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Pinheiro: How Nigerians can benefit from cashless economy

Abimbola Pinheiro is the Chief Executive Officer (CEO) of O3 Capital Nigeria Limited, the first non-bank credit card issuer in Nigeria. He recently spoke to selected journalists on the plans for his organisation after six years of operation. The session was also an opportunity to address various issues within the sector, including how Nigerians can…

Abimbola Pinheiro

Abimbola Pinheiro is the Chief Executive Officer (CEO) of O3 Capital Nigeria Limited, the first non-bank credit card issuer in Nigeria. He recently spoke to selected journalists on the plans for his organisation after six years of operation. The session was also an opportunity to address various issues within the sector, including how Nigerians can enjoy more benefits from credit cards, how to promote cashless drive and the Central Bank’s new financial product, the eNaira. Excerpt.

Your firm is the first non-banking credit issuer. What made you go into the business?
That is a very difficult question; there’s a long version and there’s a short version. I’ll give you both so that you can sift through what is ideal. The long version is when I did a holiday job, when I was in the university while trying to make ends meet with the funds you get from my parents. I did a job with a credit card company called New World Merchant Bank. I did so well that I kept on doing that job part-time just to make ends meet.
Now, fast forward down to 2011, I was working with Bank PHB at that time, then there was this initiative by the then CBN Governor Sanusi Lamido, that affected some banks, one of those banks was Bank PH, which I worked with for a few years. I just sat down and said I have had enough of normal banking. I now reverted back to my interest and love for credit cards. I started asking questions about why we were not having a lot of credit cards in Nigeria and enjoying the advantages of the cards as being done in foreign countries.
As of then, we had about 60 million debit cards in Nigeria, across all the banks, across the Visa, MasterCard. Then, as for credit cards, we had less than 250,000. And I wondered why the disparity? So, an idea came to me that if the banks were afraid to issue credit cards because of risk, why don’t I form a company to insure that risk? That was the plan. When we were trying to put the flesh into that idea, we asked critical questions: Why do we want to insure the risks created by banks when we cannot testify to the process they use to derive those risks and assess those risks? We would be in blind of what they did. 

So, we considered why we don’t issue our own credit cards, where we can know our own credit assessments and protect ourselves against risks. And that’s how we became a credit card issuing company.

At the time you were setting up, were you concerned that the country was more interested with cash-driven businesses than a cashless society the government was projecting?
There’s always a time for a change. Although cash is king, our own vision aligned with the CBN vision at that time with their cashless society drive and credit card is not all about cashless; it’s all about giving the additional ability to people to meet their needs as and when they want it. And the world is fast-moving.
Back then, we were trying to drive cashless transactions, but right now, they’re talking bankless transactions done via the phone. A lot of things are changing, and Nigeria has to change with it. The CBN will testify with their numbers that year on year in the last 12-13 years, the number of cashless transactions or volume has been increasing tremendously, and it’s growing. So, we are happy to be part of the players that started that movement. As a company, we transfer from our cards into a mobile app that does cashless transactions. It’s just a matter of time. And Nigerians are really embracing it, but not enough, but we’ll get there.

Looking at the fact that risks are involved whereby people may not be able to pay back because of the economic situation, would you say this is a profitable venture?
Well, you know what they say, ‘no risk, and no gain.’ There is no business without risk; there is no life without risk. What we just do is to mitigate these risks, because one of the things we did when we started in 2015 was to demystify the notion that Nigerians are fraudulent and will not pay back loans. Because this country is supposed to have 200 million people in it. Of those 200 million people, the bad Nigerians, the thieves, drug dealers, what have you, if we want to slice and dice it are not up to a million.
Now, that means we have 199 million good Nigerians. Those are the people that we service; those are the people that we call O3 people. And we are meeting their needs. It’s a win-win. Nigerians have been deprived of some basic needs by the government, by the society, and credit is one of them. What we realised is that if you give Nigerians what they want, in a very convenient way that they’re happy with, they will pay for it. And luckily, our prices are not outrageous, they are very, very reasonable given the market. So, with that, we do make money.

And then, there is this risk since some people will not pay. But right now, our default level is less than 4 per cent, which is very good with the current market. For your information, the easiest thing to happen to people that will not be able to pay as and when due is that they lose their jobs. All our cards are insured. So, when our cardholders lose their job, they don’t need to panic. They just let us know they have lost their job; give us evidence, and we will give them a three month period where we will stop interest on their cards. I believe within those three months, they will get their jobs and we will continue the relationship. That has been working for us.

