10 predictions for digital payments in 2023

2022 was full of surprises, challenging even the most seasoned predictors. Here are my top 10 predictions for 2023, from fintech battles to regulatory shifts and market consolidations.

2022 was the year that took everyone by surprise – it was the year that soothsayers like me got rapidly defenestrated because, to be frank, our predictions are educated guesses. I’m not sure a thousand random monkeys would have done worse.

If someone told me that tech valuations would have such a bad rout, I would have bet my entire savings and two of my limbs.

I’m not sure the future look-see would be any different this year.

Nevertheless, to err is human but to predict is also human. So, let’s do it.

#1 CBN loses the cashless war. Again.

When the Central Bank of Nigeria came out with the new Naira notes and cashless policy to go with them, like bread and butter, every smart person hailed it as one of the best policy approaches to drive adoption of digital payments. But then I was publicly cautious that cash isn’t something that gives up easily. Unfortunately, the CBN lost the initiative by not properly managing stakeholders, and with the help of corrupt politicians, cash will probably win this round.

#2 Telcos lose the USSD war. Again

Banks have refused to play ball with telcos as far as paying for USSD sessions is concerned. And trust me, it’s not a valid game as the arguments from the telcos to make banks pay for USSD are so asinine I wouldn’t understand why they are even dragging banks into it in the first place. Banks won the round but the telcos are threatening to come back again. This time around, the banks will spank them, even with MTN and Karl in the ring, decisively and conclusively.

#3 Top super agent networks crack cardless transactions

Everyone knows that super agents have been growing like wild vines. But so far, the super agents have only been serving the financially included who have debit cards. Eventually, their growth will peak. But knowing the smart guys running the show, they will push into doing cardless transactions as the innovation will extend new vista of growth. Expect anyone to be able to do transactions without cards at any agent location around you soon.

#4 Market coalesces around few major fintech players

While it doesn’t snow in Nigeria, the funding winter is pretty cold and our teeth are chattering. That means with no immediate cash available, there will be tons of funerals for dead startups not able to fund their sustenance. The truth is, the problems startups are solving won’t disappear, so those lucky enough to be alive will continue to solve these problems, expand and grow. At the end of the year, only a few major and more powerful players will remain.

Should we bet on the winners?

#5 The new debit card scheme misses the mark

The CBN, NIBSS, and banks really do love to solve the payments problem in a cost-effective way. You can’t blame them – running transactions with international card brands can be quite expensive, especially when all the FX margins on international transactions have vanished. So they came together to launch a new card scheme starting in January. But this may miss the mark because of various reasons: #1 they don’t have the experience of the incumbent scheme operators; #2 the current operators won’t really help, they may even make sure it doesn’t work; #3 if it doesn’t work well, the market will dump it like a bad habit; #4 read 1 to 3 again.

#6 FCCPC lending regulation loses relevance

Last year, some lenders were acting like absolute troublemakers – their behavior was so bad it was practically criminal. But when the FCCPC tried to fix the problem, they conveniently forgot to address the root cause – borrowers just don’t like to pay up. By ignoring the lenders in their quest for privacy, the FCCPC has no allies in the industry to help them succeed. And when the FCCPC gets tired of chasing down lenders, which will happen soon anyway, the entire FCCPC compliance will fall apart.

#7 Moniepoint becomes a commercial bank

This isn’t even a prediction; it’s as certain as my dog not becoming the next president of Nigeria (I don’t’ve a dog and even if I did, nobody would vote for it). Moniepoint is an MFB that became the financial infrastructure for Teamapt and is growing faster than thunder. It makes logical sense for Moniepoint to become a proper commercial bank: #1 it can now use its excess liquidity to do treasury transactions and make tons of money instead of counting pennies; #2 it can start banking larger customers to develop stronger clout (think corporates); #3 it can do large credits to FMCGs and lock down the entire value chain; #4 What else won’t it do?

#8 MTN PSB becomes the largest super-agent

Here’s the one thing you don’t do with Karl Toriola – bet against him. So come 2023, putting the fraud and madness of 2022 behind him, MoMo, the MTN bank, will start to use the best of its network leverage to catch up with Moniepoint to become the largest agency network in Nigeria. If it cracks the cardless transaction, then that will be its leverage.

