Okere: Fintechs Will Help in Building Efficient Banking System

The Austin’s five forces model is not just about a theory. It provides an experiential way to analyze the future of banking (as against banks), which includes the banks – traditional and established, best with cash and ancillary instruments; the fintechs, the new kid on the block, disrupter, mostly telecom roots, best with digital currencies and mobile services; the regulators, Central Banks, regulating traditional banks; and Communication Commissions, responsible for telecoms regulation (and thus fintechs) as well as currencies – traditional, such as cash and cheques; or digital, including bitcoin or other cryptocurrencies. customers, and the weight of their new-found voice. Typically, they clamour for whatever will give them convenience and lower costs.

After centuries of conservatism in receiving deposits and making loans, there are two main issues stirring the yearning for change: The first is that it is a very difficult club to join as a customer, and hence the large population of unbanked adults. Even for the members of this elite club, the relationship is acutely skewed in favour of the banks. They have carried on as protected monopolies with no serious challenge or competition, resulting in very little innovation over the centuries. The biggest threat to the banks has been precisely their seeming success. Centuries of relatively significant higher returns, even during economic downturns, that adversely affect the real sectors, has engendered an attitude of invincibility and pomposity, characterized by a loss of touch with their customers.

Considered too big to fail, they take it for granted that they will be bailed out with taxpayers’ money in the event of any missteps – this is a perfect set-up for disruption. Today, there has emerged a powerful force of challenge from financial technology companies as they are more popularly referred to. The promise of Fintech is great. It is shaking up a stodgy banking system and helping to build a more efficient one, especially for consumers and small businesses.

I was inspired to set up the Ausso Leadership Academy to provide the advice I would have provided my younger self when I was starting my business and also be the mentor I wish I had. There is a huge leadership gap between the visionary entrepreneur cadre and the next management layer required for the journey of a sustainable business in Africa. Ausso Leadership Academy fills this huge vacuum by making practical and democratizing entrepreneurial and business mentorship through experiential skill transfer, emphasizing what has worked and the pitfalls to avoid. The huge success of the technology entrepreneurial ecosystem in Silicon Valley is largely due to such deep mentorship regime. This is the model that the Ausso Leadership Academy is replicating in our environment

The Ausso Leadership Academy was set up to mentor entrepreneurs and business leaders to optimize the jobs they create to enable shared prosperity, through institutionalizing and scaling their businesses geometrically. The goal is to create an expanding oasis of outstanding businesses through impacting at least 200 entrepreneurs each year.

The need for resourcefulness and an innovative mindset to reinvent oneself when disruption knocks is a key skill every business needs to survive present market realities. This is what the Ausso Leadership Academy provides to complement what is taught at Business Schools.

The faculty comprises business leaders and entrepreneurs with practical experience and proven track record, imparting knowledge through experiential learning. They are complemented by champions of business and entrepreneurship, who come to share the stories of their journeys, and how they overcame adversities in building their businesses. We believe that within our local context the delegates will relate better to our own heroes; more importantly, we believe that this will serve to rightfully recognize and acknowledge our champions and document their legacies for posterity and future generations.

Some of the champions who have shared their valuable experiences are Dr. Okey Enelama, honourable Minister of Industries, Trade and Investments; Oscar Onyema, CEO of the Nigerian Stock Exchange, Austin Avuru, CEO of Seplat, Ndidi Nwuneli and Aigboje Aig-Imoukhuede. The Ausso Leadership Academy has recorded remarkable success with two cohorts and positive feedback of delegates’ outstanding performances upon returning to their companies and entrepreneurial businesses.

You are right that for years, emerging economies have looked up to developed countries for ideas about how to manage their financial systems. When it comes to Fintech though, the rest of the world will be studying the experience of the emerging markets, embodied by the widely successful MPESA mobile money system, championed by Safaricom in Kenya. MPESA has made it possible for a large swathe of the population to gain financial inclusion by providing the opportunity to transact financial services via your mobile phone, on a continent where typically 70 per cent of the population is unbanked. MPESA today has more than 60 per cent of Kenya’s 33 million mobile users and in 2015 transacted $28 million on the platform – equivalent to a whopping 44 per cent of their GDP. Similar applications have metamorphosed across Africa, and Mobile Money services are today generating 6.7 per cent of Africa’s GDP.

Nigeria is no exception with Fintechs such as Interswitch, CWG Plc, Paystack and Flutterwave holding sway. For instance, Diamond Bank has seven million accounts after 23 years and was able to add an additional six million accounts in just one year after the launch of the Diamond Yello Account in collaboration with CWG and MTN. By just about any measure of size, China is the world’s leader in Fintech. It is by far the biggest market for digital payments, accounting for half of the global market, according to the Economist magazine. A ranking of the world’s most innovative Fintech firms gave Chinese companies four of the five top slots in 2016. The largest Chinese Fintech company, Ant Financial, has been valued at about $60b, at par with UBS which is Switzerland’s biggest bank.

