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‘Freedom’ and free transactions: How Nigerian digital banks want to gain your attention



Digital banks like Kuda, Rubies and ALAT, with their promise of ease and no bank charges, talk a big game about solving the problems people have with traditional Nigerian banks.

“Freedom” is a common theme in their marketing language. They believe they can build profitable businesses without fees customers consider unfair.

It is a contrast to what users say about traditional banks.

Some of the common complaints customers have about Nigeria’s traditional banks include questionable charges and slow issue resolution. Another complaint is unreliable mobile apps and USSD codes.

Temitayo Ekundayo, Chief of Growth at Printivo, is familiar with bank hassles as he maintains five accounts with some of Nigeria’s biggest banks.

He is often frustrated by poor communication and what he describes as a lack of empathy in resolving issues. 

“It often feels like the focus of banks is on marketing rather than fixing core issues,” he told TechCabal.

His frustrations are familiar, as I recently tried to open a second bank account. 

What does it take to open a bank account with a traditional Nigerian bank? A 3-page form, a recent copy of your utility bill and two passport photographs. 

The process needs two bank visits. For a debit card, you will need a third visit. 

Do banks actually need extensive documentation?

For the average person, three visits and a few documents is a lot of friction. Regulatory issues explain some of the friction.

Samson Dauda, who has 11 years of experience in retail banking operations and is the co-founder of BanKai, a P2P banking platform, told TechCabal: “Nigeria’s Central Bank asks banks to keep transaction records for up to 3 years and account details for up to 6 years after the end of a banking relationship. The banks haven’t figured out how to digitise the process. This is why they keep using paper, which is expensive, bulky and difficult to store.”

Another risk with paper is losing customer data. It raises the question of why banks aren’t digitising the process. The answer, again, is in regulations. 

“If a regulatory or law enforcement agency requests a document, it has to be “sighted” by a bank officer as an attestation. Customer data can be lost, stolen or altered in this process and in fact this happens a lot,” Dauda added.

Digital banks, as their names imply have a digital-first approach to collecting your data.

For my first digital banking experience, I tried two digital banks: Rubies and Kuda. While Kuda launched since 2016, Rubies (not to be confused with UBA’s women-focused Ruby) launched in March 2019.

It took me six minutes to download the Kuda app and get my account number. Meanwhile, Rubies let me customise my account number.

For both apps, the basic details required include a phone number and an address. Kuda requested for two extra details: my BVN and a selfie.

Across both apps, “upgrading” your account, which raises your account limit past N300,000 ($827) will need official identification.

At the moment, Kuda and Rubies only offer current accounts, with a savings product within the app. By comparison, the UK based digital bank, Monzo is more robust, with current, business and joint accounts. It also has features like Bill pots and a salary sorter.

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Anu Olatunji, a Nigerian lawyer based in the U.K, who uses Monzo told TechCabal that apart from ease and convenience, digital banks in the U.K also appeal to prospective customers with creative debit cards. 

“Digital banks in the U.K talk a lot about convenience but people also like their cards,” she said. “Monzo issues pink cards, N26 is metal and Starling is black. People like those different colours. They deliver the cards a few days after you apply,” Olatunji added.

Meanwhile, in Nigeria, traditional banks have made some headway with card issuance. It used to be impossible to get a debit card immediately. Today, while you still need to fill out a form, most banks issue debit cards on the spot at their physical branches.

With Kuda, Rubies and ALAT, the process is also simple but paperless. You provide your address and your debit card gets sent within the week. 

Are cheaper transfer charges the primary appeal?

Even with improvements in the ease of banking, digital banks go a step further and offer free and discounted inter-bank transfer fees to users. It is another way they’re looking to convince users to sign up.

While traditional Nigerian banks charge N52 on all inter-bank transfers, Kuda bank provides free transfers for the first two bank transfers in a month and N10 for subsequent transfers. Rubies charge a flat N21 on all inter-bank transfers.

Earlier this month, fintech platform, OPay stopped offering bank transfers at N10. Instead, it increased transfer fees to N45 and 1%  cap on all transactions. The reactions from customers were as quick as they were unpleasant. 

The company responded by reviewing its processing fee structure, but it remains higher than most transactions on banking apps.

