The Evolution of Fintech in West Africa

by:

Alero Echegile

Alero is a 1Y Nigerian student passionate about Entrepreneurship in Africa and Nigerian Jollof Rice.

 

 

Do you remember in late September, when you had to dress up for a costume party in Lake Geneva? Your cohort had just a few days to find outfits, so you turned to Amazon Prime. 2 days later, your package arrived. You inspected the package to make sure that your Trump face mask was not swapped for a Hillary face mask, before paying the delivery person in CASH. If this shopping experience does not sound familiar, you probably haven’t gone online shopping in West Africa.

The West African online shopper is typically an untrusting customer – willing to give this new technology a try but fearing that the product may never be delivered or his or her financial information compromised. As a result, Fintech companies focusing on providing payment solutions have sprung across West Africa.

One of the early players in the payment solution space was Interswitch. Launched in Nigeria in 2002, Interswitch became the payment processing platform that supports the majority of ATM/Debit cards in the country. Subsequently, the Central Bank of Nigeria launched a campaign to reduce the amount of cash-driven transactions nationally. This cashless policy pushed e-payment adoption into full gear, birthing a host of supporting technology. Many Nigerian entrepreneurs market their products via social media – Whatsapp, Blackberry Messenger, Facebook, etc. Since these entrepreneurs cannot afford to build websites, payment solutions like VoguePay have sprung up to enable these business owners to request payment via email.

Beyond payment solutions, the potential for FinTech in West Africa is enormous. The combination of a huge unbanked population, scarce information on credit history, and separated African economies create challenging, but profitable, problems for FinTech to solve. Opportunities include:

Financial Inclusion: According to a McKinsey report, 80% of the 326 million Sub-Saharan African adults don’t use financial services. Most of these people live on less than $5 a day, making serving their needs an unattractive investment for many financial institutions. Enter FinTech start-up Paga, which serves Nigeria’s unbanked population. Armed with a basic text-enabled phone and a phone number, you can send or receive money from anywhere in the country.

Access to Credit: Although most traditional financial services in West Africa are improving, lending is lagging behind. It is still difficult for most people to secure business or personal credit due to a lack of credit history data. Therefore, most people rely on their social reputation to secure loans from family and friends. However, Nigeria’s Sterling Bank is using social media to build credit profiles via its Social Lender app. Social Lender uses information from a customer’s social media profile to generate a Social Reputation Ranking that determines the maximum credit a person deserves.

“One African Currency”: Due to the fragmented political landscape across Africa, a single African currency is far from being a reality. Nevertheless, people are finding ways to go around currency exchange. Flutterwave, a Y-combinator backed startup[JB1] , a Nigerian entrepreneur is able to transact business with a customer that has a Visa card in South Africa, MPesa in Kenya, or a bank account in Ghana, without anyone having to physically convert currencies.  

Questions of Morality for Business Leaders

The “Navigating the Grey” series featured many enthralling speakers that brought their perspectives to some of the most difficult questions of life and business. How do you define success? How do you make trade-offs in line with your values? Where are you going and not somewhere else? The most fascinating speaker might have been Steve Preston, former CEO of Livingstone International and Former US Secretary of housing during the crisis who delivered his message that only ethical businesses are truly sustainable.

It was clear that the matter was personal to Mr. Preston given his long career in finance and the public service where he was frequently faced ethical breaches. First, in his role as a banking associate right after graduation, he witnessed firsthand a rising star manager being led out of the office, handcuffed, for insider trading. He was a CFO during the period preceding Sarbanes-Oxley where widespread fraud and unethical behavior destroyed the public’s trust in US companies.

 Steve Preston, secretary of housing during the financial crisis, was speaking about morality at Chicago Booth

Steve Preston, secretary of housing during the financial crisis, was speaking about morality at Chicago Booth

In addition, as Secretary of housing, he had a front-row seat to the financial crisis. While most people just blamed the crisis on the banks, Steve argued that the cause was due to moral failures that were far more widespread in the system, including lawmakers, mortgage providers, credit agencies, in addition to the home buyers themselves.