#9 Startup investment recovers because nothing lasts forever, not even bad news

While the winter may seem to drag on forever, and the sun seems not to shine again, things will start thawing. You see, nothing lasts forever. Around Q3 and Q4 of 2023, VCs will be back in the investment arena, seeking out the next Paystack, Flutterwave, and Teamapt. This time around, though, the due diligence will be worse than a colonoscopy.

#10 CBDCs, including eNaira, are laid to rest

In 2022, the crypto winter started, and boy, it will be cold and long. The winter has already frozen NFTs, numerous exchanges, and tons of tokens. Meme coins are now, guess what, just meme coins! Expect the same fate for Central Bank Digital Currencies (CBDCs), including our dear eNaira.

The problem with CBDC is that it is trying to solve a problem that doesn’t exist. Cryptocurrencies were created to sideline regulations and central control, so the concept of CBDC itself is anathema.

The CBN relaunched the eNaira and got banks to line up behind it. But we all know that nobody is using it for anything. Maybe they should just allow the ghost to rest in peace this year.

Wondering what happened the previous years and the predictions? Read about my takes for 2018, 2019, 2020, 2021, and 2022.

If CBN wants cashless, it should #maketransferfree

The Central Bank of Nigeria’s (CBN) directive on cashless is necessary and beneficial in the long run but success depends on CBN’s actions to support and secure the system.

The Central Bank of Nigeria’s (CBN) directive on cashless is a direction the country needs, which I support 100%. Some may argue that this impacts the poor and the bottom of the pyramid negatively – yes, it does, at first, but in the long run, this is significantly superior to cash and would benefit everyone.

But why would I support an approach many have termed poorly thought through and echoes a military approach that sets many ordinary Nigerians on edge? It’s because sometimes you cannot fling out the baby with the bath water.

Because of the impact on many Nigerians and the poorly received approach by the CBN, several Nigerians are pushing that CBN should suspend the new cashless policy. This is a poor thought, and it’s as flawed as asking Nigerians to stop making phone calls and start shouting to get the attention of their neighbors.

To make cashless successful and for everyone to reap the benefits and growth potential, sacrifices are expected of everyone. And we know that these sacrifices are not trivial.

Of course, the CBN is asking everyone to sacrifice a lot, but what are the CBN and the bankers giving in return?

This is where it gets sketchy and unfairly lopsided. It’s also where the success of cashless is in doubt. If the poor feel taken for a ride and disadvantaged, everyone will find a way to sabotage the cashless policy.

When you consider the CBN’s argument that this would curb kidnapping (a rich man’s problem) and vote buying (a poor man’s opportunity), the chance of success for CBN is severely curtailed.

Cashless would never curb kidnapping – if my loved one were kidnapped, I’m not sure I’m ready to lose them because I don’t want to pay the 5% extra charge on the cash ransom. A politician doesn’t care about the 10% on the N1b he will use to buy votes. The original N1b wasn’t his to start with.

After all, when the Naira fell badly to the USD, the poorer exchange rate was never a problem when politicians bought USD to get votes.

So what exactly can the CBN do? There are three immediate solutions.

CBN should make the electronic transfer free for everyone. But to block abuse, there should be a limit and a monthly cap. Why would this work? It’s simple – the poor, most affected by the cashless, and the elites (the CBN and bank executives), think about money and value differently. Time is expensive for the executives, so paying N50 for the transfer is nothing to them. But for the poor, every kobo counts. They cannot understand why they must pay N50 for a transfer when they can walk to the market and use cash without spending extra.

The CBN should go on a massive campaign to woo Nigerians and not talk down on them. Many Nigerians don’t trust the financial system. They think it’s rigged against them for the benefit of bankers. Many Nigerians are also scared of going to the banks because banks are formal and bankers look scary sometimes.

To make this work, the CBN should create relatable ads and public service announcements using influencers that can cut through the noise and let everyone know the CBN means good.

The CBN should also enforce liability shifts to the banks. Why would this work? Most Nigerians that would be forced to go cashless are digital neophytes, which means the bad actors will take advantage of them. The bankers are the ones that control digital payment services, and it’s their sole responsibility to make it safe and secure for all their customers. Maybe when bankers start paying for these frauds, they will put in more effort to keep everyone safer.