Your operation is FinTech-driven, but Nigerians are complaining about the cost of service charges. Does that apply to the credit card issuing business?
It’s just like any other business that you have. There is always a cost, because there are some elaborate infrastructures that have been put in place to make all the cashless transactions quite seamless. The beauty of the FinTech space is that we are dealing with a population of 200 million people. We can afford to split the cost into minute granules that will not affect one single person. In fact, there are some transactions that you do now like in O3, if you have a prepaid card, you will use the card at the ATM, there are no fees, no hidden charges. Because the whole world is evolving, there are some costs that the company would absorb for the benefit of the customer. That convenience continues to be seamless.      Right now, we offer our prepaid cards for free to ensure that you are on board and enjoy our experience. For years, Nigerians have been paying to do that. Because of the expansion of the ecosystem, those costs are coming down to almost zero. And we continually evolve and because we have always been at the forefront of most things that we are the first to issue credit cards as a non-bank firm.

Do you actually think that the government and banking operators are actually promoting the cashless policy?
They are promoting the policy. And the CBN has done a fantastic job in promoting and sustaining it to date as well as providing an enabling environment for FinTech like us to actually thrive. But you see, it’s not a CBN-only job, it’s for everybody.
We all have to embrace this drive. And the banks are banks; they have brick and mortar, they are big. The shift to embrace these new innovations will not be as swift as the government wants it, because we are small and nimble. The banks have tried; they are the ones that pushed out all the ATM terminals and they are the ones that pushed out all the POS terminals. So, everybody is putting in their bit. The government has also come up with some platforms. I know they partner with Remita to be able to pay salaries.
But there are still a lot of gaps. For instance, recently, we were in discussion with a ministry that had to do with social services and the provision of grants to individuals and businesses for their sustenance across the country. We told them that look, you guys have been distributing these funds to the needy on a cash basis. We can’t pursue a cashless society on the right, while these ministries do cash on the left. So, we proposed using our prepaid cards where you can put those funds and each beneficiary of the grants can always have access to the funds on the card. Because all over the country, there are ATMs and there are agency banks where they can access the money.
And it’s been a tough push. When you want to change a paradigm, it’s really tough. It is beneficial to all when we move this way. In the parastatal I cited, a lot of Nigerians don’t think they are doing enough or they don’t have evidence of what they have done in the past, but with our O3 prepaid cards designed specifically, each beneficiary can stand up and hold the card up and say, ‘this is what I got, this is where I got it from’.

A whole lot needs to be done by everybody. But the Fintechs with the new ideas brought onboard are leading the way. The banks will have no option but to adopt and follow. And that’s why people look for collaboration because nobody can do it alone.

We all have to drag ourselves to the forefront of this cashless drive such that the people, the customers are the number one beneficiaries of this because if everybody is happy, everybody does more business.

Are Nigerians really enjoying the benefits inherent in such transactions?
When compared with the developed world, we are not that far behind in terms of FinTech services, wallets and debit cards. We’re actually ahead on instant transfers and so on. But with the credit card, well, we’re way behind. We’re behind and it puts our people at a big disadvantage. Anywhere in the world, the credit card drives the economy. What a credit card does is that it gives people higher purchasing power. Purchasing power means that people can buy more goods and services as they need. That means that the service industry and the goods industry get to sell more. More sales for them, and more income for them. More income for them means more tax for the government. More tax for the government means spending power to create infrastructure for the people.
So, it’s a whole circle and America is a very keynote in that ecosystem, because the people need that extra. For instance, in Nigeria where things are expensive, things happen without you being able to control them, react and sustain your own family and your own business. Things happen in life that you don’t expect, but the truth is life always happens. School fees always come, hospital bills always come, unexpected guests always come, car repairs always comes, purchases of tyres always come, everything always happens. But what we say here is that when those things happen, there is no way you should be running up and down trying to get a loan to solve those problems. They are part of life; it must happen whether you expect it or not. That’s one of the good things the credit card does for you; it gives you that confidence to step out in the morning and say whatever happens to me, I can take care of it with me, my O3 card and my God.
The benefit is there; we only need to get in tune with it. The Nigerian system is more like a community; when you have issues, you have friends or family you can call to bail you out. Overseas, we don’t have friends and family; everybody stays on their way. But what that does is that when you call friends or family, sometimes it affects your self-esteem or the perception people have of you. What the O3 card does is that it gives you that dignity, that self-confidence that whatever issues you have, we take care of it personally without anybody engaging in your business and you sustaining your credibility and place in the society because the credit card is not just about lending money, it’s a status symbol, it’s a sign of independence.

