THE ADVENT OF SPECIAL FINANCIAL SERVICE INDUSTRIES AND THEIR ROLES IN THE DEVELOPMENT OF MSMEs USING “FINTECH” AS A CASE STUDY
WHAT IS FINTECH?
Fintech is a hybrid of financial technology that describes the developing financial services sector today. Financial technology is roughly defined as any technological innovation in financial services. This involves a spin from the traditional ways of banking.
Fintech companies use technology as widely available as payment/credit apps to more complicated software such as artificial intelligence and ‘Big Data’.
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Fintech is a blanket term. It refers to companies of all kind. These include companies that give insurance, enable payments and manage assets etc. Fintech companies are taking the financial service industry, a step at a time.
From credit finance to the transfer of money to investment, the Fintech Revolution is taking over finance.THE EVOLUTION OF FINTECH
The beginnings of financial technology can be traced to the early nineties and referred to the “Financial Services Technology Consortium”, a project introduced by Citigroup in order to enable technology cooperation efforts. Citigroup was trying to overcome a reputation for resisting technological association with outsiders. However it is only since 2014 that the sector has attracted the focused attention of regulators, industry participants and consumers alike.
Fintech is seen today as a recent marriage of financial services and information technology. Nevertheless, the bond between finance and technology has a long history.
The history of Fintech can be seen in three (3) distinct time periods:
Precursors to the Digital Age of Financial Services (1866 – 1967)
Digital Age of Financial Services (1967 – 2008)
New Age Financial Services (2008 – present)
Precursors to the Digital Age of Financial Services (1866 – 1967)
The Introduction of telegraph in the mid-1800s and laying of the first transatlantic cable in shortly after provided the fundamental groundwork necessary for the digital age of financial services. This time period ended with the emergence of credit cards, the first handheld calculator, and the deployment of first ATM in the mid-1900s.
Digital Age of Financial Services (1967 – 2008)
This time period saw the advent of automated clearing houses in the United States and United Kingdom. In 1971, NASDAQ was established and ushered in electronic securities trading platforms. The emergence of the internet greatly affected financial services. This time period culminated with a majority of banks’ internal processes, interactions with outsiders and an ever increasing number of their relationships with retail customers being fully digitised.
New Age Financial Services (2008 – present)
The financial meltdown of 2008 was a major factor in the future of Fintech. Three aspects, misgivings about banks by the general public, large pools of highly skilled financial professionals out of jobs and regulatory factors, resulted in the creation of the perfect soil to allow the Fintech industry germinate into a hyper-growth market.
CATEGORIES OF FINTECH
Here are some of the major categories in the financial technology market.
Lending
Fintech is changing the credit landscape. People do not need to turn to banks or credit unions to borrow money anymore. Some Fintech companies are now lending directly to customers, loans can be requested for online and approved quickly.
Payments
Payments are another category of the financial technology market. Companies in this category let people send money to each other without need to turn to banks.
Fintech Companies let consumers send money quickly and with little cost. Innovations like blockchain are making it possible for these companies to process payments cheaper than banks can.
International Money Transfer
According to the Financial Post, “Ripple, a company in this category, can send international money transfers in eight (8) seconds”. Traditionally, international money transfers have been very expensive. Banks and traditional money transfer companies can charge ridiculous amounts in fees.
Fintech companies are offering faster, less expensive international money transfers.
Personal Finance
Personal finance is another major category of the financial technology market. In times past, consumers needed to talk to financial advisors at banks to get personal financial advice. To budget they needed to use complicated spreadsheets or an envelope system.
Today, there are lots of programs designed to work on smart phones on the market that can offer advice and help with budgeting. Consumers can now get personal finance advice anywhere, at any time. Fintech companies also provide retirement or investment advice.
Equity Financing
Fintech companies are transforming equity finance, as well. Companies in this group of the Fintech market are making it easy for small businesses to raise money. Some companies work with vetted start-ups and connect them to accredited investors. Others use a crowdfunding model to let anyone invest in new businesses.
These companies simplify the capital-sourcing process for businesses and investors alike by making it easier for them, since everything can be done online.
Consumer banking
Today, Consumer banking is a power struggle between traditional banks and fintech companies. Traditional banks charge high fees, so companies in this category present an alternative for consumers.
These companies also have the potential to reach the unbanked consumers. Because of the emergence of mobile phones and smart phones, fintech companies have a distinct advantage in reaching the unbanked population compared to their traditional counterparts, banks.
Consumers can now use digital bank accounts and E-wallets to carry out transactions instead of using traditional banks.
Insurance
The insurance market, isn’t safe from the revolution called fintech, as well. Although many companies in this category are focusing on distribution. They’re using new technologies like apps to reach customers that are not covered by insurance.
They’re more flexible than traditional insurers. For example, people who want to use a friend’s car can now buy car insurance for just a few hours. Since, the insurance market is extremely regulated, fintech companies in this category tend to partner with traditional insurance companies.