So will digital banks increase processing fees in the future?

Kuda told TechCabal: “We have no plans of taking that route in the foreseeable future. We, like other banks, also make money from fees sellers pay when people use their Kuda Cards on their POS terminals (this is very different from the new N50 POS tax). And in the future, we stand to make money from interest paid on loans we give out.”

The company also states that keeping transfer fees affordable will not affect profitability. 

“Our sources of income are more than enough to keep us profitable for the foreseeable future, particularly because we’ve sidestepped the heavy overhead costs of running physical branches by being a full-service digital-only bank licensed by the Central Bank,” Kuda said in an emailed statement.

Their claims check out given their minimal overhead cost. Traditional banks have to deal with the cost of branch operations and huge wage bills.

Digital banks need time to catch on

Despite these assurances, digital banks still have work to do in winning people over. 

Morenike Ademiju, a legal and compliance officer, told TechCabal she doesn’t use any digital bank because cheaper transfer rates do not matter to her.

“The truth is that the original bank rates aren’t significant to me. Even if I use a digital bank, the transfer cost it saves is less than N500 per month.”

Even with the stress of traditional banks, she is not convinced. “For the inconvenience that happens with my bank, I find these issues quite annoying but they don’t happen that often. Most times, I send an email and it’s resolved in a few days“ She added

She doesn’t speak for every millennial but one thing is clear: digital banks need to deepen their offerings.

A robust service offering will make their case beyond letting users send and receive money. 

Dauda, of BanKai, believes the digital banks are going about it the right way. “These guys have MFB licences and can access cheap funds. But I like how they’re growing their user base, there’s a promise of excellent service delivery that’s been sold, not loans from the get-go.

“Contrast that with Carbon or PiggyVest. The former grew with instant loans, the latter with instant savings and higher interest rates. Both are now expanding into similar verticals after gaining traction,” BanKai said.

But there seems to be another hurdle: the Nigerian preference for physical, brick and mortar structures. 

The Nigerian distrust of all things digital 

It takes a few questions before people mention that one reason they don’t use digital banks is the absence of physical structures. In Nigeria’s low trust society, physical structures mean permanence.

Wunmi Kolawole, who runs the fashion brand, Shoepify told TechCabal: “I’m not satisfied with the banks I use but I’m not about to add to the present headache. With my bank, I can go to the banking hall when I have issues. With this digital bank, where will I go and fight when my transactions fail?”

How do you solve a low-trust problem?

There are two solutions to a low-trust problem. The first is to inform people about your product in clear and consistent terms. 

Dalu Akabogu, an Investment Analyst who doesn’t use a digital bank told TechCabal: “There is so much people don’t know about these banks. They need to sensitise people on these questions even if they seem obvious. People want to know things like if they’re insured by NDIC or what is in it for them beyond bank charges.”

When prospective users are informed, the second solution is staying power. They will look to fintech player, PiggyVest for inspiration on staying true to promises over time as a way of winning trust.

As long as they stay operational and clearly inform and educate their prospective users, digital banks will catch on.

The post ‘Freedom’ and free transactions: How Nigerian digital banks want to gain your attention appeared first on TechCabal.

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Why your favourite African startups are incorporating abroad



Venture funding in Nigeria’s tech industry has been growing over the years. Yet most investments have come from funds domiciled abroad. Although VCs are increasingly launching funds aimed at investing in Nigeria and other African startups, only few of them keep their funds in Africa. And this has implications on how startups secure funding and how they make business decisions like where to incorporate.

Tosin Oni, a Principal at Nigerian VC firm, EchoVC, explains to TechCabal that there are two reasons why VCs domicile funds outside Nigeria and many African countries.

First, the uncertain regulatory environment in Nigeria is a major headache for investors. “Many investors are worried about any clampdowns by governments in emerging markets where they operate,” Oni said.

Nigeria has maintained tight rules on financial activity designed to prop up the Naira. Dollars could come into the country’s financial system easily, but getting it out is a quagmire. “If you bring dollars into an African country, it is difficult to get it out, so the liquidity is not as good,” said Bdioui Ilyes, the Chief Finance Officer and Partnerships at the African Development Bank (AfDB). It’s not the ideal situation VCs investing in multiple countries across Africa would fancy.