Open Banking is too early for Nigeria to fully embrace; I will advise a cautious approach. Recall that the Second Payment Services Directive (PSD2) came into force in the UK only in January 2018. Even then, five of the nine regulated banks expected to pioneer Open Banking had applied for, and been granted extensions in implementing the mandated changes to achieve Open Banking. Open Banking is a financial services term as part of financial technology that refers to the use of open APIs that enable third party developers to build applications and services around the financial institution, greater financial transparency options for account holders ranging from Open Data to private data; and the use of open source technology to achieve the above.

Open Banking, as a concept could be considered as a subspecies to the Open Innovation concept, a term promoted by Henry Chesbrough. It is linked to shifts in attitudes towards the issue of data ownership illustrated by regulations such as GDPR (General Data Protection Regulation) and concepts such as the Open Data movement. On October 2015, the European Parliament adopted a revised Payment Services Directive, known as (PSD2). The new rules included aims to promote the development and use of innovative online and mobile payments through open banking. In August 2016, the United Kingdom Competition and Markets Authority (CMA) issued a ruling that required the nine biggest UK banks to allow licensed startups direct access to their data down to the level of transaction account transactions.

Support for the concept is not unanimous; for instance, Mick McAteer, of the UK Financial Inclusion Centre, thinks that only the tech-savvy will benefit. He says that Open Banking is “a daft idea”, which will lead to more financial exclusion for those on low incomes. He says it is naïve of regulators to expect consumers to own their data and be able to get better deals from banks, and points out the danger of consumers being exploited, either by businesses offering new types of expensive payday loan, or misuse of data and personal information that people have revealed in places such as social media.

While I do not fully agree with Mick McAteer, I will advocate a cautious approach to Open Banking. Let it first stand the stress test in an environment with very mature and strong regulatory principles and enforcement and go through the requisite fine-tuning before we take steps to adopt it. The unpleasant memory of MMM and sham coin exchanges are not very far off.

Technology leaders working with governments to shape policies in skills development and the digital economy is not new and certainly not restricted to developed economies. Here in Nigeria, the pioneer Minister of Communication Technology, Mrs. Omobola Johnson set up an Advisory Council comprising top technology operators to provide policy advice and feedback in charting the course of the digital economy. I would say she blazed a great trail, especially in broadband penetration, and built a solid foundation; some of the fruits of which we are benefiting today. The nascent industries such as Fintech, eCommerce and Uber, which business models heavily depend on broadband penetration and smartphone ubiquity, and which were not hitherto possible are now contributing huge chunks to GDP.

The similar initiative with the National Competitiveness Council of Nigeria (NCCN) comprising top business leaders also recoded steady progress especially in the areas of Human Capital Development and Primary Healthcare. The engendering of a healthy competition between the States akin to the World Bank and World Economic Forum’s competitiveness indices ensured that the States kept their eyes on the ball.

In 2017, President Muhammadu Buhari created an Industrial Competitiveness Advisory Council in order to enhance industrial policies and performance in the country. As part of the council, Vice President Yemi Osinbajo, inaugurated a 50-man Advisory Group on Technology and Creativity which consists of ministers, heads of agencies as well as players in the technology and creative space in order to boost a public-private partnership. Private players in the tech space included in the group are founders of innovation hubs across Nigeria, investors and tech entrepreneurs.  There may be a need to correlate their inputs with a narrative of milestone achievements for better transparency and appreciation.

I believe that it is our collective responsibility as a nation to encourage entrepreneurs to scale their businesses in order to optimize the jobs they create to enable shared prosperity. Our first recourse as a nation for job opportunities, especially by the government should be to our local businesses, except where the local companies do not have the requisite competencies; and even then, the foreign company should be encouraged to partner a local company who can be trained to take over local support upon completion of the project when the foreign company has departed.

In our part of the world where many enterprises have not matured to the level of having their own intellectual property upon which they can build a business, the typical business model of many start-ups involves taking up franchises or operating as Value Added Resellers (VAR) to globally established companies. While some of these local companies do not make the necessary investments in their businesses to take it to the next level, many have built thriving businesses on the VAR model.

 I know many local companies that have literally being wiped out as a result of a vendor making a direct presence in the market. This is very detrimental to the local economy as it erodes jobs and decimates the middle class that are the very engine of economic growth. The Oil and Gas sector seems to have taken an early initiative to protect local industry by instituting a local content bill that ensures that the percentage of local input in the industry is progressively increased by creating the needed local capacity.

