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Chief Executive Officer of eTranzact International Plc, Niyi Toluwalope, discusses the challenges and opportunities of fintech adoption in rural communities with JOSEPHINE OGUNDEJI
What are the opportunities and challenges for fintech adoption in Nigeria’s underserved communities?
Fintech is transforming access to financial services for underserved communities through innovations like mobile and USSD payments. Agency banking has been particularly successful, enabling individuals in underserved areas to open bank accounts, pay bills, and conduct basic financial transactions. However, as of 2023, over 26 per cent of Nigerians remain financially excluded due to infrastructure challenges and financial illiteracy.
How has the country’s payment scene transformed over the years?
Nigeria’s payment landscape has undergone a significant transformation, driven by technology and innovation. It is evolving from cash-based transactions to a digital ecosystem that includes mobile money, cards, online banking, cryptocurrencies, and contactless payments.
The rise of dynamic fintech companies, strategic collaborations among banks, fintech firms, and telecommunications providers, and substantial investment in financial technology have fuelled this evolution. Additionally, growing consumer demand for convenient banking solutions and proactive regulatory efforts have further accelerated this change, creating a robust and supportive environment for continued growth and development in the payment sector. As a pioneer fintech company in Nigeria, we have played a critical role in driving this transformation by providing innovative solutions and enabling growth through an infrastructure other fintechs can leverage on.
Funding in the Nigerian tech ecosystem has slowed. How would startups navigate this period?
The Nigerian fintech industry faced a significant funding decline last year, with a staggering 74 per cent drop in funding from 2022. To navigate this challenging period, startups can focus on strategic mergers and resource consolidation. We are already seeing successful use cases of this, such as Carbon & Vella and Mathesis Analytics & Migo, where companies are combining their strengths to continue driving innovation and resilience.
What growth stage is the country’s fintech startup scene today?
Fintech adoption is growing at a pace faster than expected, with more individuals and businesses relying on digital financial services every day. Events like COVID-19 and the 2023 cash crunch contributed to the rise in digital payments. The evidence of this is increasing transaction volumes and the surge in Bank Verification Number registrations. Notably, we have observed a substantial increase of 1.75 million BVN registrations from December 2023 to May 2024.
A key driver of this growth includes active regulatory involvement, which ensures a stable and conducive environment for fintech innovations. Additionally, the declining capital inflow has fostered consolidation and mergers among fintech companies, leading to a more robust and competitive industry landscape.
What are some of the challenges of running a startup in Nigeria?
Running a startup in the fintech space presents its unique challenges, particularly in securing the substantial capital required for business operations, navigating infrastructure constraints, and acquiring, and retaining talent. As a leading super fintech, we support startups by providing them with the critical infrastructure they need to thrive so that they can focus on innovation and growth, leveraging our infrastructure to drive their success in the market.
Can you share some of the things eTranzact has been able to achieve?
Over the years, eTranzact has been at the forefront of fintech innovation, pioneering several groundbreaking fintech offerings, like USSD and mobile banking, which have become mainstream offerings today. We became the first and only publicly listed Nigerian fintech when we raised over N2bn in capital. We have since raised over N9bn more capital during our oversubscribed rights issue in 2021. Earlier this year, we revolutionised pension verification convenience for veterans with the military pension board.
Leveraging artificial intelligence and the various government identity platforms (NIN, BVN, DL, and International Passport), we created a mobile verification platform that allows veterans to register and seamlessly verify their identities via their mobile devices, facilitating the smooth identification of retired veterans to enhance the seamless payment of their pensions.
There have been a lot of issues around corporate governance concerning Nigerian startups. How can startups do better?
Despite Nigeria’s leadership in Africa’s startup ecosystem, many startups face challenges due to poor corporate governance. As startups focus on rapid growth, they often neglect essential governance, leading to financial mismanagement and investor distrust. To address these issues, startups should prioritise implementing strong governance frameworks early on, including transparent financial reporting and clear decision-making processes.
Additionally, startup founders must balance innovation with accountability by fostering open communication with relevant stakeholders. This approach ensures sustainable growth, builds investor confidence, and strengthens the foundation for long-term success.
What are the regulatory challenges facing fintech startups in Nigeria, and how can they be addressed?
Regulatory involvement has intensified over the past two years in response to the rapid growth in the payments sector. The regulatory landscape is complex, with startups navigating multiple regulatory bodies, frequent policy changes, and facing high licensing and compliance costs. Fintech startups must prioritise regulatory compliance and engage actively with regulators to operate effectively, manage risks, and drive sustainable growth while contributing to a well-regulated financial ecosystem.
How can the fintech industry leverage data analytics and artificial intelligence to improve risk management and customer experience?
Artificial intelligence has become a critical enabler for businesses, allowing firms to make data-driven decisions and optimise their operations. Integrating AI and data analytics tools across all fintech system touchpoints, companies can gain valuable insights into consumer behaviour, preferences, and trends. This not only helps in refining products and services to better meet customer needs but also delivers tailored and seamless customer experiences.
