New innovations of Opay disrupts banking

The face of the nation’s financial sector is rapidly changing with the birth of Opay, a one-stop mobile-based platform for payment. According to findings, banking is no longer business as usual as the arrival of the firm is causing serious disruptions and competition.

The firm, set up by Opera, a Norwegian internet company, was launched in Nigeria in August 2018 as a payments solution but quickly became popular through its ever-present bike-hailing service.

It was originally designed as a technology based firm meant to enhance financial inclusion by providing back-end technology to consumers to access products offered by financial institutions.

While many Nigerians identify the company more as a bike-hailing firm owing largely to the visibility of its green branded bikes, Opay is quite more than that.

The firm is a one-stop mobile-based platform for payment, transportation, food and grocery delivery, and other important services in people’s everyday life with millions of users relying on OPay every day to send and receive money, pay bills, and order food and groceries.

When it started operation in the country, it launched several products that enticed Nigerians to it. One of the products is the bike hailing service. Through the service, a customer with an Opay account can hail a bike and pay instantly from his or her OPay account.

Other services introduced by the firm include payment by scanning (OPay QR): Through this application, a customer can pay and receive money by just scanning the OPay QR code, without cash; purchasing airtime from any network with the OPay app; transfer and receive money and paying for Cable subscriptions with  OPay without paying any convenience fee, among many others.

Inaugurated in July 2018, OPay started using a network of agents to take its services to Nigeria’s unbanked population of 36.6 million people. In December 2018, OPay said it had 3,000 mobile money agents in the country.  In April 2019, it claimed the figure had grown to 10,000 agents, while it jumped again to 20,000 in May. By July 2019, the company claimed it had 40,000 active agents across the country.

However, Opay is fast becoming a threat to the nation’s financial institutions by offering customers the same services being offered by them. In the middle of 2018, Opay added three core banking products to its services. They are opening and running of accounts for customers (PayCom), lending service (OKash) and offering investment platform (OWealth) for its customers to invest their monies like in banks.

Through PayCom, a fintech company originally founded by Telnet Nigeria, OPay is cementing its dominance of the nation’s fintech landscape with the creation of bank accounts for its users, allowing them to receive money by using Paycom as the name of their bank and their phone numbers as the account numbers.

Our correspondent learnt that Opay paid a huge fee to acquire a controlling stake in PayCom which owned a licence to operate payment services in the country but was at risk of losing the license after the Central Bank of Nigeria (CBN) proposed stricter financial licensing requirements. The acquisition gave Opay a foothold in the nation’s tough financial market and since the acquisition, PayCom has operated all OPay services in Nigeria and become a vehicle for Opera’s $40 million investment fund for the country.

Also, OWealth is the wealth management arm of Opay. OWealth Savings Investment is a platform where a customer can invest in Opay and get 10% annual interest returns on his investment. The OWealth product is available once an investor has complied with OPay Know Your Customer process and his identity verified.

Unlike most conventional banking institutions, OWealth savings investment gives investors a 10% interest on their investment. This is higher than the highest 6% banks can offer on investment.

However, WEMA Bank was the first in Nigeria that came up with an ALART investment scheme. The WEMA bank ALART is the only one that stands out among others. But Opay OWealth savings investment is competing with ALART in that financial space.

BH findings revealed that for as little as N500, OWealth help customers to invests in relatively risk-free products like fixed deposits, treasury bills and mutual funds and receive the maximum 10% returns on his investment.

All interest accrued on OWealth wallet is calculated annually and credited daily. If an investor wishes to withdraw funds from his OWealth Wallet, the funds will be transferred to his Opay Wallet. Any interest on investment is payable on funds invested in OWealth wallet once it has completed 24 hours. This is different from the investment schemes run by conventional banks. Investors can also withdraw their funds without losing the interest you have earned.

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Like PayCom and OWealth, the financial giant is also using OKash, its micro-lending service, to disrupt Nigeria’s financial sector. Opay claims to offer loans between ₦2,500 to ₦60,000 with a loan term of 91 to 356 days and a maximum interest rate of 24%.

Between July and September 2019, the firm provided approximately 5 million loans valued at $250 million in Kenya, India and Nigeria. During the same period, the quick loans platform tripled its revenue to $39.9 million.