PROGRESS AND TRIALS OF FINTECH IN NIGERIA
In Nigeria, fintech has the capacity to be profitable and give way for a more inclusive financial system, one where financial products and services cater to the needs of individual and enterprises across all income fields.
Fintech has shown great promise in developed economies by providing customers with a highly accessible and streamlined path to fulfilling their financial needs and wants but for fintech to succeed in Nigeria, its developers and providers must begin to familiarise themselves with some different and unique customer journeys.
The designers need to rely on an evidence-based assessment of customer needs and demands.
Factors aiding the growth of fintech in Nigeria
Sector Convergence
Big data
Integration of new technologies
The biggest market is unserved
Youth trends
Sector Convergence
This refers to the amalgamation between different sectors. Because of the unserved demand for financial services, fintech is becoming relevant for players in other sectors.
Big data
Big data has the potential to be a silver bullet in Nigeria. Mobile payments and mobile/smart phone usage are allowing for data to be collected about the population of people we previously knew nothing about.
Fintech Companies can identify particular needs and demands in certain markets, which gives them a unique advantage in shaping the way financial services are being delivered.
Integration of new technologies
The innovative power of fintech in Nigeria is boosted by convergence of different technologies to resolve logistical and distribution challenges. In developed markets, there are exciting innovations in big data, internet of things (IoT), cloud computing and blockchain.
In Nigeria, we see the same innovations but they are more effective because they are integrated in one application. It is the convergence of these technologies that creates an accelerated rate of innovation.
The biggest market is unserved
Unlike elsewhere in the world, perhaps India, In Nigeria the biggest market is an unserved market. Nigeria has a population of over 190,000,000 based on the latest United Nations estimates, Youth population was estimated as 31.7% of the total population. According to The Global Findex Database 2017, only 40% of Nigerian adults have access to financial services. The implication is the fintech industry has more than enough room to blossom.
Youth trends
Because of the large population of youth to total population in Nigeria, Youth trends usually have advantages over more traditional institution. Fintech is widely accepted by youths (18 to 35 years) in Nigeria.
Challenges faced by fintech in Nigeria
Most Fintech Companies start as MSMEs
Most fintech companies in Nigeria start as micro, small and medium enterprises. The lack of start-up capital, lack of adequate man-power and poor governmental policies are some of the challenges faced by fintech companies in Nigeria.
Credit Bubble
Delivering financial services to the poor is something you have to do carefully. People who are here to make fast profit and don’t really care about the customer will seize these opportunities. There might be a surge in payday lenders and other consumer finance providers that operate irresponsibly, thereby creating a credit bubble.
Lack of Adequate Regulations
There is a pressing need for better regulation of the financial technology market in Nigeria and some form of code of conduct to ensure that customers are protected from harmful practices and served adequately.
ROLES OF FINTECH IN THE DEVELOPMENT OF MSMEs
Financial Inclusion
Financial inclusion means that individuals and businesses have access to valuable and reasonably priced financial products and services that meet their needs delivered in a responsible and sustainable way. Fintech has the capacity to reach the unbanked population because of the mobile phone globalization in Nigeria. Fintech is free of physical bank branches, it could be a game changer for millions of people.
Lending
Fintech has established innovations with the potential of increasing MSMEs access to finance. They can provided small businesses with funding where banks are reluctant or unable to do so. Fintech can bring together small enterprises with investors with high risk appetite. Crowd funding is a new trend used by financial technology companies to extend credit to micro, small and medium enterprises where these businesses are connected to a number of ‘Average Joes’ who are looking to invest in small businesses.
Ease of doing business
Fintech is a breath of fresh air to micro, small and medium enterprises because they have bridged the gap between these businesses and their customers. The ease and speed of making payments for goods and services have aided MSMEs immensely. Some Financial Technology companies now allow MSMEs to monetize receivables due quickly and effortlessly.
Some fintech companies in Nigeria
It’s already happening and we ain’t seen nothing yet.
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Browne, R. (2017). Everything you’ve always wanted to know about fintech, online CNBC News. Available at: https://www.cnbc.com/2017/10/02/fintech-everything-youve-always-wanted-to-know-about-financial-technology.html Accessed 13 Jul. 2018
Amer D, Baberis J and Buckley R. (2015) The Evolution of Fintech: A New Post-Crises Paradigm, online, Available at: https://papers.ssrn.com/abstract=2676553 Accessed 12 Jul. 2018
Hochstein M. (2015). Bankthink Fintech (The word, that is) Evolves, online American Banker. Available at: https://www.americanbanker.com/opinion/fintech-the-word-that-is-evolves Accessed 13 Jul. 2018
Theiyerreport.com, (2017). The Iyer Report Official Website. online Available at: http://www.theiyerreport.com/2017/fintech-where-did-it-start/ Accessed 13 Jul. 2018
Guerric.com, (2016) Fintech Revolution, How Start-ups Are Transforming Finance, online Guerric. Available at: https://guerric.co.uk/fintech/ Accessed 13 Jul. 2018
