Fintech firms’ credit provision hits 20%

Fintech firms are deepening their reach through credit offerings as loans to consumers hit 20 percent in 2021, according to a recent survey by KMPG.

This is higher than the 14 percent recorded for microfinance banks. Established decades before the new technology-driven fintech players, Nigerian traditional banks served as credit providers to 39 percent of borrowers in the review year.

However, the highest success rates for customers who applied for credit to meet their financial needs were recorded with collective savings (for example, Esusu) and digital lenders.

According to the survey result, 73 percent of respondents who applied for credit from digital lenders in the past 12 months reported success in receiving loans.

“A factor behind this is that digital platforms offer better access to credit at lower rates and efforts required,” Ayodele Othihiwa, partner & head of financial services industry, KPMG Nigeria, said.

The industry player advised financial institutions to explore quicker and seamless access to credit and/or partnerships with providers of services that matter to the customers through financing solutions such as “buy now pay later”.

Even though banks’ credit to customers have been on the rise in the last few years, analysis of the Selected Banking Report by the National Bureau of Statistics (NBS) shows seven in 10 customers of Nigerian banks do not have access to credit as only 1.89 million of the total 47.66 million Bank Verification Number (BVN) holders got loans in the first quarter of 2019.

This means that only 3.78 percent of banks’ customers were able to access loans in the three months to March 2019, as analysed from the report. The Q1 2019 report is the most recent with a breakdown of the number of borrowers from Nigeria’s deposit money banks.

A breakdown of the report showed that the number of customers that accessed the loans have been trending downward in the last five years. From giving loans to 3.03million customers in 2015, banks reduced the number to 2.48 million in 2016 and down to 2.33 million the following year.

With over 45 million banks’ customers outside the credit space, it is safe to say that, though many Nigerians have access to a basic bank account, many more are financially underserved.

The World Bank defined financial inclusion to mean that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance.

A higher exclusion rate in Nigeria could lead to a poorer population as lack of access to credit and insurance puts them at an economic disadvantage.

“The knock-on effects mean people without access to affordable credit are at greater risk of debt, mental health issues and can pay a poverty premium of £485 (N256,550) a year for basic everyday essentials like energy bills, food, and transport,” Tony Craddock, Director General, Emerging Payments Association (EPA) said.

Fintech lending can help more people access affordable credit and avoid financial exclusion, research by EPA with the title ‘Low Cost, High-Tech Credit: Solving financial inclusion through innovation’ found said.

Fintechs like Kuda Bank, Fairmoney, Renmoney, Carbon, Branch, Palm Credit, KwikCash, and others that are deploying alternative credit-scoring systems to provide instant, unsecured, short-term loans to individuals are saving the day. While the Nigeria Banking Industry Customer Experience Survey report by KPMG shows that traditional banks remain the most populous credit providers, the survey also points to the progress digital lenders have achieved in a short period of time.

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Some of the traditional banks that stood out in 2021 with regards to overall customer experience performance in retail, SME, and wholesale include Stanbic IBTC, Sterling Bank, GTBank, Heritage Bank, and Zenith Bank.

Despite a marginal decline in the overall customer experience performance in the retail segment in 2021, analysis of the KMPG report revealed that Stanbic IBTC’s overall customer experience performance improved significantly as the bank moved from ninth in the last survey to the top position in 2021, scoring 74.5 percent and 74.7 percent in the retail and SME segments.

“Stanbic IBTC Bank was ranked the top-rated bank in the retail segment and was the biggest mover this year – moving up eight places to the top spot. Stanbic IBTC Bank also held the top position in the SME segment and recorded the greatest improvement in the segment,” the KPMG report stated. Security of transactions, reliability of payments and, ATM experience were some key criteria highlighted in the report.

Sterling Bank, GTBank, Heritage Bank, and Zenith Bank remain in the top five for the second consecutive year albeit with Sterling and Zenith recording changes in their positions.

Outside the top five, UBA and Union Bank moved into sixth place – recording improvements from last year. The retail segment remains the competitive battleground for banks evidenced by the narrow gap between the top and lowest-ranked banks which was less than six percentage points – the closest in the last five years. Security of transactions, reliability of payments and the ATM experience continue to remain central to the retail customer’s experience.