Meanwhile, commercial banks are battling Opay in the push for the control of the digital financial market. BH findings revealed that the banks are investing heavily in financial innovations and installing self-service points powered by mobile technology within their physical branches.

Wema Bank was the first to introduce a fully digital bank named ALART, with an interest rate of 6%. In 2018, the United Bank for Africa (UBA) launched “Leo”, a specialised initiative aimed at putting the bank’s customers first with UBA continuously developing strategies aimed at easing transactions for the bank’s numerous users.

The Group Head of Online Banking at UBA, Mr. Austine Abolusoro, said that Leo is not just a chat machine, but an artificial intelligence personality meant to address any type of banking concerns raised by customers. With Leo of UBA, customers can open a bank account and initiate transactions from within the Facebook Messenger app.

According to MasterCard’s Country Director, Adebanjo Omokehinde , who also agreed that fintech is a threat,  while fintech companies are here to stay, the banks are not going away either. She disclosed that some banks run fintech solutions that are white label products.

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According to her, MasterCard plays between fintech and banks, by leveraging on the strength of all the parties involved.

OPay Nigeria owes its huge leap to support it gets from Opera, its founder. In May 2017, the Norwegian internet company announced a $100 million fund to invest in digital businesses in Africa, with $40 dedicated million to the Nigerian market alone. The company said the fund was aimed at improving financial inclusion and the African digital economy.

It secured its first external funding in July 2019, receiving $50 million in funding from a group of Chinese investors including Sequoia China, IDG Capital, Source Code, GSR Ventures and Meituan-Dianping.

These investors represent China’s continued interest in Africa. In addition, investors like Sequoia China and Meituan-Dianping have experience backing loss-making unicorns. Sequoia China is an investor in Didi Chuxing the ride-hailing startup that lost over $1 billion in 2018. Didi forced out Uber in China by acquiring them and then backing Taxify in the markets where Uber operates in Africa and Europe.

Meituan-Dianping developed a super app for food delivery, ride-hailing, hotel booking and payments and this experience could prove useful to the Nigerian company. With this funding round, Opera’s stake in OPay now stands at 19.9 percent.

Also, the fintech company raised $120 million Series B funding from a group of Chinese investors in November 2019. Participating in the round include existing investors Meituan-Dianping, Source Code Capital, IDG Capital, Sequoia China and GSR Ventures who funded the company’s $50 million raised in July. This new round also includes a few new investors namely Japan’s Softbank Asia, BAI, Redpoint and GaoRong.

Meanwhile, despite the company’s apparently unstoppable growth, its management overplayed its hand last year November when it increased its transaction fees for bank transfers. Previously, the app charged N10 when users made transactions from their OPay wallets to regular bank accounts. This fee no longer applies; instead, the app now charges N45 for the first transaction a user makes in a day. Subsequent transactions will incur a flat 1% processing fee.

For example, if an OPay user wants to send N100, 000 from the app to a regular bank, instead of paying N10 as the transaction fee, the user will now pay N1000 (1%) as processing fee. But if this is the first transaction that the user is making that day, he would pay N45 as transaction fee.

The company had originally raised the charge to 2% and a minimum rate of N15 per transaction. In simpler terms, users would have paid 2% transaction fees for any transfers to banks. But after criticisms from its customers, the company was forced to reconsider the rate, setting it at 1% and a minimum of N45 per transaction.

Unfortunately for the firm, this is coming at a time when the CBN directed banks to reduce the rate they charge on transfers and withdrawals. Before the CBN’s directive, sending money from one bank to another bank incurs between N52.5 and N80 for every transaction. OPay’s N10 transaction fee was the main reason many people opt to use it for funds transfer.

OPay’s advantage is now gone with the November increase and CBN’s lowering of banks charges which began January 2020. With the introduction of the 1% fee, it is now more expensive to make funds transfer from OPay than doing so with regular banking apps.

The company however said that OWealth users would be exempted from the new charges as it is developing its technology to accommodate the change. OPay’s Country Manager, Iniabasi Akpan, told BH in an emailed statement that his company was working on a plan to resolve any issue affecting OWealth users.