Okere: Fintechs Will Help in Building Efficient Banking System
Austin Okere, the founder of CWG Plc, and Entrepreneur in Residence at CBS, New York, who also runs the Ausso Leadership Academy in Lagos, spoke on the importance of financial technology companies and the need for the federal government to support local content and encourage local contractors. Emma Okonji presents the excerpts:
You propounded “Austin’s Five Forces Model,” that is becoming a major force in the financial technology (fintech) space in Nigeria. How relevant are theories to the development of fintech in Nigeria?
The Austin’s five forces model is not just about a theory. It provides an experiential way to analyse the future of banking, which includes the banks - traditional and established, best with cash and ancillary instruments; the fintechs, the new kid on the block, disrupter, mostly telecom roots, best with digital currencies and mobile services; the regulators, central banks, regulating traditional banks; and communication commissions, responsible for telecoms regulation as well as currencies - traditional, such as cash and cheques or digital, including bitcoin or other cryptocurrencies. customers, and the weight of their new-found voice. Typically, they clamour for whatever will give them convenience and lower costs.
The complaint about banks has increased over the years. Is this justified?
After centuries of conservatism in receiving deposits and making loans, there are two main issues stirring the yearning for change: The first is that it is a very difficult club to join as a customer, and hence the large population of unbanked adults. Even for the members of this elite club, the relationship is acutely skewed in favour of the banks. They have carried on as protected monopolies with no serious challenge or competition, resulting in very little innovation over the centuries. The biggest threat to the banks has been precisely their seeming success. Centuries of relatively significant higher returns, even during economic downturns, that adversely affect the real sectors, has engendered an attitude of invincibility and pomposity, characterised by a loss of touch with their customers.
Considered too big to fail, they take it for granted that they will be bailed out with taxpayers’ money in the event of any missteps – this is a perfect set-up for disruption. Today, there has emerged a powerful force of challenge from financial technology companies as they are more popularly referred to. The promise of Fintech is great. It is shaking up a stodgy banking system and helping to build a more efficient one, especially for consumers and small businesses.
How will Ausso Leadership Academy address skill that are deficient in the fintech space in Africa?
I was inspired to set up the Ausso Leadership Academy to provide the advice I would have provided my younger self when I was starting my business and also be the mentor I wish I had. There is a huge leadership gap between the visionary entrepreneur cadre and the next management layer required for the journey of a sustainable business in Africa. Ausso Leadership Academy fills this huge vacuum by making practical and democratising entrepreneurial and business mentorship through experiential skill transfer, emphasizing what has worked and the pitfalls to avoid. The huge success of the technology entrepreneurial ecosystem in Silicon Valley is largely due to such deep mentorship regime. This is the model that the Ausso Leadership Academy is replicating in our environment.
The Ausso Leadership Academy was set up to mentor entrepreneurs and business leaders to optimise the jobs they create to enable shared prosperity, through institutionalising and scaling their businesses geometrically. The goal is to create an expanding oasis of outstanding businesses through impacting at least 200 entrepreneurs each year. The need for resourcefulness and an innovative mindset to reinvent oneself when disruption knocks is a key skill every business needs to survive present market realities. This is what the Ausso Leadership Academy provides to complement what is taught at Business Schools.
The faculty comprises business leaders and entrepreneurs with practical experience and proven track record, imparting knowledge through experiential learning. They are complemented by champions of business and entrepreneurship, who come to share the stories of their journeys, and how they overcame adversities in building their businesses. We believe that within our local context the delegates will relate better to our own heroes; more importantly, we believe that this will serve to rightfully recognise and acknowledge our champions and document their legacies for posterity and future generations.
With what you have seen in developed economies in propagating technological prosperity and advancement, why is it difficult for Nigeria to match technology innovation?
You are right that for years, emerging economies have looked up to developed countries for ideas about how to manage their financial systems. When it comes to fintechs though, the rest of the world will be studying the experience of the emerging markets, embodied by the widely successful MPESA mobile money system, championed by Safaricom in Kenya.
MPESA has made it possible for a large swathe of the population to gain financial inclusion by providing the opportunity to transact financial services via your mobile phone, on a continent where typically 70 per cent of the population is unbanked.
MPESA today has more than 60 per cent of Kenya’s 33 million mobile users and in 2015 transacted $28 million on the platform – equivalent to a whopping 44 per cent of their GDP. Similar applications have metamorphosed across Africa, and Mobile Money services are today generating 6.7 per cent of Africa’s GDP.
