FinTech companies seize the moment as Nigerian banks embrace digital lending. They hope to use their competitive advantage of having the lowest lending rates in the market to draw in business from smaller banks with higher interest rates and possibly from other digital lenders by developing stand-alone digital lending apps.
FinTech Companies Seize the Moment as Nigerian Banks Embrace Digital Lending
TechCabal revealed on January 17 that the Central Bank has granted the preliminary license for Access Holding Plc, the parent company of Access Bank, to introduce Oxygen X, a stand-alone loan product. A reliable industry source claims that other banks are in talks to launch their standalone digital lending businesses, despite “Access” being the first holding company to venture into this space.
An unidentified insider expressed doubts about the banks’ saying: “Banks may launch their apps, but they don’t have the mastery of execution that fintechs have. Banks will possibly drop the ball. I am not betting on any banks to win in the market.”
This opinion is similar to the doubt expressed by insiders in the fintech industry when traditional banks first joined the field. But Habari Pay, the fintech division of Guaranty Trust Holding Company (GTCO), announced ₦1.3 billion in earnings for the first half of 2023, indicating that conventional banks might be able to make it in digital financing.
The Federal Competition and Consumer Protection Commission (FCCPC) has approved about 211 digital lenders
Startups like Carbon, FairMoney, and OPay are currently dominating Nigeria’s digital lending sector and serving an increasing number of customers who prioritize digital platforms. About 211 digital lenders have been approved by the Federal Competition and Consumer Protection Commission (FCCPC), the nation’s regulator of digital lending. These firms are well-known for their streamlined lending procedures, which allow people to obtain loans with less onerous Know Your Customer (KYC) standards in just a few minutes.
But there’s a price for the ease these digital lenders provide. Many of them have annual interest rates as high as 30%, while banks like GTBank offer rates that are roughly 21% through their digital lending platform, QuickCredit.
Reasons for the Variation in Interest Rates
Differing financing costs can be the reason for the variation in interest rates. Fintech companies sometimes rely on debt or venture capital, yet traditional banks have sizable client deposits from which to lend. Furthermore, the lack of data points available to digital lenders influences their lending decisions, which raises the risk a little bit and is reflected in interest rates.
Another issue that lenders face is the expense of debt collection. An industry insider claims that because traditional banks are unable to use some of the aggressive loan recovery strategies used by Internet lenders, they may be at a disadvantage in this regard. Traditional banks are using their ability to offer lower interest rates as a competitive advantage to take on fintech.
Banks Introduction to QuickCredit One of the most inventive Loan products of the Past Few Years
A typical bank introduced QuickCredit, which is perhaps one of the most inventive loan products of the past few years. Now that banks are required to lend, they have been cautious about doing so, especially when it comes to small firms and individuals.
Banks focus their lending efforts on high-quality borrowers, including salaried individuals employed by respectable companies, rather than the mass market, which has a higher default risk. According to a former bank executive, traditional banks’ foray into the digital lending space won’t be revolutionary unless they give up on their antiquated lending procedures and adopt a data-driven strategy.
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