Appzone Co-Founder and CEO Obi Emetarom interviews TEMITAYO JAIYEOLA on the impact of fintech on the payment system
The The Nigerian fintech space has evolved over the years and is driving innovation in the financial services sector. What do you think was his 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 when Fintech startups less than five years old achieved market valuations above some of the largest and most valuable traditional financial services providers in the country.
This demonstrates a significant growth in service adoption, but also a strong belief by the investment community in a future where the provision of financial services is led and potentially dominated by fintech players.
As for saturation, I wouldn’t necessarily say so. What we have seen is a situation where some fintech segments with lower barriers to entry have seen more product proliferation than others. While some other areas remain rich with opportunities for more innovation
Every fintech claims to want to bank the unbanked, but fintech services are mostly accessible on smartphones, and a large portion of the Nigerian population does not have a smartphone. How can fintechs really bank the unbanked? How can they promote financial inclusion?
First of all, not all fintech targets (or claims to target) the unbanked, although many do. Serving the unbanked requires enabling accessibility, reducing costs, adapting services and educating target customers.
Serving the unbanked also requires ensuring the reliability and security of technology-based distribution channels and ensuring that trust remains very high among target customers. That said, at Appzone we believe that an essential part 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 to access financial services.
Banks have started championing fintech solutions. Today, traditional banking is more innovative than ever. In your opinion, what is the future of the bank in five years?
The traditional banking sector will continue on its current trajectory of transformation over the next five years, however, some challenges will impact this transformation journey.
First, the shortage of talent and the perception of traditional banking brands will impact the speed of transformation, as digital transformation requires the availability of skilled teams to build innovative digital solutions.
Additionally, legacy cost structures related to human resources, brick-and-mortar, and even IT infrastructure could potentially prevent traditional institutions from remaining competitive against their digital-native competitors. Finally, digital currencies and decentralized finance are expected to drive a paradigm shift towards non-custodial financial services where customers do not need to deposit funds with a financial institution to access financial services.
Instead, clients will be able to hold funds in wallets on a Blockchain and have DeFI smart contracts executed on the same Blockchain to provide any form of financial services required. In Appzone, our belief is that in five to 10 years banking will become completely digital and decentralized based on Blockchain technology and banks will need to evolve accordingly in order to survive in this new dispensation.
Decentralized finance powered by blockchain technology is the next frontier of financial services, can explain how it works and how it will shape the industry?
The main paradigm shift associated with decentralized finance is that the currencies used have no physical cash equivalent and therefore do not need to be held as deposits by a financial institution. The ramifications of this change are considerable. For example, the barrier to becoming a financial services provider drops dramatically when deposit management is no longer a requirement. Additionally, when custody is not required, the cost associated with custody is eliminated and financial services can be used in a peer-to-peer fashion with automated smart contracts replacing banks as new and more intermediaries. efficient.
More generally, digital financial services in this paradigm will be much more reliable, secure and transparent than they are today due to the redundant and immutable nature of Blockchain. Digital financial services will also be richer in variety and much more innovative due to the open and collaborative nature of blockchain protocols.
What is Zone and how does it shape payment?
Zone is a regulated blockchain network that enables payments and issuance of digital currencies. Zone decentralizes the routing and settlement of digital payments between participating financial institutions. In other words, it allows banks and fintechs to connect directly with each other to process payments without an intermediary.
This architecture eliminates the points of failure 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 the Bank’s physical branches.
The 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, fund transfers, POS payments and withdrawals, web and integrated payments as well as cross-border remittances. Our roadmap is to expand the network to integrate banks and fintechs across Africa as we move towards our vision of having a global API to pay anyone, anywhere, in any what currency.
Can you share some of the particularities of the Nigerian payment scene compared to other African countries where you operate?
Compared to Nigeria, most other countries in Africa have to work with a more fragmented payment infrastructure. In most cases, payment networks or payment switches do not exist or are not fully functional. Instead, mobile money services have thrived in many of these markets as an alternative, even though mobile money platforms are not interoperable, meaning sender and recipient of a payment must maintain accounts or wallets with the same mobile money operator for the payment to be possible. . In general, Nigeria and a few other markets are far ahead of the rest when it comes to payment infrastructure and innovation as a whole.
Nigeria is a big crypto market; how will this help the adoption of formal “decentralized finance”?
The level of crypto adoption will certainly impact the adoption of regulated DeFi services simply because it demonstrates a level of awareness (and understanding) of the new digital asset class. That said, we expect a crucial driver of crypto adoption to remain the key driver of DeFi adoption, which offers better value for money. The significantly lower cost of DeFi services will result in lower funding costs and higher returns on investments which, combined with the legitimacy, protection and trust provided by regulation, will lead to widespread adoption in record time. .
On Defi, can you explain web3, the next phase of the Internet?
While web2.0 was about a centralized digital infrastructure where single central entities controlled the data and applications consumed by users and could therefore abuse this privileged position, web3 is about a decentralized digital infrastructure where the control of 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 these centralized authorities at the expense and risk of the users. In Web3, the trust layer is provided by the infrastructure at a much lower cost with little or no risk. We believe Web3 will revolutionize the Internet, one product and one industry at a time, starting with products and industries that rely heavily on trust and intermediation to operate.
Your company started out trying to build local technology solutions for financial institutions and commercial banks, how has that space evolved since you started?
The space has evolved very favorably for us in the sense that the appreciation for technology and digital delivery as well as the openness to innovation has increased dramatically over time, which has contributed to the adoption of our offers. In addition, the difficulties in accessing foreign currencies and the prevailing exchange rates have further reinforced the value of local solutions like ours where services are paid for in local currency. Finally, our large customer footprint and track record of success has greatly increased our brand credibility and the level of trust the industry has in our platforms.