“So domiciling funds in an offshore country helps to forestall the risk or possibility if that,” Oni added.

A second explanation is that offshore countries are natural habitats for investors. Countries like Seychelles and Mauritius, although African, have the climate and the favourable laws that allow global investors to operate effectively. “This becomes the preference for would-be limited partners who would rather do business in a climate and whose laws they are familiar with,” Oni explained.

“It further provides comfort to investors who prefer to invest in climates they understand and can predict.”

In a 2017 article on TechCabal, Olubunmi Abayomi-Olakunle explains that “many foreign investors are unfamiliar with the dynamics of local tax and regulatory frameworks.”

“They reflexively fall back on a familiar offshore parent structure, even though these structures may sometimes be bad for the long term interests of the operating company.”

But really, does it matter? Should the location of a VC fund have any impact on startups? Yes, it matters big time.

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VCs consider a number of things when investing, including taxes and regulatory oversight during exits. But because Nigerian and many African legal and financial systems are too “dynamic” and uncertain, VCs choose to invest in startups incorporated abroad. Think US, UK, Europe or at a Mauritius incorporated startup.

Some others are comfortable with investing in local startups and may go on to set timelines for these companies to reincorporate in foreign jurisdictions to enable them to attract more funding from investors. Explaining a typical startup dilemma, Ilyes shares that: “If you are a company in Ghana [or any African country] with a scalable solution and you are targeting angel investors, some of the investors will tell you that they are not going to put my money in a corporation that is domiciled in Ghana.”

“So open up a company in London that owns 100% in the Ghanaian company and then I invest through the London company or HQ or vehicle’”

So it’s no surprise to find out that some of your favourite Nigerian and African startups are actually foreign by incorporation. Andela, Paga, Flutterwave, Paystack, Branch, Tala, SureRemit (Seychelles), among many others; and Jumia isn’t an exception. These startups have incorporated in San Francisco, Delaware, Mauritius, or other non-African jurisdiction that has business-friendly investment laws.

But a new trend has been on the rise regarding funding activity. A growing number of Africa-focused funds are emerging, with many of them led by African managers. Meanwhile, other funds are expanding their local operations on the African continent, either by opening new offices on the continent or investing more in Africa-focused startups. Whether this will flip the script and get more funds domiciled locally is a bit of a stretch.

However, Oni is betting that this trend will continue. And if it does it could make them reconsider where they domicile funds. “One thing we know that rings true is that LPs typically require fund managers to be domiciled in the regions they wish to invest in,” he said. 

For the meantime, capital hungry startups will continue to incorporate until the continent becomes business-friendly.

The post Why your favourite African startups are incorporating abroad appeared first on TechCabal.

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Why Buhari can never stop borrowing foreign loans – Ministers, Fashola, Ahmed



The Ministers of Finance, Zainab Ahmed says the President Muhammadu Buhari-led Federal Government can not stop borrowing to finance projects.

Ahmed explained that there was an urgent need to fund the 2020 budget to improve infrastructural development and create jobs, hence the need to borrow.

She stated this on Tuesday while appearing before the House of Representatives Committee on Aids, Loans and Debt Management to defend the loan request of $22.718 billion presented to the Senate by Buhari.

Ahmed said: “We need to invest in roads, rails, and to be able to grow at a growth rate better than how we are growing now. The loans are strictly for infrastructure development. So that we can address the deficit that we have. We know we must comply with some criteria.”

She also dismissed fears over the loan, saying that “Nigeria does not have a debt sustainability problem but revenue challenge.

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Also speaking, the Minister of Works and Housing, Babatunde Fashola, assured that every money borrowed would be judiciously used for the purpose they were gotten.

Fashola stated that the government could not ignore the infrastructural development needed in Nigeria.

He said: “It is right to have this hearing because we cannot ignore the concerns of the members of the public over the debt profile of the country.

“As we cannot ignore the concerns about debts, so we cannot ignore the concerns and demands for the provision of life sustaining infrastructure.

“So, everybody wants a road, everybody wants a rail project, everybody wants a port and efficient airports.

“They want to ensure that our ports are efficient so that business can function more effectively, so that clearing of goods can happen more quickly and cheaply.”

