The Nigerian neobank sector is showing us the playbook: credit and nothing but credit. Interestingly, that is what banking should be about: collect cheap capital from depositors and deploy that capital to builders and makers, and be compensated via interest revenue for fixing that friction in the market. Nigeria has struggled with that because of lack of data. How do you make loans to people or businesses you do not understand?
Welcome the neobanks which are natively data-driven: “Kuda reportedly gave out US$180million in credit (overdraft) in 2021 alone, while Fairmoney reportedly gave out N117billion (US$234million) in the same year”. Now you see the redesign. They can make those loans and overdrafts because they understand the business and the customer with the data coming out of their systems.
Although I clearly stated in a previous article that the growth and proliferation of fintechs may not be a lethal threat to traditional banks, I believe strongly that the growth, spread, and acceptance of digital banks has two core consequences for the banking industry; one is its ability to create a new standard for service delivery in retail banking, and the second is the mild disruption of Tier 1 and 2 banks offering retail digital banking solutions that refuse to move quickly. While it is largely wishful thinking to think that digital banks will disrupt the retail and mobile payments play of traditional banks, I believe strongly that they have the capacity to put the traditional banks on their toes and completely raise the standards of what a retail payments mobile banking app should offer its users, and what should be unacceptable.
Mintyn, TradeLenda, Ajo Money, and other emergent brands are coming with laser-focused niches. If these entities succeed, expect a massive level of disintermediation in the credit system in Nigeria. Data is going to win this market and only those who can not only collect the data but have the capacity to refine it will win.
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It is predictive-lending where data systems predict you need money and ask you to click a button and in minutes money is in your bank account. I believe that the financial service sector in Nigeria will experience more transformations in the next five years than we experienced in the last 30 years!
Ready. Set. Go. Win or go home!
LinkedIn Summary
In America today, workers are running the shows as companies continue to struggle because they cannot find workers to hire. If you know how to brew coffee well in Starbucks, you get a FULL university scholarship. Interestingly , the analogical equilibrium shift in what workers are experiencing in America is coming to the credit market in Nigeria where neobanks and fintechs are increasing supply of credits.
In this piece, Maro Elias explains why that is good for the users and the economy. Competition deepens products and accelerates innovation – and may the best product WIN
Why the Growth of Neobanks is Good for the African Retail Banking User
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“Interestingly, that is what banking should be about: collect cheap capital from depositors and deploy that capital to builders and makers, and be compensated via interest revenue for fixing that friction in the market. Nigeria has struggled with that because of lack of data. How do you make loans to people or businesses you do not understand?” – Ndubuisi
When you take your money to the banks for deposit, do they ask you how you made the money before accepting it?
When you are intent in keeping the populace poor, all manner of excuses seem valid and reasonable, until critical and pointed questions are asked. Our banking system is not built to empower anyone, rather it’s meant to benefit those who are already doing well. Data is not the problem, rather unwillingness to empower the people is.
Folks setup companies, sign contracts, move around large sums of money, without meeting themselves physically, and banks you took your two legs, went in there, filled boring forms, just to open account with them, will still claim that they don’t know you? Think about it.
Fear for depositors funds? Even with their warped cautious approach, many still become distressed, with public money used to keep them afloat.
The evil men do…