In conclusion, the new cashless policy by the CBN and bankers is a rare opportunity for the Nigerian financial ecosystem to grow and for financial inclusion to bring benefits to Nigerians. But without the bankers and CBN making transactions free (and cheaper) for Nigerians and taking other measures to assuage Nigerians about the benefits of this initiative, it would fail.

This chance is too good to be lost. Let CBN #maketransferfree.

Making GSI available to every lender would be the CBN’s smartest decision

The CBN’s Global Standing Instruction (GSI) is a potent but underutilized tool aimed at recovering loans, hampered by restrictions on non-CBN licensed lenders. Despite its potential to boost credit access, challenges persist due to lenders’ reluctance and regulatory barriers.

The biggest mistake CBN has made, despite its commendable and spirited efforts to get credit into the hands of every Nigerian, was to lock out non-CBN licensed lenders from accessing the global standing instruction (GSI) to recover loans.

GSI is one of the most powerful and currently impotent tools ever created by CBN to support the credit industry.

Here it is; no country can grow without credit. Credit grew the leading global economies. For instance, when China set out to transform its economy, introducing credit to stimulate the manufacturing and tech industries was one of the most brilliant things they did. Funding their export was probably the smartest thing ever.

The reality is that Nigeria and other underdeveloped countries are doing poorly because there is no credit, and there is a massive credit gap, even at the consumer and SME levels.

If there’s such a massive credit gap lenders can make money from, why aren’t traditional and digital lenders tripping over themselves to avail credit to the over 100m adults? The simple answer is that Nigerians won’t pay back, and there is nothing any lender can do about it. You can jump, shout, scream, etc., but nothing will happen.

Nobody needed to tell lenders to go super risk averse, which has led to stunted economic growth.

It means a young mother can’t quickly pay school fees, forever conscripting her kids to a cycle of poverty powered by illiteracy. It means the young man with a medical emergency can’t get the treatment he needs, cutting short a life of fulfillment and glory. It also means SMEs that needed short-term finance never reached them; all the value they could have created was never realized.

Then came along the CBN with the GSI to address this problem. But so far, D- in scoring.

How does the GSI work?

The GSI is a CBN-led initiative created to help banks and other financial organizations recover unpaid loans from persistent debtors, but only as a last resort. The core of the GSI proposition is one of the smartest things the CBN and banks have ever pulled off.

Despite having the means to repay their debt, we can’t ignore the reality that many borrowers refuse to do so and choose to evade their obligations. GSI allows a lender (a bank) to request for a borrower’s accounts in other banks to be debited when the borrower has defaulted, but the lender suspects that the borrower has funds elsewhere.

It requires that all bank accounts be linked to the borrower’s bank verification number (BVN). The borrower issues a mandate during the loan application process that authorizes the bank to activate the GSI in the case of default. This mandate is valid for as long as the loan remains unpaid, so the banks can keep debiting the defaulting borrower until their loan obligation is fully met.

Given this tool’s power to protect borrowers and abuse, there are strong penalties for misusing the GSI.

Why hasn’t GSI fixed the problem?

Would introducing the GSI would have been the secret ingredient to make credit blow in Nigeria, finally? Nah. Banks are too shy to use this for reasons I’m not ready to air here. Besides, bankers are not used to consumer loans, so they don’t care.

The small credit Nigeria has is driven by money lenders and other digital initiatives. 99% of them are outside of CBN’s purview. Of course, getting licensed by the CBN is so hard that most people with common sense won’t even attempt it. It’s harder than getting a seat to go to Mars. Hello Elon?

So we’re at an impasse.

But let’s take a step back. CBN should be more interested in the growth of loans and the economy, irrespective of who gives the loan.

Here’s what the CBN can do

The GSI is too impressive a creation to let it go to waste. There are a few things CBN can do to increase its effectiveness exponentially.

Opening up the GSI to everyone, whether licensed by CBN or not, would be a big step in the right direction. If possible, it could even be opened up to individual lenders.

Before you scream “abuse by lenders”; the penalties for misusing the GSI offer protection to borrowers who are targeted unjustly.

