For Carbon, a Nigerian-based digital banking firm, the year 2019 was a spectacular year in terms of revenue and customer acquisition. But the continued spread of the COVID-19 which has exacerbated Nigeria’s foreign exchange crisis and pushed its economy at the brink of what could be the worst recession last seen since 1970 according to the IMF, is threatening the company’s projection for 2020.
In its financial statement released in the last days of June, the company’s revenue soared to $17.5 in the period from $4.4 million it recorded in 2017 representing over 300 percent increase within the two years period.
In that period also, the number of loans disbursed grew to N23.1 billion in value compared to N13 billion in 2018 and N3 billion in 2017. Bill payments perhaps saw the most remarkable growth in the past year, soaring to N51 billion in value from 5.5 million transactions.
Bill payment as a service was introduced in 2018 when the company began its rebranding process. Prior to becoming Carbon, the company founded in 2014, was known as Paylater with lending as its core service. With the rebrand, the company launched a sleuth of digital banking services including savings, money transfer, bills payments, assets investments among others. However, what may have changed the trajectory of its bills payment service was the introduction of little to no fees on the payment of bills.
“In 2019, we provided customers with cheaper transfers, free bill payments, and fast transactions,” Carbon noted in the report. “Customers clearly loved this, as the number of transactions grew 23x from 2018.”
Fees for paying bills electronically is one of the about 19 charges Nigerian banks take from their customers. As a differentiator, Carbon set out to not charge the customer fees on several of its services including paying bills on the platforms. However, it gets commissions from the billers. Payment companies like Interswitch earn revenue both ways, by charging N100 convenience fees and around 4 percent commission from the telcos or the billers.
“For us, we decided that we will not charge the consumer but we will get our commission,” Chijioke Dozie, co-founder and CEO of Carbon told BusinessDay. “For the consumer it is free. We could definitely charge and make more money but then people might start thinking twice about using us.”
Sustaining the momentum or even surpassing 2019 would be an uphill task for Carbon after the negative impact of Nigeria’s unstable economy and COVID-19 on the income of individuals and families. The evidence is also starting to show in the volume of electronic bill payment calculated by the Nigeria Inter-Bank Settlement System (NIBSS).
The volume of electronic bill payments has wildly fluctuated. After it peaked at 134,656 in January 2019, it has struggled to maintain the growth. Volume has dipped further from January 2020 with the lowest volume recorded in April.
E-bill payment factsheet from NIBSS
The impact is also showing up in the number of people willing to collect loans. While more people have shown reluctance to accessing loans because of fear of default, those who have already borrowed are at risk of defaulting.
“We will be lying if we say 2020 has not been challenging. Before the lockdown, until April we were really doing well, we were looking to go over 100 percent and that’s what we were tracking. Then the lockdown happened and then we had to be very conservative, had to do more underwriting for a lot of customers,” said Dozie.
Lending volume has dropped by almost 50 percent of what it was in 2019 for Carbon.
In a bid to mitigate the high default rate, the company is starting to consider the sectors people borrowing money work in. For instance, borrowers in the aviation sector may undergo more scrutiny than other sectors that have been far less exposed to the lockdown.
“But right now we are back to about 50 – 60% of what we were doing before. We are coming back and we are trying to diversify to look at introducing things like virtual cards in conjunction with other financial institutions and being a bank effectively,” Dozie said.
