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Banks trump fintechs in battle for instant credit

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… Access Bank hits N1bn daily disbursement

By AYOOLA OLAOLUWA

After a short spell of losing market share to rampaging Financial Technology (FinTech) companies, Deposits Money Banks (DMBs) operating in the country have displaced fintechs firms in the battle for market share and provision of instant financial services to customers, Business Hallmark findings can reveal.

It would be recalled that starting from the beginning of 2015, Fintech lenders redefined the Nigerian unsecured personal loan business. From small beginnings they grew to account for over a third of the personal loan balances in the country in 2018, according to figures released by the National Bureau of Statistics (NBS).

Led by industry trailblazers such as Flutterwave, Paystack, Interswitch, PayArena, PayLater, QuickCheck, Lidya, KwikCash, Paga, KongaPay and RenMoney, among many others, the fintechs made it possible for Nigerians to access top-notch financial services without stepping into a banking hall. Unbanked Nigerians with the desire to buy or sell online were provided access to quick and affordable banking operations just by using a mobile phone.

Also, with the rapid adoption of card payments in Nigeria, platforms like Interswitch, Flutterwave and Paystack made it easy for businesses to start accepting online payments with the click of a button.

To cap it all, fintechs fuelled the growth of alternative lenders by offering both higher yields to investors and faster, cheaper, more convenient loans for borrowers compared to traditional banks. Private lenders like RenMoney, Zedvance, PayLater, QuickCheck, KongaPay, and many others ploughed hundreds of millions of naira into alternative-lending space in Nigeria making it easy for anyone to access quick loans (business or personal) when needed.

Within a very short period, the future of banks was threatened, with many experts predicting that banks and other traditional financial services provider may lose 35 percent of their revenue to fintech companies by 2025.

According to Akinsope Roberts, Lead, Digital and Robotics Practice, Ernst &Young, the rise of fintechs could be traced to the realization by technology companies that they were getting low value from selling their services to the banks and the decision to provide such services themselves.

Also, PwC in its 2017 FinTech Survey Report said that over 62% of customers will use mobile applications to access financial services within the next five years.

“The face of banking has changed drastically. With the advent of phones, consumers, mostly youths, have been trained to look online for fintech lenders before they will look for a traditional lender.

“While banks were busy dozing, FinTechs seized the initiative with the deployment of IT enabled instant loans schemes. If you were told that you can pick up your phone and obtain a loan without visiting a bank and without collateral five years ago, would you have believed? Technology is power,” said Dr. Olabayo Smith, a senior lecturer in the Department of Banking and Finance, Lagos State University (LASU), while speaking on the new trend in the banking sector.

However, rather than throwing in the towel and allow themselves to be rolled over, money deposits banks took the battle to the new entrants by deploying the same strategy and technology the fintechs deployed to temporarily upstage them.

BH investigation showed that almost all the banks now give up to N5, 000, 000 loans at lower interest rates to customers without asking for collateral. The banks have also made borrowing money so easy that a customer can actually get a loan without any form of human contact with the lenders.

Gone are the days when salary advance, payday, overdraft, business loan, personal loan and the likes are not easy to obtain from different banks in Nigeria. To add icing on the cake, commercial banks offer lower interest rates on loans compared to fintech companies.

Although banks were somewhat slow in response to this new threat, the Central Bank of Nigeria, CBN, policy on deposit-loan ratio provided the catalyst that stampeded into action. Some of the banks had scoffed at the directive and virtually ignored it until the end of September 31, 2019, when the CBN actually debited 12 banks by the tune of N499 billion as sanction for noncompliance. The apex bank did not stop there; it raised the bench mark from 60 percent of deposits to 65 percent and set a new deadline for full compliance.

Banks were now in a race for survival and every quick lending option was being explored, and fintech strategy came in handy. With the new push by the traditional lenders, banks are now in firm control of the instant loans market, giving out billions of naira every day as loans. Checks revealed that UBA, GTB, Zenith and Access Banks are the leaders.

One of the leaders, Access Bank Plc, has over time, introduced several mouth-watering products to its customers. One of the products is the PayDay Loan. It was launched in partnership with Remita to aid the bank’s existing and potential depositors’ meet emergency needs, which may arise before payday.

The Access Bank Payday Loan is an instant loan product for customers (both salary and non-salary earners). With Payday Loan, a customer can borrow money at low-interest rates, with no documentation or collateral needed.

Features of the loan include a twenty four hours service that does not require visits to the bank; no documentation; no collateral and up to thirty-one (31) days tenor; 1% management fee, 4% flat interest on loan and 0.15% insurance, making 5.15% are payable upfront.

Since the launch of PayDay Loan as the flagship product, Access Bank has continued to expand its loan portfolio using its proven innovative algorithms and deep machine learning capabilities.

It launched a dedicated loan application platform known as QuickBucks in the third quarter of 2018, a mobile banking application for digital loans aimed at improving customers borrowing experience for retail loans.

Also, as part of its commitment to deepening digital finance, the bank went a step ahead to provide access to phone ownership as it launched a 12-month Device Ownership scheme where any salary earning customer can select a phone of his choice from its QuickBucks app and walk into any of its partner outlets across the country to pick up the phone.

