With billions of dollars in monthly transaction value and hundreds of millions in volume, fintechs have become an integral part of the financial ecosystem in Nigeria and their influence is growing by the day.
Yet, it is not a smooth sail as they still face a dint of trust issues.
In this exclusive interview with Nairametrics, the Managing Director of one of the leading fintechs in the country, PalmPay, Mr. Chika Nwosu, speaks on the success factors and the challenges of the fintech industry in Nigeria and how the players have been navigating the terrain to drive financial inclusion in the country.
Excerpts:
Nairametrics: There has been a lot of enthusiasm about fintechs in Nigeria of late. Aside from the recent issues of commercial banks’ network failure, what is driving the growth and acceptance of fintechs in the country?
Chika Nwosu: Nigerian fintechs had their breakthrough in 2020 during COVID-19. That was the first time they had a very serious breakthrough.
And that was the first time fintechs made a lot of impact in the Nigerian business space because during the COVID, people were not going out. So, most of the time, we needed to transact, we needed to buy things online.
So, people who were providing such efficient transactional services then were fintechs.
Then on January 2nd, 2023, when there was a CBN policy on cashless policy, the fintechs also came in to save the situation.
That’s when we started to offer different types of products that supported small merchants and helped people make a lot of money. So what’s actually going for us in PalmPay, I don’t know about other fintechs, is our robust system.
We have a system that is a near-perfect system because we have transaction success rate of about 99.98%. I think that is almost a near-perfect transaction system.
And the user experience is actually the best you can get in the financial sector in Nigeria.
So what is going for us is actually the kind of product we are bringing into the market, solving the customer’s problem. Because what customers want is, can you be able to solve their problem?
Fintech is all about technology. We are able to build a technology that can sustain a huge number of people doing transactions at the same time on the platform without it failing.
Nairametrics: But commercial banks are deploying technology too…
Chika Nwosu: Yes, everybody is using technology but there are different technologies. The technological know-how of Nigeria is not the same as in China. So it’s the same thing with other nations. Everybody has what goes for them.
Nairametrics: Looking at the fintechs today, it would seem everything is going smoothly. But every business faces one challenge or the other. What are the challenges facing fintechs in Nigeria?
Chika Nwosu: There are several challenges in the fintech industry in Nigeria and I will speak from PalmPay’s perspective.
Number one is the issue of trust. In the beginning, people didn’t have that confidence in fintechs. The feeling is that these people, are you sure that one day they will not disappear?
So what we did was to build that trust by ensuring that we meet the demand of the users.
Just like I told you, you can see the success rate of the transaction is above 99.98%. So all these are the things we have built over time to get confidence. When there is a complaint from people, we ensure that this complaint is promptly addressed. So that is one part.
Another challenge we face is regulatory issue. Recently, that was in May, when the CBN asked us to stop onboarding the customers, you know what it means?
We lost customers. We lost the confidence of the customers because when the government makes that kind of announcement, some people become agitated.
Who knows whether they want to stop them from doing business? So that is another part of it. And several other things like the tax policies. So, it’s not really easy. But even at that, we are pushing it.
Nairametrics: Now, talking about trust, one of the things I have heard people say is that fintechs do a lot of things for free, like some transactions are free, unlike banks that charge you for everything. And some people keep wondering, how are these people making money?
Chika Nwosu: Well, we are not Father Christmas, we are actually making money. We have a lot of merchants on our platform. We also sell data and airtime for telecom operators like MTN, Airtel, and others; it’s one of the businesses we do.
For selling the data, we get rebates from that, which is a very good revenue for us.
And apart from that, we have over 35 million users and merchants also drop some things like adverts on our platform. We also take commissions from these merchants.
We have online and offline merchants. The offline merchants are the people you see on the road. So, all these bits and pieces of the products and services of PalmPay add to the overall revenue that the business gets.
Nairametrics: When it comes to the issue of trust, one other concern that some Nigerians have about fintechs is the issue of security. How are you addressing that?