So what lessons did Mr. Preston take away from these anecdotes? First, people and organization don’t go from ethical to unethical in one full swoop. Rather, it is the slow erosion of principles over time that results in the kind of unethical behavior that we are increasingly seeing. Individuals and organization usually have plenty of time to realize their moral drift and correct the trajectory. Unfortunately, the slow and progressive divergence is both hard to notice and doesn’t inspire action even when noticed. There is a sense of urgency in a boat sinking that one can hardly find when oceans are rising, even though the final result is the same.

So how do we protect against this moral drift? The first step would be to start noticing it when it happens, which requires being conscious and deliberate about our values and principles. Intentional moral principles serve as an anchor, but also as guardrails while unspoken and implicit ones can be carried away by everyday busyness.

As the reader of this article will most likely be in a position of responsibility in the future, it is worth asking the question: What values do you stand for in your professional life? Is there anything your company can legally do, that doesn’t impact you and for which you would consider quitting your job? What is it that is so fundamental to your sense of identity that you could not work in an environment that does not provide it? Those are the values you are willing to stand for. Knowing them is half the task of standing for them.

By Ziad Abouchadi, Class of 2017. Ziad is a second year MBA with questionable ethics

Upcoming French Elections Pivotal for Europe’s Future

  By Ziad Abouchadi,  Class of 2017

By Ziad Abouchadi, Class of 2017

Many thought that the 2012 French presidential elections could not have been any more dramatic, with the front runner Dominique Strauss-Kahn arrested in New York for rape charges. Since France will be holding its tight elections in eight weeks, deciding the future of both Europe and what remains of the liberal order, the stakes are high and tension palpable in the markets and elsewhere.  

There are two things to know about the French presidency. First, presidents are much more powerful in France than they are in the US as they can and have dissolved other branches of government in the past. This power gives the presidential election a vital importance. Second, French elections are unique in that they are decided in a run-off voting process. People vote among dozens of candidates in the first round, only to be given a choice between the two winners of the first round in a second round of voting. This is critical to understand the dynamics of the coming election as the candidate with the most supporters doesn’t necessarily win.

Marine LePen (Front National) is the clear leader in the polls even though her party has never won the election in 44 years of existence. Her populist nationalist anti-immigration and anti-EU political line rings true with one out of four French voters. If she were to win, she will have a clear mandate to have France exit the European Union and to implement Trump-like policies.

But while Ms. LePen’s large and loyal supporter base all but guarantees that she will win the first round of voting, it remains to be seen whether she will be able to convince voters beyond this group of core supporters to give her a chance in the second round.

 LePen (left) and Macron (right) want to take France and Europe in completely opposite directions.

LePen (left) and Macron (right) want to take France and Europe in completely opposite directions.

The two contenders for the remaining spot on the second round are Emmanuel Macron (En Marche) and Francois Fillon (Republicains). Mr. Macron is a former investment banker who put in place his own political party to run for this election. He is supported by a little more than 20% of French voters, mainly young urban ones, for his socially liberal policies. He is the only unapologetic advocate of Europe, free trade, less regulation and a balanced budget.

Mr. Fillon is a more classical figure and represents the status quo in French politics. He languishes at a third position after being investigated for misuse of public money. He is a true Christian conservative, advocating state reforms and family values. Many see him as France’s Margaret Thatcher, which is not always a compliment.

Ms. LePen and Mr. Macron plan on revolutionizing French politics in different directions, ending decades of a two party system. The mere fact that they are leading in the polls suggests that business as usual will not be an option after this election. France will most likely either embark on a mission to consolidate its position in Europe and revitalize its job market or will exit the European Union with all the risks that that entails.

