While companies had only begun to lay off staff and shut down offices in preparation for a terrible season for the tech industry, a new bank Stellas Digital Bank officially launched in February last year.
Initially, communication materials called it a microfinance bank. One year later, its CFO, Solomon Bukola, also one of its co-founders, is ready to share what he has learnt. But first, the company is dumping the microfinance title in its name and just going with Stellas, a digital bank.
Stellas’ battle strategy
By launching last year, Stellas, which hasn’t raised funds yet, immediately entered a highly competitive space where heavily funded fintech startups like itself and juggernauts running traditional banks are battling for every customer they can find.
This led Stellas to switch gears and focus squarely on specific customers; they are digitally savvy, can’t stand banking halls and has some disposable income. He insists they are not customers of traditional banks.
“There might be a point where there might be an interaction, but my customers are not GT Bank customers. People who always want to be in the bank all the time are not my customers. My customers are people who are tech-inclined.”– Bukola said in an interview with Technext.
“All microfinance banks are classified as retail banks. But it’s a category that has a huge end of people,” Bukola said of the reason for changing the name.
“If you look at how Nigeria is set up, there are a lot of people that fall into that bracket because of the way the economy is. What we did to be able to be effective in that market is to deploy the technology.
To play in this space, digital banks like Stellas have had to focus on pursuing their customers and offering services to them in their own homes. For instance, rather than have customers collect their ATM cards at the bank, they deliver them to customers who set them up through the app.
“The business model requires us to come to you and not you to us,” he said.
Digital banks in an analogue economy
However, this raises great questions about the future of a bank like Stellas in an economy like Nigeria that is not fully digital. Many young people who make up the customer base for digital banks are apprehensive about coming on board.
These banks with very few physical offices do not help in a culture used to banking halls and screaming at customer care representatives. At the height of the cash scarcity a few weeks ago, clips of customers half naked in protest in banking halls made the rounds on social media.
For Bukola, customers’ apprehension comes from a culture that isn’t used to digital banks.
Smaller digital banks like Stellas have experienced near-seamless transactions even as the digital infrastructures of bigger banks crash. Bukola says that it underscores the type of seamless experience that customers will have to trust a digital bank.
But this is also because digital banks have fewer customers than larger banks. “Maybe that’s an advantage to us because it allows us to provide a more personalised service and make people feel these people are really on to something,” Bukola said.
When Stellas launched last year, its “Ghost Mode” immediately found mass appeal. With the Ghost feature, users can send money anonymously. It offers the obvious for users; privacy and confidentiality. But Bukola says it can help reduce cyber crimes because it protects customers’ data.
“People’s data flying around can be captured and used for different purposes. Once they combine some of this data together, it can give them (cyber criminals) what they want,” he said.
Recently, the Nigerian Stock Exchange announced that young startups could list on its platform and raise money through the public. Bukola says this is a step in the right direction, albeit late.
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“I think it’s the right step and direction by the Nigerian Stock Exchange, maybe a little bit late, as long as it doesn’t cost a lot to list. One of the things that have made people run away from the stock exchange is the compliance cost,” he said.
Part of the compliance to listing on some stock exchanges at times makes demands that startups can’t meet up with.
For instance, an exchange can demand that companies listed must have risk managers with experience so high these companies can’t even afford to pay the managers or have one of the big firms as an auditor. Bukola said there must be a balance for young startups to benefit from the move.
Many tech startups offering a myriad of products have come and gone. So where would Stellas be in the next five years?
“I see Stellas becoming a household name in fintech and banking as a service sector, contributing significantly to the economic performance of the fintech sector and expanding to other regions. There is a lot more to do,” he said.
Policy is needed
But for this to happen, Bukola doesn’t shy away from the role that CBN will play not just in Stellas’ future but in the future of the ecosystem.
“The CBN should give more responsibilities to the retail bank. There are a lot of people in that retail net that need to be captured. Some services have been restricted like trading forex, but we are the closest to the people,” he said.
The retail bank was excluded when they wanted to pump the new Naira notes into the market. But these banks can be used to get to the people,” he added.
“There are two sectors that need to be digitised, and we would not need cash; the transport and the informal market sector. We should develop a policy in this sector that would allow innovators to come in and they should not be discouraged. The government might not have the time to do this. We need to catch up.”
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