AI also revolutionises risk management by shifting from a reactive to a proactive approach. For instance, AI-powered credit scoring tools enhance loan underwriting processes, while AI transaction monitoring software evaluates financial transactions in real-time to detect fraud and money laundering.
Furthermore, AI plays a crucial role in Know Your Customer processes, enabling automated identity verification and real-time fraud detection to ensure compliance and maintain robust security standards.
What are the opportunities for fintech companies operating in rural areas?
Nigeria’s public financial management has historically faced challenges with inefficiencies, fragmented systems, and inadequate internal controls. Fintech solutions are revolutionising the public sector landscape, enhancing efficiency and transparency in government operations by streamlining revenue collection and disbursements, and closing revenue leakages. eTranzact has played a pivotal role in this transformation, facilitating tax collections for the Federal Inland Revenue Service, revenue collection, payroll disbursement, and digital verification processes for government ministries, departments and agencies.
How can fintech companies improve their customer onboarding processes to reduce fraud and enhance security?
Fraud cases are increasing, particularly in mobile banking, where the push for seamless customer onboarding has led some fintech companies to overlook essential Know Your Customer procedures. Customer onboarding is a critical process for fintech companies as it determines who can access their platform, impacting both security and trust.
Regulators are increasingly vigilant in ensuring that fintechs adhere to KYC guidelines, necessitating fintechs to collect comprehensive customer information and implement robust verification measures. Implementing AI-driven identity verification solutions, such as facial recognition, allows companies to cross-check identities against global databases and watchlists, providing an additional layer of security and protecting the company and its customers from fraudulent activities.
How can fintech companies leverage social media and digital channels to enhance customer engagement and financial inclusion?
In today’s digital landscape, social media has become a critical tool for fintech companies to engage with customers and gather valuable insights. Customers often share their opinions and challenges regarding financial management, and the fintech landscape, making social media a rich source of data.
By leveraging social media, fintech companies can gain valuable insights into customer needs, preferences, and pain points. This data allows them to tailor their products and services, ensuring they align with customer expectations and market demands. Additionally, social media also serves as a direct feedback channel, enabling companies to respond swiftly to customer concerns and improve offerings.
A lot of funding on the continent is by foreign investors. How can local investors start to fill the gap more?
Foreign investment has traditionally dominated fintech funding in Nigeria. However, we are witnessing a notable decline in these investments, partly due to unpredictable exchange rates and a tougher than predicted macro outlook. This situation presents a unique opportunity for local investors to step up and bridge the funding gap.
At eTranzact, we serve as a prime example of the potential for local investments, with two financial institutions as shareholders and a continued openness to funding from additional local financial institutions. We have also observed increased participation from government bodies and local venture capital firms. For instance, the partnership between the Nigerian government, the African Development Bank, the French government, and the Islamic Development Bank has launched an investment initiative worth $618m to support tech and creative startups in Nigeria.
Local investors can seize this opportunity by actively participating in the fintech sector. By bridging the funding gap and supporting domestic innovation, they can play a crucial role in strengthening the overall financial ecosystem and driving sustainable growth.
What are the opportunities and challenges for fintech companies operating in Nigeria’s rural areas?
The rural areas in Nigeria represent a significant untapped market, with many individuals still unbanked or underbanked. This creates a valuable opportunity for fintech companies to introduce financial services to millions, driving new revenue streams and expanding their customer base. However, challenges such as poor internet connectivity, illiteracy, and unreliable power supply can impede service delivery.
Addressing these infrastructure gaps and literacy concerns will enable fintech firms to unlock the potential of rural markets and advance financial inclusion. By doing so, fintech not only opens new business opportunities but also contributes significantly to socio-economic development.
There is an argument about female-led startups not getting funded enough. How can this gap be bridged?
Female-led startups face significant funding disparities compared to their male counterparts. Globally, female entrepreneurs receive only a small fraction of venture capital funding. In Nigeria, the situation mirrors this global trend, as female-led startups made up 12.4 per cent of Nigeria’s startup ecosystem between January 2022 and April 2023. Startups with female-led founders raised a total of $119m, which is just 2.9 per cent of total funding received.
Bridging the funding gap for female-led startups requires concerted efforts from all stakeholders, including investors, policymakers, and the business community. By working together, we can unlock the full potential of female entrepreneurs and drive innovation and growth in Nigeria’s startup space.
What values do you apply to your life and work that you think help you to succeed?
There are no specifics to this. It is the little steps we take daily and trying to be consistent at it. We make mistakes along the way and we learn from those. As long as we believe in what we are doing, we will stay consistent with them. Most importantly, I thank God for mercy, energy, protection and a sound mind. These are critical factors that allow us to be available and accessible to drive change and take advantage of the ever-evolving opportunities we see daily. Success for me is a journey and an experience, not a destination. Hard work, commitment to tasks within a plan, and the ability to listen and adapt quickly to changing circumstances can also contribute to the journey of success. At eTranzact, our operating mantra of success is “TAWID.” This drives us daily. Think fast, Act faster, Work smartest, Innovate, and Dominate.
