To be successful in Africa, you have to be successful in Nigeria, this was one way MATT FLANNERY, Co-Founder & CEO of Branch, a fintech platform popular for its high yielding savings/investment feature described the company’s entry into Nigeria. Matt, who was recently in Lagos, where among other things finalised the acquisition of a microfinance bank, in this interview with CALEB OJEWALE, talks about growth prospects in Nigeria where the default rate has been lower than anticipated. Excerpts:
What prompted the decision to set up Branch in Nigeria? Why did you think this was a good market?
I’ve been working in Africa since 2005 although most of my experience for the first 10 years was in East Africa; Kenya, Tanzania, and Uganda. When the business took off in those countries, we were looking for places to expand to. Nigeria is one of the most important countries in Sub-Saharan Africa and it felt like a good option.
If you have a startup idea, you’ll want to come to Nigeria because of its population of over 200 million people and as they say, if you want to be successful in Africa you have to be successful in Nigeria. It can be very intimidating if you’re coming from smaller countries in East Africa like Kenya. Luckily, we dared to try, and it has been very rewarding. The number of people, the vibrancy, the energy of the people, the entrepreneurial spirit, and the amount of innovation are just off the charts. Also, the talents in terms of software engineering, tech, product engineering, and marketing are unparalleled. In addition, the talents of the people, the highly skilled nature of the population, the educational system we have here, and the GDP are the largest. So, I would say we had to make it work in Nigeria.
You mentioned ‘if you want to be successful in Africa you have to be successful in Nigeria,’ how successful has Branch been in Nigeria in the past five years?
We’ve been profitable in Nigeria for a number of year, so that’s one measure in terms of growth, although we had to pull back during Covid. However, since 2020, we’ve been roughly tripling in size every year. We have up to six million customers in Nigeria and we are lending millions of dollars every day and processing banking transactions. Our most popular product has been high-yield investments. We offer people 20 percent annual yield on investments.
We do this because we are passionate about helping our users fight inflation considering how volatile the currency can be. We do this by providing them with a liquid fund to keep up with inflation. Being able to give 20 percent is something we are proud to do. We generally focus on small-ticket sizes and lower-income individuals. So, we have like a million people investing in smaller amounts. Since our system is largely automated, we rely on artificial intelligence and machine learning so we can better serve people that aren’t getting great services from the banks.
I learned that you’ve done 500 million dollars in loans to 4 million borrowers since Branch’s inception in 2015. How much of this has been dispensed in Nigeria?
I don’t have the exact numbers but that sounds a little low compared to what we are doing. Right now, we’re dispersing about 10 million dollars a month in loans and processing around 100 million dollars in banking transactions like person-to-person transfers, investments, and bill payments every month. In Nigeria, we’ve done over 80 billion naira in transactions.
Since Branch has been in Nigeria what peculiar challenges has it encountered that might have limited some of your initial expectations and what do you think can be done about these challenges?
Unfortunately, there is an international reputation of Nigeria having fraudsters and scammers. I don’t necessarily believe that, but coming to Nigeria I didn’t know if the default rate would be good or bad. However, I’ve been pleasantly surprised that the default rate has been lower and better than I ever imagined.
The average middle-class person is very honest and good at dutifully repaying their loans. Although, I would say there is a very small active, and powerful group of scammers. Honestly, it’s almost like they are running fraud as a business, and they have a company or an office. We are always on the lookout for systems that can detect fraud and stop it from happening. I was pleasantly surprised in terms of the average person, their behavior, and conscientiousness at the same time, amazed by the coordination and intelligence of the fraudsters. That’s one of the challenges.
Other challenges would be dealing with so many different banks and accounts throughout the market which could sometimes lead to failure in payments. In countries like Ghana and Kenya, the mobile money system is just one system so it’s easier to integrate. Here in Nigeria, we have different apps and banking systems that could lead to failure. So, that’s a challenge as well.