Do you think the ban on cryptocurrency is productive and will be economically beneficial to the government?
One needs to be careful in answering a question of this nature, because cryptocurrency has perforated all the countries in the world. I understand that some countries like America have actually invested in cryptocurrency. And personally, I believe, eventually, sooner rather than later, cryptocurrency will be a mainstay in the world economy. But you have to understand what the CBN and the Federal Government are worried about. 
Cryptocurrency has a lot of anonymity behind it. What that means is that money moves without you knowing who’s moving the money or where it’s moving to. CBN has been trying to push the know your customer (KYC) policy. So, you can’t on one hand push for KYC and on the other hand, allow people to move money in cryptocurrency transactions without knowing who they are.
KYC is a mainstay of anti-money laundering going on all around the world that came down from terrorism and funding those terrorist acts. So, you need to know who your customers are for you to assess them properly and know what they do. That’s one reason why the CBN has been able to push this bank verification number (BVN), your identification number. All-encompassing just to define who your customer is. You can’t fight terrorism while some people are moving money to fund those people. You don’t know whose money it is. And the whole basis or ethos of cryptocurrency is all about freedom – freedom to move money as you want.

What’ your take on the eNaira?
According to the CBN, eNaira users will benefit from the website’s simplified financial transactions. Users will be able to send money to one another using a linked bank account or credit card, customers will have the ability to transfer money from their bank account to their eNaira wallet with ease; customers will be able to monitor their eNaira wallet, check balances, and view transaction history; and customers will be able to make in-store payments using their eNaira wallet by scanning QR codes.
Also, the CBN governor, Godwin Emefiele, while speaking to a gathering of foreign investors in New York recently, said the October 1 launch date will likely be rescheduled due to activities surrounding the country’s Independence Day celebration. He said the launch would be held on October 4, 2021. The CBN also recently announced the formal engagement of global Fintech company, Bitt Inc., as its technical partner for the development of its digital currency.
Therefore, the launch of d eNaira shows the CBN is being futuristic. There is a strong desire to lead the Nigerian financial sector into the future. And they are leading by example. The utopia where Fintechs, traditional banks and d Nigerian economy fully align and complement each other is closer than we think. And the Central Bank is leading the charge.

Where do you see the business of credit card issuing in Nigeria and the globe in the future?
The cash volumes will continue to go down; we have seen that when we started in 2015. There are ATMs everywhere and Nigerians just want to hold cash in their hand. We experience a lot of cash withdrawals. But right now, the cash withdrawal portion of our business is actually the lowest of all the channels because there are different channels with which you can use our cards, ATM, POS transfers and web, the cash terminal debit is actually the lowest, so the cash requirement on the credit card is actually getting lower and lower. We’re moving in a positive direction.

So, what makes your card unique?
There are a lot of things that are unique. The first thing is the freedom you get using an O3 card, because with an O3 card, you can use it in any bank in Nigeria. What that means is that typically a bank will issue a credit card to you when you have an account with that bank. But with O3, regardless of whatever bank you’re using, you can get an O3 card. 
Now, secondly, the mood at which we charge interest is 0.013% per transaction. We don’t do flat and so, it makes it cheaper for our customers. We also have an app that actually mirrors your card. So, everything you can do on the card, you can do on the app. You can do transfers, pay bills, withdraw cash, POS, on the app. So, for whatever reason when you don’t have your card, you are not stranded.
That ecosystem of convenience is what the O3 card brings to the table. Right now, from this third quarter to the fourth quarter, we are now going a step further that there are some places that you will go by virtue of using an O3 card to pay, you’ll be entitled to some discounts and benefits. Some freebies that you don’t get anywhere else, access to lounges, free tickets, free popcorn, extra pizza, a lot of things, 10-20 per cent discount on what you’re buying.

So we’ve had customers saying that when they go to some places and they see those cards available, what they do is that they transfer money, using our app to move money from their own bank, into the O3 card and use it to pay at no extra costs. But you get the benefit back to you – so instant gratification.

For how long have you been around?
We launched in 2015, that’s six years. And that’s six years of engaging with people on this credit card level, we’ve learnt our lessons, we have made mistakes and we’ve improved. We keep on improving every day. So, the services we offer have evolved, our customer experiences have improved. Our customers have been with us for six years. Having done this for six years, we must know what we are doing. And that’s why being the first non-bank credit card issuer, we have held that position because of our evolution over a six-year period.

What’s the plan going forward?
We plan to hit the 5 million mark in the next seven years because that’s less than 5 per cent of the population of Nigeria. The market is huge. We intend to do pan-African; we intend to expand this product and service to other African countries. It’s really a movement, a revolution and we have to make the push.

Do you think a Nigerian Fintech firm like yours can make the edge in Africa?
Most definitely. I think prior to two years ago, we were going to number three or four in Fintech. We had South Africa and Egypt ahead of us and Kenya. But now I think, we’re going to number two because of the innovation in Nigeria and every day, you hear of new fantastic ideas coming up. We can take over Africa and we are almost there.