Thinking about the Tech we use

  By Rafael Tuachi, class of 2017

By Rafael Tuachi, class of 2017

It is said that some college students figured how to simultaneously jot down notes in a shared Google document. As opposed to each person having his or her own notebook, every person contributed notes to the same online resource, editing each other's annotations, answering questions and adding their own insights to the class. This revolution allowed students to be engaged in the class, and it also provided the ultimate study resource by the end of the term, leveraging technology to pool individual notes.

Technology changes how we interact and experience the world. For instance, how often have we been able to communicate with a recruiter thousands of miles away?  When I first arrived at business school, I was surprised at how prevalent and widespread the use of technology was, and how we employ every opportunity to connect every student to the rest of the class. Take Microsoft’s GroupMe, for instance. Were it not for it, coordinating communication would be much harder, whether about finding free pizza in the student lounge, carpooling, etc. The point is that we have learned to leverage technology to our advantage in our daily lives, be it for hanging out with friends, or for getting  jobs via online interviews.

Furthermore, we should be grateful that our the university’s administration has extensively adopted information technology and regularly invest in new tools to facilitate the learning process. We don’t think about it and probably take it for granted. Even though I realize the Canvas website doesn’t inspire awe, I still find it amazing that schoolwork, grades and faculty communication can be managed from the comfort of my couch. As a result, we are more productive, both at home and at work. The limit between these two worlds is suddenly weakened even if our physical circumstance says otherwise. Adding up all of our increased contributions, our community strives for an enhanced scholastic medium. In layman’s terms: we become smarter.

To conclude, I believe that the way we have adopted different technologies in our student lives is astonishing and worth noting. I find it inspiring how the combination of a screen and an internet connection allows us to enhance relationship with the people around us, from other students, teachers,  recruiters, and the general community that is Booth.

Rafael Tuachi ‘17 is not a techie, but is thankful he’s able to interview wearing a suit jacket and sweatpants.

Is heaven really in other people?

  By Ziad Abouchadi,  Class of 2017

By Ziad Abouchadi, Class of 2017

After a week focused on health and wellness, the coming one will see the University of Chicago Booth School of Business host its annual “Navigating the grey” series. In this context, professor of behavioral science Nicholas Epley set for himself the task of convincing Booth students that they should seek happiness in social connections rather than by more self-centered means.

During his talk, Professor Epley made the point that humans, often, underestimate the power and effect of social connections on their mental and physical health. As a result, and Booth students are no exception to this, they tend to avoid creating new connections unless necessary. We have all experienced long elevator or train rides where people stick their nose in their phone or newspaper in an attempt to ignore other people. We also generally avoid creating connections with the poor fellow in the middle seat on a long flight. Is this the best course of action?

In the purest Booth tradition, Professor Epley presented several scientific experiments that supported the idea that we are biased against creating other connections. As a result, while it is excessive and unnecessary to try to connect with every new person ones meet, it is also a pity and a waste when we never do so with anyone. In an attempt to avoid awkward conversations, we end up being less happy and fulfilled than we could easily be.

  2016 Navigating the Grey prompted student and speakers to share their perspectives on life, faith and values.

2016 Navigating the Grey prompted student and speakers to share their perspectives on life, faith and values.

This brings us to professor Epley’s second point, which is that awkwardness and shallowness are not inherent in conversations with strangers, but rather in our way of conducting them. We tend to avoid meaningful subjects when meeting new people and prefer to stick to superficial subjects. We prefer to talk about class schedule rather than happiness, of job search rather than family and successes rather than failures. We have programmed ourselves to avoid appearing vulnerable, especially in our first interactions with strangers. We overestimate how much people are going to judge us when we put ourselves out there and expose our vulnerabilities. Research seems to suggest that, contrary to our beliefs, people generally tend to feel entrusted with that new connection and reciprocate in kind. This results in more meaningful and less awkward interactions.

While we can certainly discuss the magnitude and extent of this phenomenon, the fundamental idea behind it appears powerful and credible. Given that meaningful social connections or the lack thereof can have such a disproportionate impact on our welfare and wellbeing, it is certainly worth giving a try to the latest findings of behavioral sciences.   

