The global economic downturn has reduced the appetite of fintech investors – Emeka Emetarom
Emeka Emetarom is co-founder and CEO of Qore.
The banking-as-a-service platform was recently carved out by Appzone Limited to provide the technology for the digitization of banks across Africa.
In this interview with Nairametrics, he walks us through developments in the company and some of the latest happenings in Nigeria’s economy.
Enjoy the conversation.
NAIRAMETRICS: What is Qore? How is it different from other products already on the market?
Emeka Emetaroom: Qore is a banking-as-a-service platform business that we distribute from the Appzone group. Previously, we had 5 business divisions, so we consolidated four of them – our core banking-as-a-service platform, lending automation, instant card issuance and merchant services lines of business – into this banking-as-a-service platform. like Qore.
NAIRAMETRICS: How would you describe the financial sector over the past five years?
Emeka Emetaroom: Many neo-banks and digital banks have entered the space, and it has been exciting. Technology allows you to deliver financial services beyond the reach of the department. With this, there is no limit to how much innovation you can bring.
In the last couple of years, there has been a huge disproportionate interest from VCs in fintechs globally and Africa, which has also led to the emergence of many start-ups. So many incubation hubs skew their services towards fintech because those are the businesses most likely to raise capital.
Most VCs are looking at fintechs and it’s no surprise because all the other verticals still connect, in one way or another, to financial services – you can’t run a business without having to make transactions, without having to make payments or receive payments and so it is as if the financial services area is the bedrock of the economy in general.
This interest from the investor community has led to many new players entering and a lot of funding going into the sector. In addition to traditional banks – commercial banks and regular microfinance banks – other entities are coming on board to deliver innovative products.
There is also something new; an embedded banking concept where typical e-commerce players are starting to see that there is an opportunity because they already have a huge customer base. So many of these e-commerce businesses want to embed banking into their services to help customers create a sort of wallet or account that helps transact across their platforms and channels. It is also something we see exploding.
NAIRAMETRICS: Financing in fintech has slowed down in the last quarter. What would you say is responsible for this?
Emeka Emetaroom: What usually happens is that when you have an economic downturn, it makes investors more cautious. It’s not that investments aren’t happening, just that investors are more cautious. Two issues came together to cause the economic downturn.
First, the Covid-19 pandemic kept most of the world on the ground for 18 to 24 months. Many countries implemented stimulus packages; just pumping money into the economies to keep them going and to avoid a recession. I feel they may have gone overboard with that and the whiplash effect from that has been inflation.
The way central banks limit inflation is to raise interest rates. But the effect of raising interest rates is that suddenly investors can get better returns from safe investments. For example, if you had $10 million and your money was sitting in the bank where interest was essentially zero, it doesn’t make sense to keep it there.
You have to find a venture to put it into to get some return so that money goes into private equity and venture capital and so on.
But the moment central banks decide to raise interest rates, all those interest rates start going up, and suddenly people will see no reason to put their $10 million into a risky investment, if they can just keep it in the bank where they will be. safe and secure, and they can get good returns. So it sucked out liquidity on the one hand.
But draining liquidity, if not managed properly, can affect consumer spending and lead to a slowdown in growth. So investors analyzing the medium-term economic outlook would have thought “this is not the best time to take risks”. No one wants to invest just before a downturn. The best time to invest is when you are at the base when things start to go up because then you get a good return on investment.
It also didn’t help that the Russia and Ukraine war caused other supply chain problems and only exacerbated the overall economic outlook problem. Gas prices went up and you have currency devaluations and all that. Essentially, most investors wait until the storm blows over to start investing again. I am optimistic that this will begin to happen sometime towards the end of 2023.
NAIRAMETRICS: The CBN recently raised its benchmark interest rate to 16.5%. How do you think this will affect banking?
Emeka Emetaroom: So, well, for one, it would make it more expensive to borrow. That kind of policy is meant to curb inflation and of course, Nigeria is not excluded from the global inflation issue, so it is quite understandable that the Central Bank of Nigeria needs to raise these interest rates.
But even if it means that capital becomes more expensive for people who would have needed to borrow money from the bank, sometimes you have to make some of these decisions in order to benefit from the long-term positive outcome even if it leads to some short-term discomfort for businesses and individuals. But all in all, I think it’s a step in the right direction.
NAIRAMETRICS: Insurance industry is growing slowly. For you, are there plans in the pipeline to change the narrative?
Emeka Emetaroom: The thing is that the insurance sector is vertical and it is adjacent to financial services in the sense that it has a lot to do with payments and money movement and frankly many of the insurance companies are now implementing pseudo-investment insurance products.
They have products that allow customers to pay a premium, but in a way that that premium contributes to a kind of commitment-type savings investment that they can collect over a period of time. So it’s getting close to investments and banking.
But because it’s a different vertical and the rules are different, it requires us to focus on that. We must be able to focus. After we’ve done significant mileage in the banking space, we can ultimately decide that we want to focus on the insurance companies, take a look at what’s built and the additional modules and services we need to accommodate from a technology perspective, and then formulate a business model .
But it’s like a whole new business, right? We wanted to get there. Again, we want to ensure that we can digitize and automate all financial industries.
Some people feel “our religious and cultural beliefs are the reasons why the insurance area is slow…
I think it’s a poverty problem. The thing is that the insurance premiums are not that big, but the problem is not being able to afford it. In Nigeria the minimum wage is N30k. If you’re going to get a solid (regular) health insurance plan, you may have to part with 20% or 30% of your salary if you’re making minimum wage.
But if people make a lot more money, insurance will be deductibles that no one will feel much. So once we solve the problem of disposable income, which is linked to solving the problem of poverty, people will start adopting insurance just like everywhere else in the world.
