In just under a few years, Nigeria has spawned many successful fintech start-ups, a trend observable across the African continent. Almost $65 million of nearly $200 million invested in African start-ups went to fintechs in 2017, with Nigeria accounting for a healthy chunk of that.
Within this category, wealthtech services such as robo-advisors and automated savings & investment products, are getting more attention. Wealthtechs essentially leverage technology to help people save and invest, often with smaller amounts than is possible on traditional platforms. One popular wealthtech allows users to automate their savings, and then invests these funds in high-yielding Nigerian treasury bills, giving them a healthy return on their savings.
As wealthtechs grow in influence and importance, we need to redefine the metrics by which they are judged. Put simply; they cannot be assessed on the same parameters that apply to traditional asset or wealth managers, such as the number of accounts and asset under management (AUM). The insufficiency of such measures has been pointed out by many economists and notable champions of financial inclusion like the Alliance for Financial Inclusion.
Creating a more robust measure—one centred on financial inclusion, the core element of wealthtechs—would help the industry thrive and achieve its goals. Focusing on high saving volumes and ignoring how they are spread amongst users can be dangerous, as a high AUM could be driven by only a few large accounts, making the business more vulnerable to single withdrawals.
Thankfully, the World Bank provides three benchmarks for measuring financial inclusion, and we can use these to assess the progress of wealthtechs in Nigeria: access indicators, usage indicators and quality of impact.
Access indicators measure reach. It is one thing to launch a wealthtech in Lagos, and it is another to have people in Maiduguri and Enugu also accessing it. Usage indicators measure how clients use the platforms. After people sign-up, how regular are their deposits? Etc. Usage is essential as it determines the impact the products have on the individual user. Unsurprisingly, usage is closely related to the quality of services offered, and the fit between user needs and product capability. For example, are Nigerian wealthtech products also suited for individuals with irregular earnings?
Hence, it is only wise that wealthtechs focus not just on expanding the customer base but also on effective usage. By doing so, they should avoid the problem of non-consumption, a situation where potential users of your product are unable to purchase or use the product for the desired task. For example, despite Nigeria’s obvious housing need, a house that requires a down payment of ₦5 million is unlikely to attract the average Nigerian as only a few can afford that amount.
But there are other challenges faced by Nigerian wealthtechs that could lead to non-consumption of their services. The four main ones are trust, low earning power, poor money management, and insufficient product education. Wealthtechs can overcome these by riding on the broader fintech wave which is making Nigerians more open to non-traditional financial platforms but would also need to become innovative in tackling these issues. Trust, in particular, is an essential element of savings products & financial management, and developing trust may require a more boots-on-ground strategy, in the absence of technological shortcuts. Alternatively, wealthtechs could establish relationships with established financial firms, an approach that could also expand their reach.
Achieving these would not guarantee success; users also need to be educated continuously until they become financially savvy. Furthermore, the medium of education should be adapted to the audience, e.g. hosting sessions on platforms like WhatsApp. Perhaps a more robust method would be partnering with influencers who are educated about the product and then share the information with their circle.
One challenge that Wealthtechs in Nigeria are likely to face for the foreseeable future is the low-income profile of the country. Nigeria has a low savings rate, and part of the reason is that many Nigerians are too poor to save consistently. Moreover, low-income earners are more likely to have bad financial habits or neglect to use wealthtech platforms. This customer group may be best served by providing financial clinics—online and offline—to help develop financial responsibility and boost earning capabilities. To do this, wealthtechs would need to leverage sound financial minds to serve this purpose, a change from their current tilt towards technology expertise.
Wealthtechs can borrow a leaf from older fintechs which have built cultures where they actively try and help their customers become more business savvy. Essentially, Wealthtechs must follow the advice from How Google Works: “Instead of fighting over market share, grow the market for everyone”.
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