The Role Of Fintech Companies In Nigeria
Technology across the world is taking another dimension entirely as we see major tech giants investing billions in finance tech (fintech).
Processing payments has been a major issue in Nigeria as most conventional banks fail in service delivery.
Today we would be discussing all you need to know about fintech and the role it plays in Nigeria.
What is Fintech?
Fintech term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps, or even cryptocurrency. Fintech is a broad category that encompasses many technologies, but the primary objectives are to change the way consumers and businesses access their finances and compete with traditional financial services.
There are many means/modes of fintech, but some of the most popular areas are:
Mobile wallets and payment apps are some of the most ubiquitous forms of fintech. Services like PayPal, Venmo, Square, Apple Pay, and Google Pay allow peers to transfer money to each other or merchants to receive payments from customers.
What is fintech lending?
Fintech lending is the use of financial technology, including APIs, to help lenders make faster, more informed lending decisions.
This can include using alternative sources of data to weigh lending risk and connecting digital platforms to improve data sharing speed. Fintech lending empowers traditionally underserved P2P and business borrowers by providing an alternative means of funding and helps improve financial health and freedom. Lenders gain access to more data, allowing them to securely provide capital to a wider range of borrowers. Moreover, fintech lending reduces the time and the physical barriers to traditional lending. With a fintech lender, a borrower in a rural area can apply and secure funding in minutes without ever setting foot in a physical bank.
Impact of fintech lending in Nigeria
There is an increasing demand for fintech credit products in Nigeria, for obvious reasons. The traditional financial institutions have failed the community of young entrepreneurs with their stringent conditions and slow procedure for access to funding. The moneylender’s business leveraging the use of technology has fostered a leap in our national drive toward financial inclusion.
Currently, there is hardly any sector, or aspect of product delivery or service operations, that does not require or has not got better with the use of technology. Financial technology (“Fintech”) can be used by Money Lenders (digital money lending) to better manage their financial operations and processes through the use of specialized software and algorithms that are both computer and smartphone friendly.
Happily, in Nigeria, a company can be registered with the Corporate Affairs Commission (“CAC”) having business objects of money lending and technology services, especially where the founders or key personnel are tech-savvy and understand the process of setup, programming, and integration of their business models with a digital platform. This means that a company can provide both credit services and other services relating to the development and maintenance of software technologies. The only special requirement for incorporation of such a hybrid company is to ensure that the issued share capital is not less than N20,000,000.
A moneylender company (without any IT backgrounds or team members) may also have a collaboration arrangement or partnership agreement with IT firms in order to achieve its business operations using the IT firm’s Applications Programming Interface (“API”), a generic interconnectivity interface that allows the moneylender to reach and service more credit customers digitally than what traditional lending business would have achieved in real-time. An API is to a moneylender in the microcredit industry what a waiter or waitress is to a customer and the kitchen in a food restaurant (i.e. a connector).
The increasing adoption of APIs by fintech entrepreneurs has resulted in the explosion of several mobile apps, services, and online business models. In the context of digital money lending, APIs can be adopted as parts of the business architectural components to foster data access and interoperability amongst the relevant parties to a money lending transaction, including the lender, borrower, the banks, the National Collateral Registry (“NCR”), licensed credit bureau in Nigeria and other third-party providers such as a debt recovery firm.
Below are some of the following are the areas in which fintech APIs can be relevant to the money lending business:
- Collection of payments from multiple customers using credit and debit cards, bank transfers, e-wallets, and cash regardless of their locations.
- Disbursement of funds and payments to partners, vendors, and customers in accordance with their preferences. It is instructive to note that section 14 of the Money Lender Law of Lagos State, for example, provides that every moneylender must maintain a current account with a licensed bank and that disbursement of loans shall be made by a bank cheque. However, it is not unusual for a moneylender to now effect disbursement of loans to borrowers using any of the modern technology-enabled means.
- Creation of e-wallet functionality for customers to receive, store, and send out funds digitally. Please not that this feature may be resisted by the CBN, as the apex bank insists that only licensed Mobile Money Operator (a company with N2 Billion share capital and licensed by CBN) can hold customer’s funds by way of e-wallets. Notwithstanding, the feature is achievable through the right partnership arrangements.
would you say fintech is the saviour of all financial transactions, or do you think it’s just an illusion?
Please share your thoughts with us in the comment box below.