In conversation with Laurin Hainey, CEO of Fairmoney, about global expansion and reducing Nigeria’s dependence on cash • Techpoint Africa
The Africa-focused digital lending company Fairmoney recently expanded its services to the Asian economic powerhouse India. And after reportedly seeing massive growth, it seems to go further.
Founded in 2017 by Laurin Hainy, CEO; Matthieu Gendreau, CTO; and Nicolas Berthozat (Co-founder of the product) Fairmoney is currently a licensed lender with plans to make a greater impact on the financial market. But where did the journey begin?
Hainy started his journey into the fintech world in a very interesting way. The son of Nigerian-German parents, Hainy spent most of his childhood in Germany, paying only one visit to Edo State, Nigeria. He got to experience Lagos as an adult and learned how the country works in the rough way.
Hainy studied corporate law in The Hague, the Netherlands, before working at the Indonesia Stock Exchange.
After working for a consultancy for a number of years, Hainy left the company to set up a grocery delivery company in Sweden that focused on providing healthy alternatives to the most popular foods.
“You put all your money into a company that thinks it’s going to change the world and then you go out and find that nobody cares,” says Hainy.
From then on he started studying for his Masters in France and on his first day of school he met and partnered with a man who had just sold his startup to Booking.com.
“Imagine that at such a young age I manage a fund worth over 20 million euros and finance over 15 companies,” he muses.
While Hainy achieved what most would call a success, the European VC landscape didn’t like it.
“I felt like the focus was only on marginal improvement and not trying to solve deep problems.”
The big idea
In 2016, Hainy met Gendreau, who was just ending his position as a product manager at PriceMatch, a revenue management company. Both had observed the development of neobanks in Europe and began to discuss opportunities in this sector.
During a short visit to Nigeria, Hainy lost his SIM card and was unable to log into his banking app.
“The experience was annoying and far from what is normally available in Europe,” he laments.
According to Hainy, Nigeria, if not Africa, has a long way to go compared to the emerging age of banking in more developed countries. He believes the Nigerian lending challenge is part of a larger banking sector problem.
Fairmoney’s vision was and is to be a digital bank, but Hainy decided to enter this area through one of its critical points.
“We might suspect that banks derive a significant portion of their income from loans, regardless of the type. In Nigeria, traditional banks prefer to lend to the government and very large corporations.”
Several adults in emerging markets have limited access to credit even in critical sectors. The International Finance Corporation (IFC) estimates that small businesses account for more than half of formal jobs and contribute over 60% to the region’s gross domestic product (GDP).
However, the IFC notes that banks still view these businesses as risky and Loans to this sector is not common. According to the United Nations, small loans could be given to people Upgrade a micro business to a small or medium business.
Several startups have recently begun to address aspects of this problem and if you can look to the Google Play Store records as a guide, these platforms are becoming increasingly popular.
For Hainy, the goal of building Fairmoney is to steal market share from cash and bring more Nigerians into the cashless economy.
Despite the introduction of a wide range of electronic payments Cash remains king in Nigeria. A survey by Statista 2020 found that 77% of 1,046 Nigerian respondents still prefer cash to other transaction methods. And the annual increase in money printing is a sign of its continued dominance.
“We can change that mindset by developing good enough products that people without a bank account can go online. In that case, credit or any other route could work, ”argues Hainy.
Fairmoney in focus
Hainy believes that most of the people building fintech companies tend to focus on the technical side of things without considering the financial aspect of operations. He says Fairmoney can balance the quality of talent on the team with strategic hires.
Yaw Mante, who worked at Barclays Bank, was hired as chief financial officer. It recently did Rohan Khara, former product manager of the Indonesian company Gojek, has been appointed Chief Products Officer (CPO).
So far the company has Raised $ 11 million in fundingwhich closed in 2019. Fairmoney has offices in Lagos, Paris, Latvia and now India.
Fairmoney’s expansion into India came with little fuss, and Hainy insists that this is the “Fairmoney Way”. He says the decision to expand into India was based more on data-driven insight than emotion.
“When we wanted to expand, of course, people thought we were going to Ghana, Kenya or some other big African country. However, our market research has not found enough evidence to support such a move. We had to move to a location where the market had huge savings. “
Hainy explains that entering the Ghanaian market would have involved regulatory costs of up to $ 500,000 compared to $ 200,000 in India. Kenya seemed like a good choice too, but Hainy didn’t see how his startup could realistically compete with M-Pesa.
According to a World Bank report, Only 32.8% of the 67 million people in Egypt have a bank account. Egypt may be a huge market, but Hainy says it has strict know-your-customer (KYC) requirements.
In India, however, there is a more robust KYC system with Aadhaar, a government-run biometric identification system. In 2017, the Indian government reported that 1.15 billion people had registered for the service, making it the the world’s largest biometric identification system.
For a lending company, this should be delicious, with the country’s robustly developed payments sector being the icing on the cake. Graduated in 2018 reported that four out of five Indian adults had a bank account.
“The credit landscape is good, the cost of acquiring customers has been low, and the regulations all but prohibit the use of cash,” says Hainy.
Sounds good right? One important factor we need to consider, however, is that such a robust system would mean that digital lenders, neobanks and other financial services providers are already competing in this space.
Hainy admits that unlike Nigeria, where Fairmoney seeks to combat the dominance of cash, commercial banks, microfinance banks and other digital players compete in this market.
“Our strategy is to lend to people with poor credit histories. People to whom other traditional banks would be reluctant to lend, ”he explains.
The company claims to have disbursed half a million loans in the Indian market in just six months without any marketing campaign. For a country with over a billion people, this all makes sense and clearly shows that there is a much larger market to be conquered.
Lessons from the Nigerian market
In conclusion, Hainy points out some similarities between the Nigerian and Indian markets that have helped the company expand.
“The Nigerian market has taught us lessons about using a data-driven, customer-centric approach to execution,” he says.
“In Europe there is a large group of customers who think the same and want the same, but that is not the case in Nigeria. If you travel north to south in France, you will meet people with similar tastes, but that is not the case in Nigeria. “
Adopting a data-driven approach seems like a breeze, but some experts agree that data availability and access are issues in Nigeria. While a lot of data is a gold mine for financial institutions, if not all, a lack of data is a major challenge.
Fairmoney was able to pull data from regulators and credit bureaus. It also has the services of API fintech startups like okra and Mono while it collects its own data that it contributes to the offices.
In Nigeria, Fairmoney offers loans between 1,500 yen (US $ 3.30) and 500,000 yen (US $ 1,110.00) with annual percentages between 30% and 260%.
We have questions raised About such high interest rates, and even Google threatened to kick apps with it high prices from the Play Store. However, Hainy argues that Fairmoney’s interest rate is due to the higher default rates in Nigeria.
However, the company claims it has a non-performing loan ratio of less than 10%, and that number remained constant during the 2020 pandemic.
“Most of the human downtime was during lockdown when freedom of movement was restricted. It was then that we realized how much people still rely on physical deposits and cash for their daily transactions, ”reveals Hainy.
The startup claims it has grown from 100,000 users in 2017 to 1.3 million users in 2021, with 6.5 million loans disbursed.
With plans to acquire a commercial banking license in the coming months, Fairmoney aims to complete a Series B round to complete the task associated with operating a neo bank in Nigeria.
Nigeria is now where India was five to seven years ago, said Hainy, and there is enormous growth potential that the company wants to develop.
Featured Image Credit: Delivered.
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