E-Financial
Three Ways Embedded Finance can Drive a Cashless Economy
By Victor Irechukwu, Head of Engineering, OnePipe.
In recent years, non-bank providers have been integrating financial services into various products and services. This enables merchants that have these embedded financial services to interact with their customers in new ways.
Victor Irechukwu, Head of Engineering, OnePipe
Recall Nigeria’s recent cashless experiment? The main problem was not because the country wanted to go cashless, rather, people were unable to pay for goods and services. Yet, embedded finance could have solved this.
There were stories for instance in the poultry industry where thousands of farmers were said to have disposed of their eggs simply because they were dependent on cash. Maybe not individually but the value chain in which they operated was cash dependent. But what if one of the many big players had introduced embedded finance in that value chain?
The European Merchant Bank notes that embedded finance has the opportunity to truly change the financial sector forever, reaching a $138 billion value by 2026. Other estimates value this market in the trillions of dollars over the next decade, and Nigeria can also tap into these potentials in driving a cashless economy.
Here are three possibilities:
Embedded payments
Embedded payments refers to the integration of payments capabilities within an app or a platform that was not primarily designed to offer financial service. What it does is that when users need to make payments within that ecosystem, they need not go outside of it before money can be exchanged.
So, imagine in the midst of all the commotion from Nigeria’s cashless experience, if more organisations providing goods or services had embedded payments, there would have been less worry for Nigerians desperate to find cash. From such platforms, payments could have served a wide range of reasons, depending on what segment of the economy they were serving.
Examples abound in western markets from Starbucks, Uber, Amazon, Google and even WhatsApp which has a payments service.
Having some of such platforms locally, would have provided reputable intermediaries trusted by people expecting to get paid. For emphasis, while the fear of fake transfers remained an obstacle for some people, receiving payment via WhatsApp (for instance), which they already trust and use daily, would have been easier to adopt.
Embedded credit
This works both ways. On one hand, it can enable businesses to extend credit to their customers, allowing them to transact without the need for cash. On the other hand, it can be particularly useful for small businesses, which are already mostly starved of credit, to get access to lending that can keep them afloat when they do not have cash to operate.
What happens when you operate in an industry where vendors are bent on collecting cash before they supply you inputs? This happens a lot, beyond the urban, cosmopolitan areas of Nigeria, where cash still reigns.
In other instances, those coming to buy from you, after you have sourced inputs and produced a thousand eggs, usually only bring cash. However, since their retail side customers did not have access to cash during the cashless period, it means they also didn’t have money to buy from you. As simple as this may sound, it led to the collapse of many businesses.
A solution to both sides of this chaos could have been embedded credit. If enterprises had adopted one platform or the other, which allowed them to embed credit products into their business platforms, they could have been able to allow their consumers to apply for, acquire and repay loans within the platform. They could also have secured credit for their business, maybe in the form of inputs to keep their businesses afloat during the cashless period.
The best part is that they need not invest in custom made technology. These could in fact, be done at, say, cooperative or association levels, and not borne by individuals.
Embedded banking
Imagine paying your Uber driver after a trip, but doing so from your wallet in the Uber App. The driver gets this money but does not need to move it to their ‘regular bank account’. Why? Because the ride-hailing app has a feature for a savings account. This would mean whatever transactions they needed to do from a bank account could now take place from that same Uber app where they picked a customer, got paid and can in turn pay for anything they need.
The payments and credit feature earlier discussed, as well as everything else you can think of in a bank setting, can take place from this facility. This may sound foreign, but an ecosystem like this is possible in Nigeria. It in fact, depicts what could be a perfectly cashless environment. It could even go as far as issuing debit cards, which are linked to that account for them to pay for whatever they somehow can’t do from the app.
Embedded finance can deliver a win-win situation to both businesses that embrace them as well as their customers. The ease of access and low cost to entry is likely to make it viable across social demographics in a place like Nigeria.