In the technology services sector, the National Office for Technology Acquisition (NOTAP) has also done a lot to protect local industry by requiring that foreign companies partner local counterparts to develop skills and capacity as a complement in providing services to customers. Perhaps NOTAP has been relatively more successful in their quest because beyond mere moral suasion, they have the instrument of sanction through the restriction of forex approvals where foreign companies have rushed to engage directly with Nigerian customers without local partners. I believe that what we need is a structured way in which we can support local industry by encouraging them to focus on areas where they can best add value so that they will not be viewed as irritants by foreign vendors, but as indispensable partners.

The ubiquity of broadband and the pervasiveness of mobile phones, along with breakthrough technology such as artificial intelligence, big data and Blockchain are expanding the frontiers for local technology entrepreneurship in ways that were hitherto not feasible or even possible, and levelling the playing field in the process. Systemspecs, Interswitch, CWG plc and other companies now have their own intellectual property that enables them to provide solutions that were hitherto the exclusive preserve of foreign contemporaries. Unfortunately, the government is behind the curve in coming to this realization; and the local companies continue to lose business as a result of being underestimated. I believe that in the specific case of the TSA solution provided by Systemspecs, the government as a customer must extend the same standard and courtesy they would have extended, if the contract had gone to a foreign company.

CWG is indeed a pioneer of most of the financial technology innovation in the country, deploying software solutions to over 60 financial institutions in the last 20 years. About 65% of financial transactions in the banking sector is processed through the Finacle banking application, supplied and supported by CWG and Infosys. Finacle is used by many of the major banks in Nigeria including FBN, UBA, Stanbic, FCMB and Wema banks amongst others.

CWG presently supports about 30 per cent of the ATM base and has 450 support hubs across Nigeria. This provides a solid foundation for the ATM-as-a-Service concept and ultimately expands the horizon for financial inclusion. Imagine the potential use to which the ATMs could be put in solving pension recipient verification. With appropriate technology, seniors can go to the nearest ATM and use biometrics connected to the pension providers’ central database to verify themselves and receive their pensions directly from the ATM by entering a string of characters sent over the ATM upon successful verification; instead of travelling long distances and standing in long pension queues thousands of miles from their homes.

At CWG, we believe that a sustainable corporate strategy should embrace an innovative mindset. This may involve taking some risks and making some bold changes. It will certainly involve learning, unlearning and re-learning. In the past, we used to say that ‘the big fish will swallow the small fish’, today, it is the fast fish that eats the slow fish; UBER, Amazon, Google, Facebook, Alibaba and AirBnB have fully demonstrated this. Twenty years ago, none of them was on any corporate ranking list. Today, they dominate the top 10 in the Fortune 100 list.

The untapped potential in Africa portends an opportunity to leapfrog with current technology in building our infrastructure. We have demonstrated this in Nigeria by leapfrogging straight into GSM telephony without going through the birth pains of the legacy of older telecommunication systems. We have also done this in Fintech, especially in the area of payments and financial inclusion. Take for instance, Diamond Bank with seven million accounts after 23 years was able to add an additional six million accounts in just one year after the launch of the Diamond Yello Account in collaboration with CWG and MTN.

In terms of opportunities in the space, a recent study suggests that the 23 percent of informal businesses across the globe account for over $10.7 trillion. Smallholder farmers, self-employed households, and micro-entrepreneurs have to rely on the age-old informal financial mechanisms such as rotating savings clubs (Isusu or Ajoo). These mechanisms can be unreliable and very expensive. Imagine bringing the informal businesses in Nigeria into inclusion and the attendant opportunity size waiting to be harnessed.

I do not entirely agree with the notion that Fintech in Africa does not innovate. I believe that MPESA in Kenya has proved this point. MPESA has made it possible for a large swathe of the population to gain financial inclusion by providing the opportunity to transact financial services via your mobile phone, on a continent where typically 70 per cent of the population is unbanked.

I believe however, that there is a need for the strategy to switch more towards inclusion than just improving convenience and providing lower costs for bank customers. In Nigeria for instance 84.6m people, accounting for 47 per cent of the population are unbanked. In sharp contrast, mobile phone penetration is very high at 94.5 percent; a perfect set-up for the Fintechs to exploit in their mobile dominated financial services offering. The digitisation of retail payment systems and financial services has become an important economic development priority. It offers the prospect of reaching far more people at far lower costs with the broader range of financial services they need to build resilience and capture opportunities. This speaks to true inclusiveness. Typically, market women who are excluded from banking are not poor; they just do not have the time to waste queuing at banks, so we need to bring the bank to them on their phones.