Ziad Abouchadi is second year student and soon to be ex Chibus opinion editor.

 

A talk on Hispanic-American Identity

  By Jesus Badiola , Class of 2018

By Jesus Badiola, Class of 2018

  Alejandro Lozano,  Class of 2018

Alejandro Lozano, Class of 2018

These days, there’s been a lot of talk about what it means to be American. From my outside view, I’m impressed at the how the rich diversity of cultures highly enrichens the American society. Particularly, I’m intrigued at how growing up in the exact crossing between two cultures shape your view about the world. To explore this topic in depth, I sat down with my friend Alejandro Lozano (‘18) to talk about his personal experience.

Alejandro, tell us a little about yourself:

My name is Alejandro Lozano and I grew up in Laredo, TX which is separated by about a quarter mile bridge to Nuevo Laredo, Mexico. Both downtowns are about 5 minutes apart. I am of the first generation of my family to go to school in the US along with 3 other siblings.

Tell us about some of your memories growing up

Living in Mexico early on, my earliest memories are of my mom driving us across the bridge from Mexico to the US every early morning for us to get an American education. My little sister and I both did all our schooling in the US, while my older sister and older brother did some in Mexico.

How was going to school in Laredo, TX while living in Nuevo Laredo, MX?

Laredo is a unique in that it was ~95% Hispanic when I was growing up. It felt like Mexico with an American infrastructure. You could live there and be perfectly ok only knowing Spanish. We had quite a the few public schools and one main private (Catholic) school. The private school was the closest school to the border and thus created an artery from Mexico’s wealthiest families to an American education. Because of this, the environment at this school was more of a preppy, proper Mexican world whereas the public schools were an entirely mixed bag (and much larger).

How do you think growing up in a border town has influenced your sense of culture identity?

Growing up in a border town, you are Mexican. Your upbringing is Mexican, everything about my house is Mexican. Spanish is the language spoken and Mexican food is about all that is cooked.

Laredo feels like Mexico because the vast majority of families grow up like this. At that time, I was surrounded by many other first generation Hispanics as well. Growing up in a border town, so close to your native ethnicity, allows you to be constantly connected to Mexican culture. It’s right there, 5 minutes away and you most likely still visit family there regularly, maybe even daily. It sticks with you forever and I believe that’s because it’s easy to be reminded of what it’s about.

What do you think is special about your community?

One of the best things you get out of growing up in such a culture is that you can have an instant connection to internationals you meet across the US. Whether it’s in business school or at a bar, you can meet someone from a Spanish speaking country and instantly relate even if they are from a different country than the country you’re from. Growing up being able to be fully immersed in a Hispanic culture allows you to draw parallels and make connections with cultures from other Central or South American countries. This, in turn, amplifies the opportunity to create more meaningful relationships when working within a global company or being a part of any global effort.

Jesus is a Mexican first year student on a daily fight against FOMO.

Alejandro is a first year, first generation student, attending Booth to shift his career towards the finance industry.

The “Great Wall” of Trump

  By Abdulaziz Saja,  Class of 2017

By Abdulaziz Saja, Class of 2017

We’ve heard the same rhetoric repeated more times than we would have cared for, “We’re going to build a great wall on our southern border and I will make Mexico pay for that wall, mark my words.” It was really surprising and more than a little disturbing hearing it the first time. It’s quite reminiscent of the rhetoric I’m used to hearing growing up in the Middle East with its multitude of corrupted “democratic” leaders and despotic regimes. Trust me when I say this, those are not a bunch you would want to emulate.

Not surprisingly though, Trump shifted the burden of financing this racist monument to the American taxpayer later to be recouped from their southern neighbor. But how much would building a wall really cost? I’m no civil engineer and thus deferred this matter to one with much greater experience… Google.