Nigeria is no exception with fintechs such as Interswitch, CWG Plc, Paystack and Flutterwave holding sway. For instance, Diamond Bank has seven million accounts after 23 years and was able to add an additional six million accounts in just one year after the launch of the Diamond Yello Account in collaboration with CWG and MTN. By just about any measure of size, China is the world’s leader in Fintech. It is by far the biggest market for digital payments, accounting for half of the global market, according to the Economist magazine. A ranking of the world’s most innovative Fintech firms gave Chinese companies four of the five top slots in 2016. The largest Chinese Fintech company, Ant Financial, has been valued at about $60 billion at par with UBS which is Switzerland’s biggest bank.
Europe and North America have embraced Open Banking system for different reasons and adopting different models. How would you describe Open Banking and how should Nigerian banking industry approach this phenomenon?
Open Banking is too early for Nigeria to fully embrace. I will rather advise a cautious approach. Recall that the Second Payment Services Directive (PSD2) came into force in the UK only in January 2018. Even then, five of the nine regulated banks expected to pioneer Open Banking had applied for and been granted extensions in implementing the mandated changes to achieve Open Banking. Open Banking is a financial services term as part of financial technology that refers to the use of open APIs that enable third party developers to build applications and services around the financial institution, greater financial transparency options for account holders ranging from Open Data to private data; and the use of open source technology to achieve the above.
Technology leaders in most developed economies work with governments to shape policies in key areas such as skill development, digital economy and businesses. Why is this not so in Nigeria?
Technology leaders working with governments to shape policies in skills development and the digital economy is not new and certainly not restricted to developed economies. Here in Nigeria, the pioneer Minister of Communication Technology, Mrs. Omobola Johnson set up an Advisory Council comprising top technology operators to provide policy advice and feedback in charting the course of the digital economy. I would say she blazed a great trail, especially in broadband penetration, and built a solid foundation; some of the fruits of which we are benefiting today. The nascent industries such as Fintech, e-Commerce and Uber, which business models heavily depend on broadband penetration and smartphone ubiquity, and which were not hitherto possible are now contributing huge chunks to GDP.
In 2017, President Muhammadu Buhari created an Industrial Competitiveness Advisory Council in order to enhance industrial policies and performance in the country. As part of the council, Vice President Yemi Osinbajo, inaugurated a 50-man Advisory Group on Technology and Creativity which consists of ministers, heads of agencies as well as players in the technology and creative space in order to boost a public-private partnership. Private players in the tech space included in the group are founders of innovation hubs across Nigeria, investors and tech entrepreneurs. There may be a need to correlate their inputs with a narrative of milestone achievements for better transparency and appreciation.
How are local fintech businesses protected from the challenge of the Original Equipment Manufacturer (OEM) or vendor venturing directly into their markets and pulling the rug off their feet, after having developed the market for the vendors’ products and services?
I know many local companies that have literally being wiped out as a result of a vendor making a direct presence in the market. This is very detrimental to the local economy as it erodes jobs and decimates the middle class that are the very engine of economic growth. The oil and gas sector seem to have taken an early initiative to protect local industry by instituting a local content bill that ensures that the percentage of local input in the industry is progressively increased by creating the needed local capacity.
In the technology services sector, the National Office for Technology Acquisition and Promotion (NOTAP), has also done a lot to protect local industry by requiring that foreign companies partner local counterparts to develop skills and capacity as a complement in providing services to customers. Perhaps NOTAP has been relatively more successful in their quest because beyond mere moral suasion, they have the instrument of sanction through the restriction of forex approvals where foreign companies have rushed to engage directly with Nigerian customers without local partners. I believe that what we need is a structured way in which we can support local industry by encouraging them to focus on areas where they can best add value so that they will not be viewed as irritants by foreign vendors, but as indispensable partners.
CWG is known as one of the providers of banking infrastructure in Nigeria. How huge is that space in terms of opportunities to drive economic growth?
CWG is indeed a pioneer of most of the financial technology innovation in the country, deploying software solutions to over 60 financial institutions in the last 20 years. About 65 per cent of financial transactions in the banking sector is processed through the Finacle banking application, supplied and supported by CWG and Infosys. Finacle is used by many of the major banks in Nigeria including FBN, UBA, Stanbic, FCMB and Wema banks among others.
CWG presently supports about 30 per cent of the ATM base and has 450 support hubs across Nigeria. This provides a solid foundation for the ATM-as-a-Service concept and ultimately expands the horizon for financial inclusion. Imagine the potential use to which the ATMs could be put in solving pension recipient verification. With appropriate technology, seniors can go to the nearest ATM and use biometrics connected to the pension providers’ central database to verify themselves and receive their pensions directly from the ATM by entering a string of characters sent over the ATM upon successful verification; instead of travelling long distances and standing in long pension queues thousands of miles from their homes.