An immediate benefit is that to use the GSI, loans have to be registered on the Credit Risk Management System (CRMS) when a loan is granted. The CRMS is a central database that contains consolidated credit information on borrowers and their debt obligations across banks and other financial institutions. It’s almost a Credit Bureau. The CBN mandates financial institutions to enter all outstanding debts with a minimum value of ₦1 million and update the status of these debts every month. Before extending credit facilities to any borrower, the financial institution must also conduct a status inquiry on the borrower’s existing debt obligations in other financial institutions via the CRMS to ensure they can repay and have not abandoned their obligations elsewhere.

Additionally, CBN could make a few more adjustments that help everyone. They could allow GSI as a primary payment method; there’s no need to wait until the loan defaults. CBN could also charge a token for lenders to pay when they use the service since it creates value for everyone on the chain.

CBN has all to gain and nothing to lose. They get to see all the loans via the CRMS. That data helps the CBN, regulators, and other stakeholders make better-informed macro decisions and strategies. This way, the CBN helps enforce consequences. Nigerians who choose not to pay back loans do so because there is little to no enforceable consequence for their harmful behavior. A loss reduction for lenders will follow; this will also crash the interest rate since the risk premium will also reduce. All these will make for a healthier credit market, hopefully stimulating economic growth. This is something I’d like to believe the CBN can get behind.

However, this may also backfire: if too much cash is suddenly available, it could lead to severe inflation.

Considering how much there is to gain from these adjustments, it makes sense for CBN to pursue this line of action, and it’s ultimately beneficial to everyone except those who don’t want to repay their loans. And why should we decide based on what’s good for the bad guys anyway?

Is proof of funds a fraud?

The proof of funds loans has allowed over 100,000 Nigerians to travel abroad for schools or immigration without having the funds demanded by the embassies. This is a fraud but even then, what are the implications for Nigerians?

The proof of funds loan is the most important financial product to have impacted almost 100,000 middle-class Nigerians over the last two years. It has been the foundation to enable most Nigerians that have achieved the “Nigerian dream” to japa.

But could this be the biggest fraud of all time?

What is proof of funds?

This is a signed official statement of a bank account that a student or an immigrant has the funds to settle or take care of themselves in a foreign country. Embassies have been demanding this for centuries, especially the UK, Canadian and Australian embassies.

What’s the genesis?

Let’s understand that to say our economy is battered and the country itself is messed up is an understatement. It’s expected for anyone with a shred of sense to run for their lives. Maybe if I didn’t think staying in cold weather too long would kill me, I would be running too.

The hitch is with a bad economy; people don’t have the money to provide proof of funds. Let’s think about it; If they had thousands of pounds stashed away somewhere, they might not be so desperate to run off to a foreign land in search of milk and honey.

This is where the smart lenders entered the game.

How does it work?

Lenders saw an opportunity to provide those with migration plans with a profitable loan product. Tons of lenders do this. They give individuals the large loan needed to show proof of funds to the embassies.

You’re probably wondering what’s stopping Nigerians from simply taking this loan and using the money to japa, never to be seen again, the same way they treat other loans. Well, the bank account containing the loan is controlled by an internal bank friend collaborating with the lender. The account is locked, so the borrower has no access to the funds. The money only belongs to you on paper.

If you take out a loan like this, you pay monthly interest in the region of 3%. So proof of funds of £20,000 means ₦20 million (yeah, a pound is about ₦1,000) and ₦600 thousand per month for six months. Good luck to all who set out on this journey.

Is proof of fund fraud?

Now let’s do a quick English language class. What exactly is fraud? The answer: a false representation of facts. The embassy has requested confirmation that you have funds to support yourself when you make the big move to their country. But you borrowed money that you definitely don’t have to prove, deceiving the authorities.

It’s a fraud. No two names.

Take it easy; I’m not here to judge. I, too, did this when a family member was going for a post-graduate program. I used my boss’ account as a guarantee of funds. Don’t quote me; I will deny you.

What would probably happen?

As everything is abused by Nigerians, this would probably unravel soon. The outcry has already begun. Nigerians have started arriving in these countries with only little to their name and may soon become destitute. Many have already found themselves in less-than-ideal conditions; some have been asked to withdraw from universities because they couldn’t pay the balance of their fees. Others are homeless and forced just to lay their heads anywhere they find.

