Fintechs in the Nigerian Capital Market
This presentation explores the impact of financial technology (fintech) on the Nigerian capital market, highlighting risks, opportunities, and the growth of capital and technology compared to job creation. It delves into the role of fintech companies in leveraging technology to enhance investment decision-making, improve market infrastructure, provide alternative funding platforms, and automate post-trade processes.
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Fintechs and the Nigerian Capital Market Fintechs and the Nigerian Capital Market Afolabi Olowookere, Ph.D. Economic Research and Policy Management Securities and Exchange Commission, Abuja, Nigeria Presented at 1st CMC, 19 April, 2018
Technology Comes with Risks and Opportunities Between 400 million and 800 million of today s jobs will be automated by 2030 - -McKinsey Global Institute, Nov., 2017 McKinsey Global Institute, Nov., 2017 Up to a third of all American jobs will be lost to automation within the next 13 years - -McKinsey Global Institute, Nov., 2017 McKinsey Global Institute, Nov., 2017 Two third of all job in developing countries might be lost to automation World Bank, 2016 World Bank, 2016 . Simulated worry level (%) Old worker Parent Business owner Young worker 0 20 40 60 80 100
Capital (and Technology) will Grow far more than Jobs Unemployment rate (%) Nigeria s labour force rose from 25.2m in 1987 to 85.1m in 2017 Unemployment rose from 6.6% to 40% in the 3 decades Jobs creation not meeting labour force expansion Year Labour Force (mn) 1987 1997 2007 2017 25.2 41.6 60.0 85.1 237.8 6.6 10.2 14.2 40.0 33.4 NIGERIA Growth(% First Bank increased its capital by 52,711% in 3 decades Price level increase was less at 22,312% But its labour fell by 14.9% An average worker used N2000 capital to work in 1987, now N9.6m in 2017 Capital-labour ratio (capital intensity) Year 1987 1997 2007 2017 Fixed Asset(N'm) Employees 167 4,592 17,296 88,315 52,711 10,865 10,012 7,593 9,249 -14.9 0.02 0.46 2.28 9.55 FIRST BANK Growth(%) GTB increased its capital by 16,493% in 2 decades Price level increase was less at 831% Its labour also increased by 1,511% An average worker used N1.8m capital to work in 1997, now N18.8m in 2017 Fixed Asset (N'm) Capital-labour ratio (capital intensity) Year 1997 2007 2017 Employee 595 325 1,875 5,237 1,511 1.8 13.8 18.8 GTBANK 25,865 98,670 16,493 Growth (%)
FinTech in the Capital Market Financial technology (FinTech) - Definition Companies that use new technology and innovation to compete with traditional financial institutions in delivering financial services. 3. Artificial Intelligence & Analytics: Used to develop solutions based on in-memory computing and machine learning. Leveraging on the massive structured and unstructured (big) data to make predictions, and build analytics. Applications in the capital market: 4. Investment Technology Digitization: Comprises software which enhances investment decision-making. Growth of ETFs and passive investment strategies encourage applications of automated advisors (Robo advisory) and automation in asset allocation. 1. Core Market Infrastructure: Creating safer and more transparent access to liquidity; Developing efficient and intelligent platforms for trading and clearing; An example is a Blockchain technology. 5. Alternative Funding Platforms: allow alternative models for capital formation across both large institutions and SMEs. Lenders and borrowers can now connect directly online bypassing intermediaries. E.g. Peer-to-Peer (P2P) lending, Crowd-funding and Initial Coin Offering (ICO) of Virtual Currency and Tokens. 2. Post-Trade Digitization/RegTech: An avenue for automating the heavily manual processes that still exist within the compliance, regulatory and collateral management. RegTech companies have provided solutions in areas such as: regulatory filing and fraud prevention.
Technology Opportunities in NCM Operation Activities Activities Opportunities Opportunities Recommendations Recommendations Market data products Index construction Exchange Traded Derivatives, CCP NASD Enterprise Portal optimising and populating Crowd funding Subject to necessary law amendments Retail market development Private bond information services Electronic warehouse receipt Development of indexes On-boarding of brokers Warehouses connectivity Linking shareholders accounts to BVN Instant update of investor accounts with Registrars Relationship with CCP and roles in ETDs trading NSE NSE Operators Operators embrace and adopt technology in current activities and in planning future operations. partner with FinTechs to introduce new products partner with FinTechs to improve on existing processes. invest in FinTechs NASD NASD FMDQ FMDQ AFEX AFEX CSCS CSCS FinTechs FinTechs continuously engage CMOs to understand their technology needs. introduce to CMOs the applications and benefits of their innovations. Obtain licences to perform relevant capital market function Raise funds from capital market (VC, PE) Invest and traded in existing securities Data and information-based products and solutions Data and predictive analytics Participation in retail bond trading Electronic KYC systems Algorithm Trading Broker Broker/ / Broker Broker- - Dealer Dealer Automated portfolio construction and rebalancing Automated investment advisory/ management Fund Fund Managers Managers Linking shareholders accounts to BVN Seamless connectivity with CSCS and Banks for real-time updates. Electronic AGM. Registrars Registrars
Technology Opportunities in NCM Regulation Activities Opportunities Recommendation Registration securities operators of Platforms for tracking application and registration status Decentralized examination at the zonal offices On-line examination and registration E-filing E-registration a robust archival and retrieval system. Improved adoption of technology and Investments in staff and tools to understand and regulate evolving products and processes. Regulation must promptly respond to innovation. Inspection of CMOs (on-site and off-site) Minimum operating standards and technology for operators Returns/filing uploading portal Real-time monitoring Analytics and information processing Application of technology to risk-based supervision Encourage new innovations that bring efficiency and lowered costs. Understand the benefits, risks and purpose of new products Surveillance market/trade of Deployment of real-time market surveillance system Establish the regulatory requirements Investigation Enforcement and More efficient complaint management system Inter-agency and inter-jurisdictional collaboration Rule Making On-line platform to digitalise, analyse, review and provide feedback on rules and regulations Inform public in the case of risky products (e.G. ICOs and online retail forex) Governance Disclosure and Returns/filing uploading portal Real time monitoring of CMOs financial position Analytics and information processing Register only credible platforms Market Development Sharing services software Integrating e-dividend and DCS platforms Facilitating innovation hub Application of Regulatory Sandbox Regulatory sandbox may be required
On-going Research Surveys - Electronic Assessment of E-dividend Payment Corporate Governance Capital Flows & Ownership Structure To measure the ownership structure of Nigerian securities, To research the impact of corporate governance on companies and the economy To measure the opinion, experience and suggestions on the e-dividend payment system Investments of non- residents in Nigerian securities, and Objectives Investments of Nigerian residents in foreign securities Banks(25), CSCS(1), NIBSS(1), Registrars(18), Broker Dealers(50) and Investors(1200) *Listed companies via their Registrars Broker Dealers, Respondents *Registrars will be sent links which to be shared with their client companies Fund Managers Registrars
