By Charles Ike-Okoh
MON, MAY 11 2020-theG&BJournal-The greatest challenge for financial services industry is an internal one-how to leverage technology to deliver tailored financial service offerings to consumers and corporate. But the external challenges weigh as much also.
As outlined by PwC in their latest outlook on FinTech and the Banking sector in Nigeria, apart from susceptibility to cyber attack, Nigeria’s limited infrastructure, such as broadband, cloud computing, data centre and power supply, impacts the availability and uptime of internet connectivity. In addition, soft infrastructure such as appropriate government regulations are either lacking or non-existent. PwC says absence of veritable platform to raise capital for expansion has stalled many FinTechs from taking off from ideation stage. Again the bulk of the funds raised are from foreign investors with little participation from local investors.
According to PwC, another key challenge affecting FinTechs in Nigeria is the inaccessibility to traditional banking customer data, a key input needed to develop or modify existing product offerings based on understanding customer behaviour and preferences. The absence of regulatory structures that stipulates registration requirements and a statutory body that oversees FinTech activities in Nigeria, also challenges FinTechs growth. All of these are widely recognised issues.
But the most disproportionate impact on FinTech companies in Nigeria is the COVID-19. ‘’Every segment of FinTech-ranging from payment, savings/investments to insurance- will be impacted by COIVD-19,’’ PwC says. ‘’Payment and digital lending segments, are perhaps, the most vulnerable, particularly because majority of Nigeria’s FinTech companies operate in both segments.’’
PwC reckons that payment segment will be impacted by the decline in global FinTech investments, which could hinder capital required for physical upgrade or expansion of digital infrastructure and services.
At the same time, financial services companies have to be aware that there is a growing need to satisfy their customer requirements. For instance, the COVID-19 pandemic lockdown shifted a lot of attention to digital banking services and online payment platforms for financial transactions due to branch closures and operating limited physical services to eliminate the threat of transmittal through interactions within the banking halls. PwC sees opportunity here for FinTech firms. It says, FinTech are better placed to leverage this opportunity to scale profitability and growth prospect
The COVID-19 pandemic is already shrinking investments in global Fintech, which means significant source of funding for most Nigeria Fintech companies, is expected to dry up.
‘’The situation becomes particularly tough with the looming economic slowdown which will affect transaction volume and value across the economy. This will lead to a sharp drop in transaction fees and a decline in valuation and profit-level of FinTech firms,’’ according to PwC.
Competition for customers’ patronage and loyalty is also expected to ensue given the need to secure market share, increase profitability and boost valuation.
All of these challenges could jeopardize Nigeria’s Fintech investments. According to PwC that investment amounted to $204 million between 2011 and 2018. The country’s FinTech firms secured about $103,4 million in funding by end year 2018. This represents more than 58% of the total start-up funding in the same period under review.
The potential of the sector in closing the inclusivity gap is not in doubt as highlighted as well. More than 36.8% of the over 99 million adult population in Nigeria were excluded financially as at 2018. That means that over 30 million adult Nigerians do not have or use formal and/or informal financial services or products.
As at 2018, there were over 100 FinTech companies in the countries engaging in mobile money, credit, e-payment and e-collection.
Credit to the private sector could also be increased by FinTechs given their extensive financial footprints, and relative ease with which loans can be accessed without the unnecessary rigour and cumbersome documentation processes required by traditional banks.
According to the PwC, FinTechs can also help drive the actualization of the Central Bank of Nigeria’s (CBN) cashless policy, which in turn help to stimulate economic growth, boost tax revenue and prevent money laundering and terrorism financing.
‘’FinTechs are better placed to drive a digitalized economy because they provide customers with easy, swift and user-friendly processes of making payments and carrying out online banking transactions without the physical involvement of cash.’’
FinTech is currently fuelling growth in many African countries. Africa alone is home to 400 FinTech firms PwC says. South and Kenya apart from Nigeria are the key hubs. FinTech Start-ups in Africa raised $132.8 million from investors in 2019.
The COVID-19 is now projected to put a huge wedge in the growth of FinTech to the tune of $6 billion globally.
‘’This decline in investments, combined with higher hurdles for accessing funds in the medium term will likely put pressure on the valuations of FinTech companies in later stage rounds.’’
On the back of these challenges, PwC says the need to develop a robust regulatory structure for the FinTech sector has become topical and made recommendations that the country could adopt to support the growth of FinTech ecosystem.
The recommendation include:-
-Strengthen the synergy between banks and FinTech players in a way that is beneficial to both parties
-Create a unified regulatory system for coordinating the activities of FinTech
-Encourage investment in local FinTech start-ups by simplifying the process of listing on the capital market
-FinTech and banks can now focus on strengthening their digital infrastructure platforms and systems
-Financial service players should also provide enhanced digital products as well as personalized services (digital and non-digital) that could provide significant return on investment.
-With the advent of COVID-19 and its far reaching impact on the country’s business landscape, financial service players need to make tough decisions regarding operational efficiencies
-Tighten internal governance frameworks and strategies on cybercrime mitigation
-Seek provision of reforms (such as tax breaks) by government, especially for early stage Fintech firms.
-Engage in stakeholder engagement and capacity development programmes with SMEs, micro businesses, employees, trade group, employers, among other stakeholders, to enlighten them on the benefits of utilizing digital platforms as a channel for financial transactions and commerce.
PwC concluded by urging corporate entities in the financial services space to begin to realign their business strategies to recognise the sweeping technological changes in the business environment.
‘’Financial service players need to recognise the changes brought upon the sector as a result of the coronavirus pandemic. The playing field should be levelled for both FinTechs and banks to compete or collaborate efficiently.’’