Central Bank of Nigeria (CBN) has announced that diaspora remittances through international money transfer operators (IMTOs) reached $4.22 billion between January and October 2024.
This figure represents a 61 percent increase, or $2.62 billion more than the amount recorded during the same period in 2023.
CBN Governor Olayemi Cardoso shared the figures during an interactive session with the Senate Committee on Banking, Insurance, and Other Financial Institutions at the National Assembly on Wednesday. “The year-on-year increase reflects significant growth,” Cardoso noted.
He also reported that remittances rose from $336 million in September 2024 to $402 million in October 2024 on a month-to-month basis.
Cardoso expressed optimism about continued growth in remittance inflows, saying, “The remittance inflows would continue to rise by the end of the year, given the current trajectory.”
He attributed the surge to improved efficiency in the remittance system, the positive effects of President Bola Tinubu’s policies, and increased trust among Nigerians in the diaspora to contribute to national development.
In addition to remittance updates, Cardoso addressed the state of Nigeria’s external reserves, which he said had grown to $42.01 billion as of December 12, 2024, from $38.35 billion on September 30, 2024.
“External reserves rose largely due to receipts from crude oil-related taxes and third-party receipts in Q3 2024,” he explained.
He added that Nigeria’s external reserves could fund over nine months of goods and services imports, surpassing the international benchmark of three months. “Our external reserves level is a robust buffer against shocks,” Cardoso said.
On the issue of cash shortages, the CBN governor reiterated the enforcement of the new policy imposing a fine of N150 million on any bank branch found distributing new naira notes illegally to currency hawkers.
Cardoso also shared his outlook for the Nigerian economy in 2025. “Distinguished Senators, as we conclude this briefing, I want to highlight that despite the challenges facing our economy, there are clear reasons for optimism,” he said.
“The gradual stabilisation of the forex market, ongoing banking sector recapitalization, and positive growth trends in key sectors, especially the services sector, indicate a path toward recovery and stability.”
This comes as the CBN continues to implement measures to strengthen the economy. On October 17, the apex bank reported that remittance inflows had risen to almost $600 million by the end of September, while on June 25, it granted eligible IMTOs access to trade on the official FX window.
The Nigerian banking sector has witnessed a concerning rise in fraudulent activities, with incidents of fraud in bank branches increasing by 31 percent in the second quarter of 2024.
This alarming statistic was disclosed by the Financial Institutions Training Centre (FITC) in its Fraud and Forgeries report, highlighting significant challenges to the integrity of the country’s financial system.
Fraudulent activities in Nigerian banks led to a staggering N42.33 billion in reported losses during the first half of 2024.
This sharp rise was driven by escalating fraud across multiple channels, most notably within physical bank branches.
The FITC report revealed that fraud in bank branches rose dramatically to N42.2 billion in the second quarter, compared to N133.9 million in the first quarter.
The FITC data also pointed to a massive 1,560.3 percent increase in computer and web fraud. Losses in this category surged from N24 million in the first quarter to N400.8 million in the second quarter.
In contrast, mobile fraud witnessed a significant decline, dropping by 59 percent from N216.4 million in the first quarter to N88.7 million in the second quarter.
Interestingly, no cases of ATM-related fraud were recorded during the period under review.
The figures also indicate a shift in fraudulent activities involving various financial instruments. Card fraud saw a notable decline of 47.66 percent, with cases dropping from 21,469 in the first quarter to 11,231 in the second quarter. Conversely, cheque-related fraud rose by 36.67 percent, increasing from 30 cases in the first quarter to 41 in the second quarter.
Mobile fraud recorded an even steeper decline in value terms, dropping by 99 percent from N21.6 billion in the first quarter to N216.36 million in the second quarter.
These figures suggest evolving strategies among fraudsters, with some methods becoming less prevalent while others gain traction.
Amid the rising tide of fraud, legal actions have also intensified. In one notable case, an Abuja Federal High Court issued a 30-day freeze on 818 bank accounts linked to a N10 billion cyberattack on a Nigerian bank.
