher interests, she would also make money available for Obasan, the small business owner.
With more Bolas getting into the system, digital loan service companies can access funds at a cheaper level to lend to the likes of Obasan, making it easier for them to fund and grow there small-scale businesses. These businesses also get to enjoy increased purchases from the Bolas again, who now find it easier to buy from them thanks to the improvement in their living standards and the payment channels.
Not to forget, developments in payment services have also granted access to new innovations like booking platforms and other services that have enjoyed improved engagements. Evidently, we can see how digital financial services can help build a profitable value chains between economic agents; a flow that is gradually waxing stronger in the major cities of Nigeria and even beyond them.
In summary, the wave of financial inclusion driven by Nigerian fintechs is helping to strengthen the link between economic variables like savings and investment; savings and purchasing power; investment and economic productivity; and in all driving economic welfare to new levels.
Feranmi Ajetomobi
Ajetomobi is an engagement strategist at CowryWise, a fintech company solving the problem of access to financial planning, automated savings and high-quality investment.