Chika Nwosu: Firstly, we have our KYC process. It’s one of the best now because before you onboard into our platform as a customer, as a user you must have your BVN. Then you become a Tier 1 user. For you to become a Tier 2 user, you must have your BVN and your NIN, then, with some other documents.
And for you to become a Tier 3 customer, you will also have address verification with all the other ones, and we also verify even the address; we have started address verification.
We have facial verification. We also use two-step authentication systems. Other than that, we also have transaction monitoring tools. We also have a fraud monitoring tool. Which is like an AI-driven process that monitors transactions. So, when there is an irregular transaction, it locks the account. So, this process is what we have done.
For instance, for me, maybe there are some individuals that I normally send money to and this system studies that pattern. If I want to send money to someone that is outside these people that I have been sending money to, there would be a request for my facial recognition. That is one.
Another part of it is that if most of my transactions are between 100 and 50 thousand Naira, that is what I transfer to people, and at that point I want to transfer one million Naira to somebody, it would block the account automatically and ask for more information or ask for more requirement before the transaction can go.
Nairametrics: You mentioned earlier that you have over 35 million customers, what is the value and volume of your monthly transactions?
Chika Nwosu: We do about 6 billion dollars monthly and about 300 million in terms of volume.
Nairametrics: And you don’t think that your system will get overloaded one day when you have so many people coming on board and transacting?
Chika Nwosu: Let me be very honest with you, our system is built to accommodate over 100 million users. And we are following up on this. So, the more we are growing, the more we are expanding our system. So, there will never be a time our system will become overloaded.
Nairametrics: Nigeria currently has the largest number of unicorns in Africa when we talk about startups, what is the current status of PalmPay in terms of valuation since you last raised money in 2021? Also are you planning on raising funds?
Chika Nwosu: We will be raising funds. We are planning.
We want to provide more services and we also even want to make our services much, much better than it is. And we need funds to do that.
But for us, currently, we are not much interested in the valuation. What matters to us now is bringing in more people, solving the financial inclusion problem.
We want to reach out to the unbanked in Nigeria. So, we try as much as possible to take financial services to the people in all the rural areas in Nigeria.
So, this is what matters to us. So, we are not talking about valuation, but I cannot tell you that PalmPay is doing very well and our value is actually very high, much more than you think.
Nairametrics: So, how soon are you looking at raising funds?
Chika Nwosu: Very soon. Very soon, when that time comes, you will know. We will also invite your people. We are not going to hide it.
Nairametrics: If you are to expand your services after raising more funds, what area will you be expanding to? What new things are you going to be introducing?
Chika Nwosu: I don’t know if you have seen Alipay. If you have seen the kind of services they are rendering, actually, these are the kind of things we want to do in Nigeria. And we also want to scale our businesses to other African countries.
Currently, we are in Ghana, we are in Tanzania. We also want to move to some Southeast Asia countries. We are already in Bangladesh, actually, but we also want to move to some other African countries, some Southeast Asia. We also want to move into those places to do business. We want to cover all the emerging economies.
Nairametrics: To do all these you may have to encounter some regulatory hurdles, especially in African countries. How do you plan to navigate these?
Chika Nwosu: For some other countries you want to go, you look at the regulatory environment, so you can partner with other businesses there to come in first. Then, when the business grows, you go for the license.
You just look at the environment, look at the need of the people. You have to adapt the business to suit that environment. So, that is the way.
Nairametrics: How would you describe fintechs’ relationship with commercial banks in Nigeria?
Chika Nwosu: I think the relationship between banks and fintechs to us is complementary. And it’s not even a competitive relationship. Because the market is very big.
The banks’ role, to me, most of the time is totally different from the fintechs’ role. For us, for instance, we are focusing on payment. The kind of service we are providing is totally different from what banks provide.
And secondly, banks need fintechs, just like fintechs need banks, because there is no vault in this place where we keep money. But we have an account with banks. We have our pool account with banks, where all our money goes to.
So, there are several of the relationships that we have with banks; we work together to support the financial ecosystem in Nigeria and also to support the economy.