The court’s directive, issued on October 15, 2024, was based on a motion filed by the police against James Akagwu Isaac and other suspects, including several financial institutions.
Analysts say the surge in fraudulent activities underscores the urgent need for heightened vigilance, enhanced security measures, and robust regulatory interventions in Nigeria’s banking sector.
While the decline in some fraud categories, such as mobile and card fraud, offers a glimmer of hope, the sharp rise in branch-based and web-related fraud highlights the evolving tactics of fraudsters.
To combat these threats effectively, experts recommend that banks must invest in advanced fraud detection systems, conduct regular staff training, and strengthen internal controls.
Collaboration between financial institutions, law enforcement agencies, and regulators will also be crucial in mitigating the impact of fraud and safeguarding the financial ecosystem.
The FITC report serves as a stark reminder of the vulnerabilities within the banking sector and the need for proactive measures to address them. Without sustained efforts, the rising trend of fraud could pose significant risks to Nigeria’s economic stability and the trust of consumers in the financial system.
Credit: Tribune
United Bank for Africa (UBA) Plc said it will utilise the net proceeds of its ongoing N239.4 billion rights issue to invest in additional digital technologies and business expansions that will strengthen the bank’s seven and half decades of impressive performance.
Tony Elumelu, group chairman, UBA,
UBA is offering 6.84 billion ordinary shares of 50 kobo each to existing shareholders at N35 per share. The rights issue is pre-allotted on the basis of one new ordinary share of 50 kobo each to every five ordinary shares held as at November 05, 2024.
The rights issue is scheduled to close on December 24, 2024.
Tony Elumelu, group chairman, UBA, said the primary objective of the ongoing rights issue is to strengthen the bank’s position as a pan-African banking industry leader and a highly rewarding institution for all stakeholders.
He said the group decided on the rights issue to ensure that shareholders continue to derive undiluted benefits from a stronger, more innovative and resilient pan-African banking group.
Elumelu said the rights issue would enable the bank to drive organic expansion and business growth within and outside Nigeria, while strengthening its international operations, adding that UBA recently signed an agreement to commence full banking operations in France.
According to him, with presence in key global financial hubs including the United Kingdom (UK), United States of America (USA), France and United Arab Emirates (UAE), the bank would deepen its global operations by investing more in these global markets and further extend its global reach.
He noted that, “With African subsidiaries contributing more than 50 per cent of the group’s overall performance, the bank would also make additional investments in existing African operations while exploring new opportunities. UBA currently has operations in 19 African countries outside of Nigeria.”
He pointed out that the bank’s expansion plan is driven by its philosophy of developing African businesses, noting that UBA is not only expanding its geographical reach, but also playing a strategic and pivotal role in the economic transformation of Africa as a continent.
He added that while the rights issue would enable the bank to meet the new capital requirements stipulated by the Central Bank of Nigeria (CBN), the net proceeds would put the bank in a better stead to expand lending to small and medium enterprises (SMEs).
He outlined that the bank would make substantial additional investments in technologies to consolidate its reputation as a cutting-edge financial services group and deliver a more robust customer experience.
To him, new investments in information and communication technology (ICT) would further strengthen the group’s digitisation and operational efficiency, thus fostering improving coordination and synchronisation amongst the various entities and delivering improved service delivery and customer satisfaction.
UBA said it plans to strengthen collaboration and partnership with TELCOs and FinTechs to drive technology-enabled initiatives across Africa that will improve intra-trade, remittances, and payments across Africa.
The bank added that it plans to broaden its payment capabilities to enable it to transform the way merchants collect payments by offering solutions that offer seamless, secure and user-friendly ways of managing and consummating transactions.
Elumelu reiterated the bank’s long-term strategy of becoming the undisputed leading and dominant financial services institution in Africa, with greater emphasis on Nigeria.
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