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Digital Lending Platform: A Challenge to Traditional Banks

SEYE JOSEPH


Ayo Awotunde, a civil engineer, operates a block industry in Oyo Town of Oyo State, Nigeria. As an entrepreneur, Awotunde had financial problem to expand his block making industry.  In his quest to solve this business problem, he was introduced to ‘Kiakia’ – a digital lending platform that provides loans for personal and business needs without making any contact with banks.

Awotunde used the platform to attain his business expansion. He later informed that Kiakia as a digital lending platform is easy to use and it helped him to get access to the needed fund to expand his business. According to him, all he did was to go online to apply for the loan, which was approved few hours later, and his account was credited directly.

“The ease in accessing the loan from Kiakia enabled me carry out the expansion of my block business with ease and fast. I got the loan without any collateral or prerequisites, which normally are demands of conventional banks. With Kiakia, all you need is a guarantor, who is on online and on Facebook”, he explained.

Awotunde’s narrative about Kiakia’s offering is not different from what Chinenye Chinkere experienced when she needed capital to fund her business and she approached the lending outfit. Chinkere, a pharmacist, who lives in Apo, Abuja, Nigeria, is into multi-level marketing of health products.

According to her, the husband informed her about the digital lending platform (Kiakia) at the initial stage, but she ignored the idea of accessing funds from any bank, be it micro, mega or conventional, because of the borrowing conditions in the Nigerian banking system. “They tell you to bring three heads when you need one head from them”, she sarcastically said.

However, Chinkere, on further persuasions from the hubby, gave in to superior conviction and applied for a loan from Kiakia. According to her, the loan application sent on line was processed and approved in fifteen minutes.

“I got an alert from my bank that Kiakia has placed money into my account. I experienced some minor difficulties when applying because I was not used to their system. I called the customer service and they were friendly in answering all my questions. The guy who spoke to me was courteous. In a way, they made me feel as if I was not borrowing money.

“I did not default. I paid back at the due time and I was given some trust points which qualified me to get more loans from them. The platform has helped me to grow my business to the extent that my friends now ask how I came by the magic of growing my business”, she said.

From Awotunde and Chinkere’s accounts of how they got their businesses on the booming lane via funds from Kiakia’s digital lending platforms, it is apparent that the not-too-good conversation in Nigeria’s banking sector, where loans are hard to come by, is about changing for good.

Startups and other attackers are jostling for their place in the market, backed by new technologies known as FinTech (Financial Technology) companies that provide alternative solutions and business models that could render traditional banking processes obsolete in many areas.

This new trend that is gaining strong attention in the lending sub-sector of the financial industry is also known as peer-to-peer lending (P2P). It allows people to access loans of all sizes efficiently and expeditiously via digital lending technology without recourse to bank processes.

Online loans are essentially approved and disbursed through digital platforms such as phones, mobile apps, websites and so on. It takes away bottlenecks associated with going to bank to apply for loan that is not guaranteed as well as reduces the time between application and disbursement.

Digital personal loans differ in terms of platform and forms of approval and disbursement, the rate of interest, EMI and tenure will be as per the issuing authority.

In Nigeria today, there are about half a dozen digital lending platforms jostling for market share to create essential services beyond what traditional banks can provide. Paylater, Lidya, Kiakia, Pay Connect and Kudi Money are major platforms providing digital loans for people. Lidya, based in Lagos, primarily focuses on the Nigerian market, but also offers services to Africans in targeted cities, lending out between $500 and $15,000.

With this new trend in technological advancement driving positive changes on digital lending platforms, financial institutions seem not to have seen the reason to be involved to make the platforms more competitive and add more values to services they are providing for their customers.

As established institutions with database of millions of customers, it would be a big advantage for effective competitions to provide essential services on digital lending platforms.

For banks to move away from their traditional ways of giving loans to their customers, they must admit that technology is the major force needed to drive digital lending platforms to deliver simple, easy and convenient services for prospective customers and clients.

Beyond what other digital lending platforms are providing, banks must find ways to provide products and processes quickly and easily with effective social media strategies to market their services.

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