Q: How would you describe the general landscape for digital financial services in Nigeria?
Dozie: We have formal banks licensed by the central bank – international and regional banks. Then we have microfinance banks, which were originally given licenses to serve the community. As a licensed bank, you are licensed to take deposits and once you're taking customers' deposits, you're under a higher level of scrutiny. Of course, the advancement of technology has completely changed the landscape. You have other players like the telcos who have PSB licenses and can provide basic banking services. But they must have physical outlets and they are not allowed to lend. You also have financial services providers who just lend, and you have payment fintechs.
So you have a situation now where many people do not actually know who is a bank and who is not a bank, who is licensed by the central bank and whose monies are insured. The central bank is beginning to do something about it. Some of the policies they came out with in the last few months are trying to address those [kinds of issues] issues that might create distrust in the market.
Q: What part of the market is Sparkle focussed on and what kinds of problems is it trying to solve?
Dozie: So what we have in Nigeria is at best 50% [of the population] that are banked. There are many reasons for this - access is one. In some areas in Nigeria you don't have many banks or they're too far for people [to reach]. From a digital perspective, the challenges you're going to have with customers will be affordability, knowledge and the biggest one is identity. You have a lot of people who are not identified in Nigeria, and if you don't have any identification it's very difficult for me to onboard you.
From a digital perspective, the challenges you're going to have with customers will be affordability, knowledge and the biggest one is identity. You have a lot of people who are not identified in Nigeria, and if you don't have any identification it's very difficult for me to onboard you
On the business side, it's estimated you have about 40 million small businesses in Nigeria. These small businesses do not have enough information [to access credit] and banks are not actually structured well to provide them with services. Most banks in Nigeria are good at providing services to high-end customers and big corporations, they have done well in that space. But where you have small businesses or middle-income people, they have bank accounts but they're actually under-banked. These are areas that Sparkle is trying to address.
When we started Sparkle, we built our solution from the ground up using open-source banking to build around what people are doing. Today, you will hear stats that say the formal sector is much smaller than the informal sector. The question I always ask is: if the formal sector is 20% and the informal sector 80%, which is the formal sector, really? We said OK, what are businesses doing today, can we build systems around them and can we actually help formalise them? Formalisation is just capturing data and identification.
Q: Is access to credit the main thing you help businesses with?
Dozie: One of the biggest challenges for small businesses is structure and business support services - payroll, inventory management, invoicing, taxation etc. We said we weren’t going to just provide banking services - anybody can provide banking services - we're actually going to integrate a business support solution into our system. We’ve focussed on mom and pop shops, we’ll help you start your business and we’ll help you grow your business.
Q: What does Sparkle’s approach look like on the retail side?
Dozie: I understand the capabilities and the strengths of traditional banks, but also the weaknesses in terms of how much you can do as a physical bank trying to serve millions of people. The biggest obstacle is culture. Most banks are commercially minded - they are not retail focused. Now for retail it's not a financial inclusion play for us, because it requires a lot of capital to serve the mass market. You must have extensive capital and an extensive network. So it's only the big commercial banks that can provide that. I think [financial inclusion] is a private sector and public sector initiative.
But we can use technology to create a great customer experience. Your middle-income typical customer who has a bank account, he has an account officer. Now that account officer helps customers with complicated services beyond over-the-counter. Maybe if they want an FX transaction or they want to apply for a loan, they go to the account officer. This is a costly and limited capability because it is very difficult for the account officer to serve more than 10 people. When we started Sparkle we created an intelligent chatbot, which is called Indy, that is going to be your personal assistant.
Now, with generative AI we're working with Deloitte and Google to actually build an intelligent chatbot that will make suggestions. So say I'm going on holiday in six months time, normally I'll come up with a budget and try to work out how much it's going to cost. Our vision is for customers to say: Hi Indy, I want to go to Ghana in the next six months, I want to go for three days and stay in a three-star hotel and do this and that. How much is it going to cost, and how much do I need to start saving? That's the future of banking for us. That's something that we're actually building.