Transforming to a full-service digital bank

Nigeria’s Paylater lending App leads the way

Nigerian retail lending startup, Paylater is making strides on a plan to transition to a full service digital bank after securing a $5 million debt facility from Nairobi-based Lendable, technology-enabled funding provider to small business lenders and the African consumer.

Paylater is a simple, digital finances management platform that provides instant loans (to help cover unexpected expenses or urgent cash needs), payments (of bills for different services, fund transfers, airtime purchases), and investments

Paylater is looking to deploy new products while transitioning to a digital bank. Since launching in 2016, the Paylater mobile app has been received by over 1 million users who have downloaded the app and disbursed loans worth over 13 billion naira ($36 million). At this defining moment, the company is looking to get into with those people who don’t readily enjoy banking services in Nigeria and provide banking services for them. The startup will announce a name change to fit its new business in the first week in April.

In Nigeria, there is an estimate of about 60% of the adult population without a bank account. Nigeria and six others are home to nearly half of the 1.7 billion people without bank accounts, according to the World Bank Global Findex Database report [pdf].

Paylater is a unit of OneFi which started operations in 2011 as One Credit. At said time One Credit provided loans to middle class salary earners, using a paper-based application process that required supporting documentation. But that narrowed the scope of the service in a country where more than 60% of working adults are in the informal sector and therefore are not paid documented monthly salaries or possessed formal documentation.

The advent of a bank verification number (BVN) by Nigeria’s central bank in 2016 enabled young companies like One Credit to launch more flexible, digital lending services available to more people including Paylater. The BVN represents the first true record of Nigerians linking all back accounts owned by a single user and employing biometric security.

“As we are pushing on with our web and digital platforms, we also want to reach out to a segment in the economy that is always talked about but not really catered to,” says Chijoke Dozie, who co-founded OneFi with his brother Ngozi.

In a few months, OneFi will also be launching some of its services deploying USSD mobile technology found in simple feature phones rather than the more expensive smartphones. The idea is to “onboard people that are not using smartphones and we are banking on our reputation as loan providers to reach them.”

The strides that digital lenders have made have made traditional banks offer retail loans to customers. But in the past, this was not the case. Banks in Nigeria have an unenviable reputation for providing credit. Customers of commercial banks are encumbered with high interest rates coupled with the need to produce collateral and paper applications.

News of Paylater’s transition to a digital bank comes in the week that Diamond Bank, which was controlled by the Dozie family merged with Access Bank. Diamond Bank, which was most recently run by Dozie’s brother, Uzoma, have struggled over the last couple of years. Last October, the chairman and three directors of the bank resigned following a prolonged disagreement involving a major investor.

OneFi’s Dozie believes that deal with Lendable is international validation of the progress they have made and their preparedness for the next step. This line of financing provides the opportunity to transition into a full-service digital bank. The company will also be announcing a partnership with Visa—a move to provide credit via QR codes in supermarkets and clinics.

Daniel Goldfarb, the co-founder of Lendable, backed by Omidyar Investments, said his company is looking to increase access to finance in frontier markets and wants to do this through non-banking lenders. “Paylater has shown that they know their market intimately, while having impressive tech and a platform that is scalable. We are expecting 75% growth within nine months.”
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