Niyi Toluwalope, the CEO of eTranzact International Plc, discusses the challenges and opportunities related to fintech adoption in rural regions with JOSEPHINE OGUNDEJI. He emphasizes the importance for fintech startups to focus on regulatory compliance and to actively collaborate with regulators. This approach is essential for effective operations, risk management, and fostering sustainable growth, all while supporting a well-regulated financial environment.
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.