Why you should care
Inflation-weary Nigerian millennials are turning to a series of digital savings platforms rather than banks.
You can usually find Yewande Oyebo in her little Lagos office space, designing bags, notepads and mugs — her earphones plugged in, the world shut out. She can afford that sanctuary. In 2017, she quit her job in a global tech company to launch Ankara, her lifestyle brand. But a year earlier, she had signed up on PiggyBank, a digital platform designed to help Nigerian millennials save. That made the move from a steady income to the uncertainty of entrepreneurship easier.
Before joining PiggyBank, Oyebo would manage to save only sporadically. But a few months after signing up, she started setting more ambitious goals: to fund her lifestyle brand, to travel, to buy a car. And for the most part, she has met those goals. And she’s not alone.
Barely out of one of its worst recessions in recent decades, Nigeria’s economy is struggling, and rising inflation has stifled the ability of Nigerians to save. There is hardly enough money to spend, and Nigeria’s commercial banks, which bundle savings accounts with checking accounts, don’t make it easier to maintain separate savings.
PiggyBank has taken a different approach to customer service and is not failing in its promises.
Seun Oyajumo, investment analyst
But from this crisis is emerging a series of fintech platforms that are helping young Nigerians save better. There’s PiggyBank, which launched in 2016 and works on simultaneously securing money and instilling financial discipline. Customers earn a minimum of 6 percent annual interest, and if they keep their savings longer, can secure even higher returns. Between 2016 and 2017, it built a savings customer base of more than 53,000 registered users. CowryWise, which started in July 2017, combines digital savings and investments with wealth management, all online. Over the past year, its user base has grown 30 percent month-on-month. Alat, launched in May 2017, describes itself as Nigeria’s first digital bank. Diamond Bank, a retail bank, in 2016 launched what it calls the Diamond eSUSU platform, modeled after Esusu, a traditional West African contributory and rotational savings practice.
Their strategies vary, but they share a common core market: Nigerian millennials. And they’re tapping distrust of Nigeria’s commercial banks while leveraging the digital comfort enjoyed by this demographic.
“Most millennials couldn’t be bothered to save in banks because there is a general distrust of the banking system in Nigeria,” says Seun Oyajumo, an investment and venture analyst, before arguing that digital savings platforms like PiggyBank appear to be clicking with this section of Nigerians better. “PiggyBank has taken a different approach to customer service and is not failing in its promises.”
A year since launching CowryWise, founders Razaq Ahmed and Edward Popoola aren’t sitting at ease, despite the rapid growth in their customer base. Because of the volatility of Nigeria’s economy — Africa’s largest — Ahmed emphasizes that just savings aren’t enough. In addition to savings, CowryWise offers financial advisory services. “Because the Nigerian economy doesn’t run as optimally as it is supposed to, saving will never be enough,” says Ahmed. “Arming people with knowledge of finances is something that needs to be done.”
Indeed, some financial advisers are questioning the rationale of these digital savings initiatives. Over the first half of 2018, Nigeria’s inflation rate has hovered between 12 percent and 15 percent — higher than the best savings rates any of the fintech startups can provide. “It makes no sense, these platforms do not help as much [as some suggest],” says Oseremen Irabor, a financial risk associate with a Nigerian consulting firm. He acknowledged that these digital platforms offer far better savings opportunities than commercial banks, but to him, investing in market-linked funds is the way to go. “Do not invest your money in anything lower than the inflation rate,” he argues.
But other financial consultants see this first wave of fintech savings platforms as trendsetters, harbingers of change that Nigeria desperately needs. They could provide “a trigger for other opportunities,” says David Apaflo, the CEO of Shelze Consulting, a Lagos-based tax and finance advisory.
These digital savings startups aren’t offering one-size-fits-all solutions either. Alat borrows from the playbook of British digital-only bank Monzo and allows customers to lock in funds for special savings purposes. PiggyBank’s basic service allows users to set a minimum time period — in some cases, as little as a month — for which they won’t withdraw money they put in. These savings earn at 6 percent interest annually on average. But the firm also offers a Safelock feature — effectively a fixed deposit that accrues interest of 10.95 percent annually and allows a withdrawal of funds once per quarter. The firm’s exponential early growth suggests it has struck a chord with Nigerian millennials. Nearly 60 percent of its users are Nigerian millennials who have collectively saved in excess of $5 million — representing a savings growth of 3,000 percent.
In May of 2018, the company announced that it had secured seed funding of $1.1 million from high-net-worth individuals led by investor Olumide Soyombo, and with participation from international and Pan-African investors such as Village Capital and Ventures Platform. Odunayo Eweniyi, co-founder and COO of PiggyBank, says the company plans to use this funding for product development and the acquisition of a banking license from the Central Bank of Nigeria.
Getting the country’s central bank to assist, rather than frustrate, their efforts remains a challenge for these startups. Some coming central bank policies, such as mandatory banking licenses and tougher Know Your Customer regulations, could hurt the growth of these digital savings platforms, says Oluwatosin Ajani, a Lagos-based economist. These digital services are also dependent on cloud infrastructure. Any glitches in telecom networks used for data transfer could bring their work to a standstill. “These businesses operate based on trust,” says Ajani. “[If] the customers lose trust in your ability to safeguard their money, [it’s] the end of the business.”
But these platforms are targeting an audience that also expects the government to improve their access to broader digital infrastructure services. A Nigerian population that increasingly owns smartphones is internet and social media–savvy, and trusts technology. What they don’t trust is traditional banks. And it’s those banks that these digital savings platforms aim to substitute.