Digital innovations of Fintech in the financial services sector

Financial Inclusion

Fintech has been a major catalyst for bridging the financial inclusion gap in Nigeria. By providing solutions to the financial services and product need to the millions of unbanked population, this ecosystem has created a good number of economic opportunities along with the value -chain. For instance, a 2016 report by KPMG shows that M-PESA in Kenya accounts for over 25 percent of the country’s gross domestic product (GDP).

For Nigeria, Fintech continues to meet up with the challenge of achieving a 20 percent financial exclusion rate by 2020 through service offered in the payment space utilizing more accessible platforms like the USSD and mobile money.

Fintech has also been able to facilitate the provision of credit to small and micro enterprises by using technology to match creditors and the businesses (P2P), also capturing information such as credit history, to help determine the risk profile of those that need credit, thereby opening up the informal sector and the unbanked region to banking services hitherto not enjoyed.

Bank In A Box

Bank in the box is an all in one solution that provides a platform for corebanking operations leveraging service providers or third party software infrastructure to do so. The new way of banking was initially adopted mainly by non-traditional institutions that did not have the capacity to manage the complexity and technology requirement of traditional banking.

The Software as a Service (Saas) model brought the institutions much-needed efficiency and platform to simplify the banking process. Bank in a box provides a simpler model to efficiently transit to the deposit-accepting segment at an accessible and competitive level without the backlog that comes with traditional banking models. The cost saving gains in the model has now seen traditional banks exploring opportunities to access new markets via the revolutionary solution.

Robo-advisory

Robo Advisory is the use of automated algorithmic systems to offer advisory services for investment management with minimal human intervention. In other words, Robo-advisory is an online financial advisor that leverages technology to provide advice directly to end users at a lower cost than traditional means.

Whether in investment banking, account rebalancing, portfolio planning, asset allocation or risk assessment, Robo Advisory brings customers oneclick-away from their fund accounts. The artificial intelligence became popular after the global financial crisis of 2008 and by 2015 a number of financial advisers and managers had adopted the technology. Big corporations like Vanguard, Blackrock, and Bank of America were early adopters of the innovation.

By reducing the cost for fund management institutions, Robo Advisory provided fund managers, the opportunity to accept smaller businesses and reduce the entry point for investors in the lower income bracket. This naturally came with the ability to serve a larger market and increase asset under management quite significantly than for traditional fund managers.

Betterment one of the oldest Robo Advisory firms have $13.5 billion in assets under management. The fund manager places no minimum balance to open a new account and offers a free year of management depending size of the initial deposit. Accounts are managed at an annual fee of 0.25 to 0.40 percent.

Despite the revolutionary change the technology brings, there is still a need for human interaction and expertise to handle complex issues and provide richer services to clients.

P2P Lending

Peer-to-peer lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. It is a popular alternative to traditional banks; most P2P loans are personal loans which borrowers can use for a variety of personal purposes. It is also known as social lending.

Blockchain

Blockchain is a distributed, decentralized, public ledger technology that can record transactions between two parties efficiently and in a verifiable and permanent way.

The technology creates records of transaction which are readily available to all parties to a contract at the same time. The record created are immutable in such a way that records cannot be altered unilaterally without changing all subsequent blocks. Any attempt at tampering with the records would not be corroborated by the digital footprint available to other computers with access to the block.

Although the technology was initially adopted for cryptocurrency transactions, there are many other potentials of blockchain in smart contracts, inventory management, identity management, and financial accounting, to mention a few.

Biometrics and Cybersecurity

The increasing adoption of information and communications technology over the last few decades especially the application in financial services has left many institutions vulnerable to cyber-attacks globally.

According to 2019 Official Annual Cybercrime Report by Cybersecurity Ventures, Cybercriminal activity is one of the biggest challenges that humanity will face in the next two decades. Consequently, Global spending on cybersecurity will exceed $1 trillion cumulatively for the 5 year period from 2017-2021, according to Cybersecurity Ventures.

In line with its objective to protect the country’s monetary system, the Central Bank of Nigeria (CBN) launched the Bank Verification Number (BVN) project in 2014. The essence was to minimize the incidence of fraud and money laundering in the country’ s financial system as well as enhance financial inclusion through the Know Your Customer KYC process.

The CBN in 2016 also required banks to integrate biometrics data from BVN to payment cards to create an airtight security system for customers.

Banks have also upped their game and provided an extra layer of security in the form of fingerprint login requirement for their mobile applications. The chasm still remains as reports by Kasperky Lab, a global cybersecurity company with deep threat intelligence and security expertise, show four African countries made the list in terms of top 10 countries by share of users attacked by mobile malware – Nigeria in third place at 37.72%, Algeria in fifth place (35.06%), Tanzania in eighth place (31.34%), and Kenya in ninth place with 29.72%. This provides the opportunity for Fintech solutions across different payment platforms.