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Jiji raises $21 million as competition with OList grows stiffer



Jiji, the Nigeria-based classifieds listing company, has raised $21 million Series C funding from six investors. The round was led by Knuru Capital, an Abu Dhabi-based venture capital fund that focuses on late-stage companies.

Founded in 2014 by Ukrainians Anton Wolyansky and Vladimir Mnogoletniy, Jiji is one of the biggest classifieds listing company in Africa. It operates several categories primarily designed to help people buy and sell items and services.

It is the biggest classifieds platform in Nigeria with over two million listings and millions of users. In April it acquired its biggest competitor, OLX, a Naspers-backed company for an undisclosed amount. That acquisition allowed it to expand to four other African countries namely Kenya, Ghana, Tanzania and Uganda. Together, these five countries have a potential market size of 400 million people.

According to the company, the new raise will be used to increase engagement and acquire more customers to the platform. It also wants to develop better technology for listing categories. Importantly Jiji is hoping the new technology will match users with the right adverts, especially real estate adverts. Alongside vehicle sales and electronic sales, real estate is one of Jiji’s biggest revenue stream and listing.

Now, in October, TechCabal wrote about the challenges of finding a house in Lagos. While there are a couple of real estate platforms, Jiji is an important platform for people seeking to rent. But the platform doesn’t allow users to complete transactions online. So when people find a house on Jiji, they can’t pay the rent online. This makes it easy for real estate agents in Nigeria to simply deceive people with images of good houses that are sometimes no longer on the market.

Jiji’s cofounder, Mnogoletniy, says the platform has made a lot of efforts to control fake listings. “We were able to eliminate a high percentage of fraud listings and estimate fraud listings at less than 1%,” he told TechCrunch. He said there have also been some conversations about adding other services like payments to their portfolio, although no concrete plans have been reached.

Nevertheless, Jiji’s latest funding round comes at a time when the company is facing new competition from different directions. Its biggest competitors are online services that are providing specialised services for one of Jiji’s categories.

For instance, Jiji operates categories for car sales and real estate. But Cars45, a Nigeria based platform, allows specialises in car sales and provides other services such as valuation and car verification. Cars45 is backed by Frontier Car Group (FCG), a company that recently raised $400 million.

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Fibre, Spleet and Muster are all real estate platforms that help people to find good houses in different parts of Nigeria. These startups cut out the real estate agents and allow users to pay rents online and digitally manage their dealings with landlords.

With their specialised services, the existence of all four companies could cause Jiji to lose some users in the real estate and car sales category.

But Jiji’s latest headache is not even these specialised services, it is from OList, a classifieds clone operated by Opera.

OList is still less than six months old but it is already positioning itself as a strong player in the Nigerian market. According to Opera, OList now boasts over one million listings and is growing aggressively thanks Opera’s strong suite of services and market presence.

“OList has benefited a lot by having Opera browser traffic that’s also why we actually are growing so fast in such a short time frame and growing,” said Opera’s Chief Operating Officer, Lin Song in Opera’s third quarterly earnings call.

But the Norwegian company has deeper plans for OList. Lin says OList is “quite ambitious” and says “instead of doing a bit more high level, like a simple app initiative… I think it makes sense for companies like us to go even deeper in the transaction level, to be able to smoothen the whole transaction flow, to ease the user pain points, not just selling some simple ads.”

So like Spleet, Muster and Fibre, OList has an eye on Nigeria’s real estate market and wants to provide specialised services for this vertical.

The “Nigerian real estate market alone represents a $20 billion market annually, which however is both inefficient and fragmented, and we think we can play a key part there,” Lin told investors in the call.

So for Jiji, Opera’s OList is a challenger it has to be wary of. Mnogoletniy, Jiji’s co-founder, has already dropped some subtle shades at its competitor.

“We’ve spent five years and raised $50 million to build Jiji to where it is today,” he told TechCrunch. “It would take $50 to $100 million for these others to have a chance at building a similar business.”

Backed by a new $21 million funding, Jiji appears to be posturing and asserting its lead. But Opera has an aggressive agenda for its verticals, it won’t back down easily.

The post Jiji raises $21 million as competition with OList grows stiffer appeared first on TechCabal.

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