The length of the border between the US and Mexico is around 2,000 miles long. However, not all of it is flat land, parts of the terrain include mountains and rivers. Trump has estimated a wall would cost up to $12 billion to build. But It could even be more than triple that, $38 billion, according to an analysis published by MIT Technology Review. Its measurements are based on a wall that is only 1,000 miles long, with a height of 50 feet and a foundation that would go 10 feet below ground level. The estimates take into account concrete and steel costs, along with the cost of labor. To put into perspective, that’s equal to the entire annual budget for the Department of Homeland Security.

  Joke's on you America

Joke's on you America

Now these are only the direct costs and this would not be Booth if we don’t take a bit of an economic twist to it. The costs fail to take into consideration the negative externalities associated with this project. What about the effect on immigration? What message is he sending out to the world? Is hate speech ok now? Is it ok to exclude people who don’t fit our preconceptions? For instance, there are millions of men, women, and children living in communities that fall on both sides of the international boundary who cross the border each day.

As president of the US, Trump holds a very respectable office that carries a significant amount of influence internationally, for good and for bad. Unfortunately, we’re already seeing some of the “let’s build a wall” effects. The rise of populism, the majority vs. the minority, protectionism, restrictions on trade, restrictions on labor flows, etc.. After the world has taken major strides with regards to human rights and equality, are we now taking a step back?

I’m writing to say that the effect of building this wall and the hateful speech that goes with it will resonate much wider globally. As is the case with pollution, the negative externalities of which could be catastrophic. Now perhaps things are already set in motion in Washington and that the wall cannot be avoided. What we can do here as Booth students in response to this is to cultivate an environment of tolerance. I expect many of you to reach high in your professional lives. In time, some of you might hold positions of great importance and authority. So, if Trump is building a physical wall, then let’s do our best to tear down the ones inside of us.

Abdulaziz Saja is a 2nd year full-time student who doesn't like walls

Central banks planning to buy Twitter?

   By Jesus Badiola,  class of 2018

By Jesus Badiola, class of 2018

There’s a joke going around the floors of currency operators. It goes: “The Mexican central bank should stop investing in the Mexican peso. Instead, they should come up with about 12 billion dollars, buy Twitter and immediately close it down.” Some people smirk at this statement, and then go back to wonder about what the future of monetary policy looks like under Trump.

Normally, central banks adapt their monetary policy to changes in the macroeconomic environment. Now, under President-elect Trump's establishment, a single tweet can send exchange rates flying all over the place.

Case in point: Last week the Mexican peso plummet to an all-time low after Trump criticized automakers that had plans to build factories in Mexico. The 2.9% fall in the first week of January made the Mexican Central Bank auction off about 2 billion USD from its reserves to try to protect the peso’s depreciation. Then, after another series of anti-Mexican statements, the peso kept its downwards spiral.

When conventional monetary policy fails, what is left for central banks to do to protect their currencies' acquisition value? Traditionally, they target certain goals, such as an inflation, unemployment or economic growth, and control the supply of money and set interests rates to achieve their goals. In special situations, they might take unconventional actions to secure their targets; such as currency or treasury bond buy-back programs that influence their goals more directly (e.g. Google “Quantitative Easing Program”).

These unconventional programs are supposed to work in the medium to long term and to target extraordinary macroeconomic situations, such as the 2009 financial crash or an unexpected surge in inflation during a year. In order to be able to execute on these programs, central banks hoard foreign currency reserves to signal to the market that they’re able and willing to protect their currency from external shocks. Some countries, such as some Latin American countries, control upwards of 15% of their GDP in foreign currency reserves or credit availability.

But all of these premises are changing. Now, if the President-elect has some great Indian food and tweets about it, we should buy some rupees and short the sterling. Instead of following macroeconomic trends, maybe we should follow the future First Lady’s fashion choices or his family’s Spotify account to gauge our investment strategies.

Basically, maybe buying Twitter stock is the best risk-controlling strategy today.

Jesus is a Mexican first year student on a daily fight against FOMO.

  The effect of Trump's Twitter rants have had serious economic consequences.

The effect of Trump's Twitter rants have had serious economic consequences.