These countries will soon find out that these guys never had the money in the first place.

Would they ban us as the UAE did? Maybe not. But they could start doing what CBN did to those who asked for licenses (that’s a story for another day) by forcing them to either open an account in a foreign country or pay school fees and accommodation costs 100% ahead of visa application.
Although things are undeniably tough in Nigeria and many of us understand and maybe even sympathize with the japa craze, the sad reality about cutting corners like this is that those coming behind you will probably have to pay for your sins too.

Hiring is as hard as investing in startups. Maybe harder

Finding top talent is as hard as finding a successful startup investment. Despite using various methods, my best hires came from random encounters, while highly recommended candidates often disappointed. In the end, recruiting is more luck than science…

Finding the next Facebook, Paystack, or TeamApt as an angel investor is pretty hard. I’m not the first, nor will I be the last to reiterate what you probably already know; most startup investments fail! In fact, 90% are duds and maybe only 2 out of 100 investments would be rockstars.

Sadly, hiring, especially for startups, is no different.

Tech investment, especially angel investment, is almost like glorified gambling and the line separating both can be quite blurry. Only the obsessed stand a chance against the odds.

It’s the same when it comes to finding talent. It’ll probably be redundant for me to qualify talent further with any fancy adjectives. Talent is just that. Talent. You’ve either got it or you don’t. That’s not to say I don’t believe people can improve themselves or that employers can’t invest in developing employees. They absolutely can. And they should.

I’ve read tons of how to find good talent; worked with a bajillion different recruiters. My best outcomes have been more of luck than science or any definite process. Maybe I’m the one with a problem. But when I share my pain with other founders, we always arrive at the same conclusions.

Where I found some of the best people

I have looked at my own track record of how I found some of the best people I ever worked with in the last 5 years and I can confidently say I’m at best, gambling. There’s simply no common sense formula to how I got these people.

Just to give you an idea where I found some of the best people I have worked with: a friend found one at a saloon, I met another on a staircase and I was introduced to another by someone I didn’t even know. They’re all so random that I’ve given up finding a pattern.

And where did I find some of my biggest disappointments?

Hold on to your hats for this one. You’d think the random strangers I met “off the streets” would have been the ideal candidates for disappointment. That was not the case. Many of those who fell short of my expectations (or just common decency in some cases) were those who graduated with a first class, had high CGPAs and came highly recommended. This category of people are exposed and present themselves properly. I fell for it. But learnt very quickly there was a whole lot of fluff in the mix.

Ironically, a significant proportion of those who scale through the recruitment process are those described above. As we’ve established, recruiting is nowhere near a science but employers can keep tweaking the process to get better results. Assessment tests, where applicable, to establish competency levels from the jump is a step in the right direction.

Disclaimer: I’m not a hater. I have nothing against this class of smart people. Many of them go on to do great things. The ones I’ve met have just shown me “shege”.

Despite the gambling, some things stick out

Despite the fact that my best efforts have come from random encounters, some things do stand out more and make all the difference. Good people are smart, relentless and determined. They are also loyal and can keep their word. Perhaps my favorite thing about them is how responsible they are. They own their sh*t with their chests and don’t deflect blame to others.

Some things are also perplexing

Some of the best people aren’t especially smarter than others. Oftentimes, they don’t even have the right answers. But what they do have, is the right attitude. One can’t give up because talent is now the most important thing. Let’s not even get into how globalization and the wave of newly funded startups are rapidly changing the hiring game.

As a tech leader, seeking and grooming talent, one must have an infinite capacity to take the pains and disappointment. You must know when/who to nurture or simply let go. Not everyone can be groomed; and definitely not everyone can grow fast enough. And not everyone wants to have that growth pain with you.

It’s even pretty bold of you to assume that everyone wants to grind and hustle for success. Some people were born to just seek the “soft life” and that’s okay too. But not with me.

Investors take a risk on startups and hope the company takes off. Recruiters take a risk on people and hope they don’t run the company into the ground and take off. To each his own pain.

To the leaders and recruiters seeking rockstar employees or discovering diamonds in the rough, good luck!