The Co-Founder and Chief Executive Officer, Appzone, Obi Emetarom, speaks with TEMITAYO JAIYEOLA on how fintech is impacting payment system
The Nigerian fintech space has evolved over the years and is driving innovation in the financial service sector. What do you think has been its most defining moment? And as a follow-up, do you think there is now a saturation of fintech solutions in the market?
Without a doubt, the most defining moment for me would be the point where Fintech start-ups less than five years old achieved equity valuations more than some of the largest and most valuable traditional financial services providers in the country.
This demonstrates significant growth in service adoption but also a strong belief by the investor community in a future where financial services delivery is being led and potentially dominated by fintech players.
With respect to saturation, I wouldn’t necessarily say so. What we have seen is a situation where certain fintech segments with lower barriers to entry have experienced more proliferation of products than others. While certain other areas remain rich with opportunities for more innovation
Every fintech claims to want to bank the unbanked but fintech services can majorly be accessed on smartphones, and a huge section of the Nigerian population do not have smartphones. How can fintechs truly bank the unbanked? How can they drive financial inclusion?
First of all not all, fintech’s target (or claim to target) the unbanked even though many do. Banking the unbanked requires enabling accessibility, lowering cost, adapting services, and educating target customers.
Banking the unbanked also requires guaranteeing the reliability and security of technology-enabled delivery channels and ensuring that trust and confidence remains very high among target customers. That said, we at Appzone believe that a critical component of financial inclusion is digital payment. Full adoption of digital payment implies that every member of the population has some form of account or digital financial instrument through which to access financial services.
Banks have begun to champion fintech solutions. Today, traditional banking is more innovative than ever before. What do you think is the future of banking in another five years?
Traditional banking will continue its current trajectory of transformation over the next five years, however, certain challenges will impact this transformation journey.
First, talent shortages and the perception of traditional bank brands will impact the speed of transformation since digital transformation requires the availability of skilled teams to build innovative digital solutions.
Also, legacy cost structures tied to human resources, brick, and mortar and even IT infrastructure could potentially make it difficult for traditional institutions to remain competitive against digital native competitors. Finally, digital currencies and decentralised finance are expected to effect a paradigm shift towards non-custodial financial services where customers don’t need to deposit funds with a financial institution in order to access financial services.
Instead, customers will be able to hold funds within wallets on a Blockchain and have DeFI smart contracts running on the same Blockchain provide any form of financial services required. In Appzone, our belief is that in five to 10 years, banking will become completely digital and decentralised based on Blockchain technology and banks will have to evolve accordingly in order to survive in that new dispensation.
Decentralised finance powered by blockchain technology is the next frontier of financial services, can explain its workings and how it will shape the sector?
The major paradigm shift associated with decentralised finance is that currencies being used do not have any physical cash equivalent and consequently do not need to be held as deposits by any financial institution. The ramifications of this shift are far reaching. For example, the barrier to becoming a financial service provider drops significantly when managing deposits is no longer a requirement. Also, where custody is not required, the cost associated with such custody is eliminated and financial services can be utilised in a peer-to-peer fashion with automated smart contracts replacing banks as new and more efficient intermediaries.
More generally, digital financial services in this paradigm will be a lot more reliable, secure, and transparent than they are today because of the redundant and immutable nature of the Blockchain. Digital financial services will also be richer in variety and a lot more innovative because of the open and collaborative nature of blockchain protocols.
What is Zone and how it is shaping payment?
Zone is a regulated blockchain network that enables payments and issuance of digital currencies. Zone decentralises the routing and settlement of digital payments between participating financial institutions. In other words, it allows banks and fintechs connect directly with each other to process payments without an intermediary.
This architecture eliminates the failure points and costs associated with intermediaries in traditional payment networks. It also ensures that when customers are debited for failed transactions, reconciliation can happen instantly, and customers can get a refund immediately and without having to complain at physical Bank locations.
Zone is now licensed as a payment switch by the CBN and connected to most commercial banks in Nigeria with the ability to process various types of payment transactions including ATM withdrawals, Funds transfers, POS payments and cash-outs, Web and In-app payments as well as cross-border remittances. Our road map is to extend the network to incorporate banks and fintechs across Africa as we build towards our vision of having one global API to pay anyone, anywhere, in any currency.
Can you share some of the peculiarities of the Nigerian payment scene when compared to other African countries were you operate?
Compared to Nigeria, most other countries in Africa have to work with more fragmented payment infrastructure. In most cases, payment networks or payment switches either don’t exist or are not fully functional. Instead, mobile money services have flourished in many of these markets as an alternative even though mobile money platforms are not interoperable which means that both sender and beneficiary of a payment have to maintain accounts or wallets with the same mobile money operator for payment to be possible. In general Nigeria and a few other markets are by far ahead of the rest regarding payment infrastructure and innovation as a whole.
Nigeria is a big crypto market; how will this help the adoption of official ‘decentralised finance’?
The level of crypto adoption will definitely impact the adoption of regulated DeFi services simply because it demonstrates a level of awareness about (and understanding of) the new digital asset class. That said, we expect that one crucial driver of crypto adoption will remain the key driver of DeFi adoption which is better value for money. The significantly lower cost of DeFi services will translate to lower financing costs and higher returns on investments which when combined with the legitimacy, protection and trust provided by regulation will lead to mainstream adoption in record time.
On Defi, can you explain web3, the next phase of the Internet?
Whereas web2.0 was about centralised digital infrastructure where single central entities controlled the data and applications being consumed by users and hence could abuse such privileged position, Web3 is about decentralised digital infrastructure where control over data, applications, and digital assets that form the content of this infrastructure is not controlled by any single entity.
In the old paradigm, a layer of trust had to be provided by such centralised authorities at the cost and risk of users. In Web3, the trust layer is provided by the infrastructure at a much lower cost with little to no risk. We believe that Web3 will revolutionise the internet one product and industry at a time starting with products and industries that rely heavily on trust and intermediation to function.
Your firm started by trying to create local technology solutions for financial institutions and commercial banks, how has that space evolved since you started?
The space has evolved very favourably for us in the sense that appreciation of technology and digital delivery as well as openness towards innovation has increased significantly over time which has helped the adoption of our offerings. Also, challenges with access to foreign exchange and prevailing exchange rates have further reinforced the value of home-grown solutions like ours where services are paid for in local currency. Finally, our large client footprint and track record of success have significantly increased the credibility of our Brand and the level of trust that the industry has in our platforms.