According to Victor Etuokwu, Executive Director, Retail Banking, Access Bank Plc, the bank has been able to hit a record N1billion daily in loan value due largely to the overwhelming acceptance of its initiatives,

“We are at the forefront of digital lending across the continent. This is a deliberate choice we made when we introduced the first USD based digital lending product in Nigeria based on our deep understanding of our operating environment.

“In the past two years, we have disbursed over 3.5 million loans to individuals. We acknowledge it is no mean feat when compared to where the market is coming from, but this is still a scratch in the overall potential of this market.

“This year alone we have disbursed over N45billion in over 2 million disbursements to individuals and have recently witnessed a spike in our volumes hitting N1billion daily. This achievement and our focus on retail lending reiterates our commitment to democratize access to financial services leveraging digital technology”, declared Etuokwu.

Also speaking, the Head of Digital Banking Business Development, Access Bank, Chinedu Onuoha, said:

“Our objective is to ensure that there is a digital loan product for every adult Nigerian who has proven means of livelihood because we know that every individual at one point or another requires some form of financial support. Our flagship digital loan product, PayDay Loan, is tailored to help individuals meet their urgent cash needs. Though the tenor for this loan is 30 days, we also have loans with tenors of 3 months and 6 months.”

Access Bank’s digital loans are accessible 24hours a day and can be accessed via the short code *901*11#. Customers can also access it via Access Mobile App and the QuickBucks App.

Like Access Bank, UBA also introduced its own products. One of them is the ‘Overdraft’ to meet the needs of its numerous depositors. It is a short-term facility that allows a customer to overdraw a maximum amount of N3 million on his current account for up to six months, with a beneficiary having to repay 5% every month till the end of the six months tenor when the total outstanding must be repaid.

The bank’s target audience are executives, partners and mid-level management staff of reputable organisations in the private or public sector, who are confirmed and earn an after tax annual income of N5 million.

Guaranteed Trust Bank also launched Quick Credit to provide funds worth up to three months of salary in less than two minutes. As long as a customer’s salary account is domiciled in GTBank, he or she can get a minimum amount of N10, 000 and a maximum of N5million.

Quick Credit gives funds worth up to three months of an applicant’s salary at a competitive interest rate of 1.75% per month. There are no hidden charges incurred. The loan is meant for salary earners who have received monthly payments from the same employer for at least three consecutive months.

Requirements include: Applicants must earn a minimum of N10,000; all applicants must be at least 18 years of age; applicants should be less than 60 years old at the loan maturity date and an applicant must not have any current or unpaid loan from other banks on the Remita platform.

Quick Credit is also available on all GTBank online and mobile banking platforms (Internet Banking, GTWorld, GTBank Mobile App).

Likewise, Zenith Bank offers its depositors the Salary Advance loan, a scheme designed to finance short-term needs or expenses that may come up before the next monthly salary. It is available to confirmed and professional salary account holders of selected companies. With an interest rate of 26% per annum, which is 2.16% per month, the bank also charges a 1% flat Management Fee subject to a minimum of N5,000.

Requirements of salary advance loan include salary and allowances of applicant must be domiciled in Zenith Bank; indemnity clause giving the bank Right of Set-off in any other bank using BVN. (That means if, for any reason, the applicant defaults on payment, or Zenith Bank is unable to make repayment deductions as and when due, the bank has the right to recover the debt by accessing funds that the customer may have in other Nigerian banks, using the BVN), and applicants are able to borrow 60% of their monthly salaries.

A report by the Statistics Department of the Central Bank of Nigeria (CBN) obtained by our reporter on Friday, confirmed that bank’s unsecured credit to households increased in Q3 2019.

The Statistics Department of the CBN stated in its Credit Conditions Survey Report, “Demand for total unsecured lending from households increased in Q3 2019, and is expected to increase in the next quarter. Most lenders adduced market share objectives for this increase.”

Apart from technology and initiatives deployed by banks, another major factor that led to the decline of fintech companies is the high rate of default by loan collectors. The huge rate in default, according to findings, contributed to several fintech firms facing cash crunch. More shocking is the fact that some of these defaulters managed to escape scrutiny and still secured loans from other online platforms.

A financial expert, and Chief Research Officer at Investa, Ambrose Omordion, told BH: “Though, the Credit Bureau is making efforts to punish defaulters, it can only work on cases reported to them. I can tell you that most of these online lending platforms rely on persuasion to get defaulters to pay. They rarely apply the Credit Bureau option. It is only when that fails that they inform the Bureau.”

In her reaction, a financial expert, Dr. Olayinka David-West, said FinTech companies do not have the capacity to displace banks in their competition for market share and provision of financial services to customers.

She described FinTechs as small and innovative startup companies that develop financial technology and related products. “In practice, Financial Technology is not the exclusive domain of the FinTechs as more traditional banks, microfinance institutions and development organizations make use of financial technology.

Banks and other financial services providers are important actors in scaling up FinTech solutions. Scale is important, both financially and digitally, to include the vast amount of people and companies at the bottom of the pyramid.

“FinTechs have provided useful services, not only in point of view of complementarities with the formal financial services. In terms of helping the sector delivers its traditional services more efficiently. Even in terms of innovations that allows for partnerships or greater interface between various players.

“They have introduced a budding platform for innovation for the banking and financial services by their disruptive effect on the industry. It is going to be a challenge to the banks not by way of being driven off of rendering banking services. They are not going to displace bankers, but they are going to displace some banks definitely,” she stated.