Olayinka David-West: Achieving Financial Inclusion Will Require a New Kind of Customer-Obsessed Fintech
Olayinka (Yinka) David-West is a professor of Information Systems with a particular focus on the IT and financial services industries, as well as the Associate Dean of the Lagos Business School (LBS), Nigeria’s leading business school. She also leads the Sustainable and Inclusive Digital Financial Services (SIDFS) initiative, a research and advocacy initiative dedicated to enhancing financial inclusion in Nigeria. Yinka sits on various fintech boards, advising them on how best to reach the underserved and unbanked populations.
When I sit down with her, I’m prepared to drink from the fire-hose she’s about to offer me. Her background and personal work experience that spans digital transformation within institutional banks, to fiscal and monetary banking policy, her passion for financial inclusion as well as her breadth of experience with local and regional fintechs, means that there’s a 360 degree birds-eye view of the Nigerian and greater African fintech ecosystems on offer; and she doesn’t disappoint.
She recounted a talk she gave to a room full of CEO’s of all of the largest incumbent banks in Sub-Saharan Africa back in 2018, presenting various business models for institutional banks to consider embracing to adopt and collaborate with fintechs within their own businesses. She laughed as she recalled one CEO question her at the end with, “So are you saying that fintechs are coming to eat our lunch?”
While many African bank CEOs were somewhat sceptical 5 years ago, today, it seems many bankers, more often than not, have this perception of fintechs being a type of adversary. This is why there are limited examples of successful partnerships and collaborations between the Big Banks and the big Fintechs.
“Most of the Big Banks have opted to go the “Internal DIY” route,” says Yinka, where the Banks are attempting to build their own fintech division, and sometimes even spawn fintech start-ups managed under their respective Bank’s holding companies. “It’s too early in the evolution of fintechs to know if Bank’s will acquire any of them in the future, but so far there have been limited M&A bolt on attempts,” she says.
The last decade has had a major focus on financial inclusion, getting the undocumented and the unbanked into the formal banking system. As much as banks wish to do this, their brickand-mortar “build-a-branch to serve the community” model is too costly to be successful. More often than not, Big Bank CEO’s have a story to tell about building a branch in a rural community, and then having to shut it down because it was too costly to keep operational. “The Central Bank has tried to limit closing of branches in low-income neighbourhoods, but it’s hard to ask a business to keep an unprofitable part of its business running,” says Yinka.
Most rural communities are illiterate; and thus are inevitably financially illiterate as well. Add to that, the fact that there are over 500 languages spoken in Nigeria, which make staffing rural branches challenging and sometimes downright ineffective. To make financial inclusion even more challenging, in 2014, Nigeria’s Central Bank mandated that all Banks must provide a unique 11-digit Bank Verification Number (BVN) for each individual banking customer. Today, for a BVN to be issued, the individual applying for the bank account must provide their National Identification Number (NIN) to link it. In theory, if every person above the age of 16 out of the 213 million Nigerians living in the country had a NIN, this could be a beautiful system that helps build systemic integrity by cracking-down on fraud, enhancing data privacy and security. The newest functionality embedded into the NIN also includes the ability for the ID card to double as a payments card – which could be a gamechanger.
Unfortunately, adoption of both BVN and NIN has been slow. As of December 2021, the Central Bank of Nigeria reported that the total number of bank accounts linked to a BVN was just over 49.2 million, out of a total 104.6 million accounts; this means more than half of active bank accounts in the country are not linked to a BVN. As for National Identity Numbers, only 92 million Nigerians (43% of the population) have a registered NIN as of December 2022. This, in effect, means that more than 50 million Nigerian’s above the age of 16 cannot get access to a bank account, without getting a NIN first. Suddenly, financial inclusion starts to become more and more complex, as now it involves biometric scanning and additional application procedures for all unbanked Nigerians.
And where does the Central Banks fit in, I wonder? Yinka sighs. Regulations is a whole other bag of tricks, it seems. “The truth is, I think most Central Banks in Africa are still figuring out how to adapt effectively to the new financial landscape,” she says. “Five to ten years ago, Central Banks were catering to 50 banks in their jurisdiction. Today, Central Banks must serve an additional 1000 fintechs in their backyard. The ecosystem is moving so fast, it’s hard to keep up.”
As I took this all in, it reinforced a message I kept hearing discussion after discussion with key players in the Sub-Saharan African fintech eco-system. That message was that change is hard and slow, even when the disruptive fintechs were moving fast. The truth is, the Big Banks in Africa are content with business-as-usual, catering to Corporates and their wealthy clients across the continent. And why shouldn’t they be? They really aren’t incentivized or built in a manner that would allow them to onboard the unbanked population very well.
In fact, most big Banks weren’t even serving the SME or micro-business customer today, let alone the rural farmer. “There are very few banks offering SME loans and other financial services to SMEs or micro-businesses, because it is difficult to assess the risk of those loans,” Yinka explains.
Of course, this is where Fintechs can carve out a niche for themselves, Yinka explains. It’s the ultimate entrepreneur’s dream: there are unmet customer demands in the market, and no entity meeting those needs. There are fintech opportunities everywhere, it seems. But she’s also critical about their progress. “Fintechs often get applauded for coming in to save the day and assisting in getting previously unbanked members of society onto some form of financial system,” she says. “But, they could be doing so much more.”
Though fintechs do seem to have significantly lower capital requirements, greater agility in developing and rolling out products, and greater ability to scale – compared to incumbent banks – there is still one major problem, as I see it: fintechs need to make money too.
It is likely for this reason that many African Fintechs have largely focused more on agent banking, providing fintech solutions to small merchants and store owners, before going after the rural retail customer segment. Going after the rural villager is a costly affair, and the customer acquisition cost must come from somewhere.
When I pose this to Yinka, she argues that too many of the Fintechs in Africa are trying to be the “be-all-end-all” Super App of Fintechs, when instead, they could just be focused on a very specific and targeted customer segment, and serving them with precision.
“Who are onboarding women?” she asks. “Show me a fintech that will cater specifically to the rural farmer or a merchant trader or a bus driver, and I’ll show you a fintech that will not only do well, but truly do some good.”
She further adds that what Africa’s fintech ecosystem needs at this time are specialized startups that are experts on one component or one financial product. “Instead of every fintech trying to build the entire solution across the entire financial services value chain,” she says, “we need fintechs that are building a handful of products or components, and looking to collaborate with other fintechs to go-to-market.”
She explains that important “components” of a fintech don’t just refer to a customer-oriented product offering, but could be a SaaS sold to all fintechs. It could be the component that every fintech needs – such as a customer complaint resolution system, or a bolt-on for effective transfers, for example.
“We’ve got a long way yet to go,” Yinka says. “But we are getting there.”