Read also: Are CBN regulations holding back the growth of FinTech in Nigeria?
You mentioned the default rate has been lower than your projection before coming into this market. What was your initial projection and what has the reality shown you so far in terms of the default rate?
When you think of entering this massive and brand-new financial market with all these young people, you’ll think the default rate would be 15 – 25 percent but we’ve been lucky that it has always been 7 – 10 percent in the last five years since we’ve worked here.
In Nigeria, there have been reservations in recent times due to stories of people complaining about not getting results on their investments. How has Branch been able to guarantee returns on investments and beat the inflation rate?
The main thing is we have very low fixed cost. We automate everything so we don’t have the baggage banks might carry with expensive branches to cater to and a lot of paperwork with processing cash.
Also, we are good at lending because we use artificial intelligence, and we have data from tens of millions of people in five countries all over the world. We are getting smarter every day on how to lend better so the returns on our portfolio are much higher than 20 percent. We just put a fraction of the returns from our portfolio back into the user base through the system’s program.
Also, we are regulated by the CBN as a finance company to ensure standards are met. We are also in the final stages of acquiring a bank which would give us a bit more regulatory oversight and safety (for users). So, I would say we are very systemic, but certainly, any saver or investor should only put in the amount of money they feel comfortable with, and they should diversify their investments across various platforms.
I couldn’t help but pick up the comment about Branch planning to acquire a bank. Can you talk a bit more about this acquisition and what exactly do you think this would do for Branch and how big a deal are we looking at?
Our vision is to become a branchless bank for the mobile generation and during COVID, we started the process of converting the company from a lending company to a bank. We are doing that by acquiring banks all over Sub-Saharan Africa. As you can imagine, it takes a long time. The central banks would have to do a lot of due diligence to approve the transactions. This can take years to finalize a transaction. However, we are not acquiring commercial banks; we are acquiring small microfinance banks. We just completed a transaction in Kenya and I’m here to finalize the transaction in Nigeria so there would be an answer on that shortly.
Would this acquisition extend your reach to whatever heights you hope to attain in Nigeria?
Yes, it certainly gives us more comfort. It puts us under the banking regulatory framework. It gives us NDIC insurance for our users. It also allows us to connect more directly to the Central Bank switch and issue debit cards.
With a banking license do you think Branch would still be able to offer the investment it currently does since most banks have to do this through fixed deposits which are controlled by the interest rate of CBN?
We can’t give specifics but as far as I understand, a bank can offer investment products different from the current account. Your current account at a bank needs to have a low yield because it is insured by the NDIC, and it can be separate from your wallet where you make daily transactions. So, you can have high-level investments which aren’t insured.
You mentioned that when you get the license, you’ll be able to issue debit cards. Could you give more insights into what innovations you’ve been introducing to the market?
We are issuing debit cards to small groups of people. When the acquisition is finalized, we will roll it out to the rest of the country. The good thing is our loans are attached to it. So, it functions as ‘half debit card and half credit card’. We have a few thousand users testing the debit cards right now.
We also hope to integrate with cryptocurrency to the extent that is legal and the CBN allows it. We want to offer USSD and a domiciliary account to incorporate into the international stock market. The whole concept is to give world-class financial services to even the lower middle class in small ticket sizes. Since we work in several countries, and we’ll be expanding to new countries we want to enable cross-border transactions so users can send money to friends and family in various countries.
On this visit to Nigeria, are there any announcements we should be expecting or any special projects you’ll be unveiling?
Acquiring a bank is the main thing we’ll be doing. Other than that, it’s not rocket science. This business is not about dazzling products or making huge announcements. It’s one step at a time doing the basics of finance and that alone is amazing as well as difficult.
Q: Entering this massive and brand-new financial market with all these young people, you’ll think the default rate would be 15 – 25 percent but we’ve been lucky that it has always been 7 – 10 percent in the last five years
