Fintech has the potential to improve efficiency in the capital market, reports CHRIS UGWU
It has unequivocally become expedient to explore ways by which the structure of the capital market can be overhauled to position for global competitiveness and growth. That is why all over the world, stock markets are using opportunities offered by technological revolution such as Fintech to transform markets activities. Fintech is a finanial technology platform that is fast recognising and accepting the role of technology in the financial sector. One of the major reasons for the acceptance of technology in the financial sector is that it makes thing very easy to access and also to achieve. In the Nigerian market, like any other developing nations, digitisation of activities and transactions has helped in boosting market depth, investor participation and seamless operations. As digital revolution is fast becoming a tool for pooling retail savings, regulators and market stakeholders believe that tapping the opportunities to pool investments from both local and foreign investors would help boost investor participation and reduce transaction costs.
Potential to reduce cost, improve efficiency
The Securities and Exchange Commission had said that Fintech had the potential to reduce cost of transaction, improve efficiency and transparency in the nation’s capital market. SEC’s Executive Commissioner, Operations, Mr Dayo Obisan, who stated this recently at the Capital Market Solicitors Association (CMSA) 2021 Annual Business Luncheon themed: “Technology Driven Products in the Capital Market: Prospects and Challenges,” said the acceptance of Fintech in the capital market was growing speedily. He said that one benefit derived from COVID-19 was the untilisation and acceptance of Fintech by capital market participants and other capital market operators. The market rise to all time high in 2020 despite the pandemic through business continuity plan activated by Fintech. Fintech has the potential to simplify capital raising, we expect improved participation and collaboration of solicitors and SEC. “As a Commission, we support innovations, especially those that will protect investors funds. We can turn to you for guidance and we urge you to promote compliance to regulations,” he said. He noted that as the apex regulator of the Nigerian capital market, with the dual mandate to regulate and develop the market, the Commission recognised that the greatest asset of any capital market and, indeed, any financial market, is its investors. “It is investors, whether retail or institutional, that provide the savings needed for productive investments. Inclusion of the excluded population is therefore critical for deepening a sustainable capital market,” he said. Aigboje Aig-Imoukhuede, a former Access Bank GMD, who was a key note speaker, commended the Capital Market Solicitors Association for its contribution to the capital market. Aig-Imoukhuede noted that technology and innovation had transformed global financial society. “Beyond banks, other financial institutions have been transformed due to Fintech. Following growing impact of fintech, ETF and high trading frequency has seen major changed that has impacted the capital market. “Nigerian today has ranked sixth globally in bank real time payment, growing from 10 million in 2010 to 111 million ten years after,” he said.
Aiding financial inclusion
SEC had stated that it recognised the importance of digital platforms for democratising access to capital market products and services for greater financial inclusion in the capital market. This was stated by Director General of SEC, Mr. Lamido Yuguda, who was represented by the Executive Commissioner, Legal and Enforcement, Mr. Reginald Karawusa, at a webinar organised by the Commission with the theme “Digital platforms: New Frontier for Capital Market Inclusion.” Yuguda said: “As the apex regulator of the Nigerian capital market, with a dual mandate to regulate and develop the market, we recognise that the greatest asset of any capital market and indeed any financial market is its investors. “It is investors, whether retail or institutional, that provide the savings needed for productive investments. Inclusion of the excluded population is, therefore, critical for deepening a sustainable capital market. According to him, the Enhancing Finance in Africa (EFInA) 2020 Report on the Nigerian “FinTech Landscape and Impact Assessment Study,” said as at December 2018, about 40 per cent of Nigerians were still financially excluded. 51.1 per cent of the excluded population are women, while 61.5 per cent are between the ages of 18 and 35. Also 34 per cent had no formal education and 80.4 per cent resided in rural areas. This, Yuguda said, meant that 40 per cent of Nigerians, who are financially excluded, especially those between the ages of 18 and 35, were also excluded from participation in the Nigerian capital market. This low level of involvement in the market has spurred the Commission to intensify its investor education efforts to attract greater participation in the capital market by both existing and potential investors. The SEC boss asserted that the capital market, as part of the Fintech eco system, was witnessing changes in the conduct of market activities with the emergence of digital platforms, which provide wide scale, cost effective and efficient solution for inclusion of potential investors in the capital market, especially the younger population. “Since 2018, the Commission has been engaging stakeholders within this space, to develop an efficient regulatory framework that will mandate responsible digital financial practices to protect investors or consumers. “The discussions and insight from this webinar, therefore, will be instrumental in shaping the regulatory landscape for the operation of these platforms, as well as support our efforts in securing the mutual benefits from their emergence,” he noted. He restated the Commission’s objectives, which are to build a modern, efficient and low cost market characterised by adequate product offerings, efficient processes and market integrity. “We must do this continually by raising standards, embracing new technology, introducing new products, enhancing our processes, widening the investor-base, invigorating investor education and providing an enabling regulatory framework to support it all,” he added. In his remarks, Director, Market Development Department at SEC, Mr. Edward Okolo, said the topic for discussion was apt based on the prevailing circumstances and global realities. The importance of financial inclusion and digital platforms in such times when human interaction and business operations are limited cannot be over emphasised. The global business thrives on digital products platforms and processes.
Time to take further steps
The Chief Executive Officer, Nigerian Exchange (NGX) Limited, Mr. Temi Popoola, while speaking recently at an engagement session with institutional clients, recognised the advanced strides the exchange had made in digitisation over the years and indicated that it was time to take a step further to digital transformation, addressing how people connect to the exchange, how to distribute products through technology and how to democratise finance. In this regard, he emphasised the need to attract more technology stocks to the Nigerian capital market in order to capitalise on the gains we see in global markets that are home to the world’s biggest technology companies. In considering investor participation, Mr. Popoola stated: “We have big plans to attract investors – retail and institutional, domestic and foreign – to our market. In terms of diversification, we understand that equities may no longer be the answer for all investors and we are focused on creating an exchange that understands investors’ appetite and is indeed the preferred destination for finding products that suit their needs.”
The Securities and Exchange Commission had stated that it will continue to engage players in the Fintech space and support them to operate lawfully in a bid to ensure the delivery of safe products and services without stifling innovation. Yuguda said a recent circular was issued by the Commission in its desire to ensure that only fit and proper persons continue to operate in the capital market. According to Yuguda, “it became imperative for the Commission to issue this notice for the protection of investors and to preserve the sanctity of the Nigerian capital market as only registered capital market operators are permitted to intermediate in the market and only through approved channels. “We do not want any unregulated entity to participate in the market because if there are issues it becomes very difficult to resolve. “The Commission recognises the impact of Fintechs on capital market activities and wishes to assure the public that we remain accommodative of this development. We shall continue to engage players and support them to operate lawfully. “Our aim is to ensure the delivery of safe products and services without stifling innovation, I, therefore, encourage FinTech firms to approach the commission for due registration and desist from operating illegally.”
As technology is improving access to the market, it’s also improving the ability of the regulator to better regulate the market. With good regulations, the current drive of the market regulators is expected to deepen the capital market and reposition Nigeria as one of the leading digital economies in the region