CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The finance industry has experienced a digital revolution with the widespread implementation of digital banking, which has replaced traditional banking methods. Through the utilization of technology, the finance industry is currently leading the way in terms of innovation and digitization.
The advantages of this digital transformation are vast and varied, benefiting individuals, small businesses, and large corporations, including banks. It provides organizations with access to cutting-edge technologies like blockchain, data science, and analytics, intricate algorithms, artificial intelligence, and machine learning, which facilitate significant industry growth. Additionally, these advanced digital technologies make it possible to complete financial activities with little to no human involvement (Ogbonna, 2022).
Business operations like paying invoices, reconciling accounts, managing online accounts, managing payroll, and using online assistants can now be automated thanks to technological advancements like artificial intelligence, robotic process automation, and other software solutions. This frees up human time for more useful tasks. The use of big data to access various aspects of a customer's profile and account is one example of how digital innovations have surely improved the customer experience. Additionally, transactions can be completed by customers without them having to go to a physical bank. Moreover, these developments have improved the speed and ease with which clients complete tasks (Ogbonna, 2022).
The rise of fintech firms has ushered in a new era of financial inclusion, enabling more individuals to access credit, savings, and investment options. One crucial way fintech promotes financial inclusion is by leveraging digitization. Fintech companies digitize financial services, decreasing the cost of delivering these services and making them available to a broader audience. This is especially crucial in developing nations, where many individuals and small businesses face challenges accessing traditional financial services due to geographic and financial obstacles (Adel, 2023).
According to the 2020 EFInA Access to Financial Services survey in Nigeria, more than half (51%) of Nigerian adults are using formal financial services, including mobile money, pension accounts, bank, insurance, or microfinance bank. This represents an increase from 49% in 2018. Banking has been the primary driver of this progress, with the percentage of Nigerians who have bank accounts increasing to 45% in 2020, up from 40% in 2018 (British High Commission Abuja and British Deputy High Commission Lagos, 2021).
Within the fintech industry, online loan companies have become a popular option for individuals and small businesses seeking quick and convenient credit facilities. Unlike traditional banks, these companies are run by individuals or institutions that offer instant, non-collateral backed loans with no documentation and low-interest rates to individuals or SMEs with less stringent terms. A key characteristic of these digital companies is that they typically don't have a physical office, and the entire loan application process, leading to loan disbursement, is conducted online and takes only a few minutes (Adisa et al., 2022).
One of the leading online loan companies in Nigeria is Fair Money. Fair Money is a mobile bank that specializes in offering financial services to developing economies. The company was founded in 2017 and works in Nigeria and India. It has received about €50 million in funding from well-known investors like Tiger Global, DST, and Flourish Ventures. Fair Money has offices in France, Nigeria, and India (Crunchbase, 2023). The company created an Android app that gives Nigerian citizens and professionals access to microloans with average amounts of €40 and ranges from €10 to €350. Typically, loans have one to three month periods and interest rates of 10% to 20% (Bouleau, 2019).
Fair Money offers a streamlined loan application process through their Android app. Once applicants download the app and provide their financial information and location, Fair Money uses algorithms to analyze the information along with other factors, such as other apps on their phone, to quickly respond to the loan application (Dillet, 2019). For new customers, the initial loan amounts are typically small, but returning customers with positive borrowing histories may qualify for higher loan amounts with lower interest rates. Fair Money also offers flexible borrowing periods, which can impact the interest rate offered (Fair Money, n.d.). After the loan is approved, the funds are deposited to the borrower through traditional bank transfers, and borrowers can repay the loan through cash payments at partner bank tellers, bank transfers, or SMS transfers (Dillet, 2019).
2019 saw the launch of new Fair Money app features that made it simple for borrowers to buy data, airtime, and make utility bill payments. Later that year, the company disclosed its plans to create mobile banking solutions for convenience of payments, savings, and current accounts. As a result of its successful four-year stint as a loan app provider, Fair Money has now transformed into a digital bank with a Microfinance Bank (MfB) license from the Central Bank of Nigeria (CBN) (Endurance, 2021). Over the past four years, the company has gained over five million users and 1.9 million bank accounts (Bailey, 2021).
However, despite the growth of online loan companies in Nigeria, little is known about the acceptance, perception, and knowledge of these platforms among their target audience. It is crucial to understand how Nigerians perceive these companies, their level of acceptance, and the extent of knowledge about the services offered. This study seeks to fill this gap by examining the acceptance, perception, and knowledge of online loan companies in Nigeria, with a case study of Fair Money Nigeria.
1.2 Statement of the Problem
Over the years, the Nigerian lending industry has encountered significant obstacles, making it challenging for individuals and small businesses to access credit from traditional lending institutions. These barriers include high-interest rates, stringent collateral requirements, increased regulatory standards, and prolonged processing times (Nairametrics, 2017; Montegra Capital Resources, 2020).
The emergence of online loan companies has provided a solution to this problem, offering a more accessible and convenient means for borrowers to access credit without the usual difficulties associated with traditional lenders. Despite the considerable advantages provided by online loan companies, there remains a lack of understanding, acceptance, and trust in these platforms among Nigerians. Many individuals still favor using traditional lenders, with approximately 63% of small and medium-sized enterprises (SMEs) preferring traditional banks for their financial requirements (Mastropietro and Blini, 2022). Others are hesitant to utilize online lending companies due to concerns about fraud and the perception that the interest rates imposed are excessive.
Additionally, there is a lack of awareness and knowledge of how online loan companies operate and the benefits they offer. The problem, therefore, is that there is a need to investigate the acceptance, perception, and knowledge of online loan companies in Nigeria, particularly Fair Money Nigeria, and identify the factors that hinder or facilitate their adoption by Nigerians. This will enable lenders to address the challenges facing online lending platforms and create awareness of the benefits of using these platforms.
1.3 Aim of the Study
The study aims to investigate the acceptance, perception, and knowledge of online loan companies in Nigeria, with a particular focus on the Fair Money Nigeria.
1.4 Objectives of the Study
The study had the following specific objectives:
- To assess the level of awareness and knowledge of online loan companies, particularly Fair Money Nigeria, among Nigerians.
- To identify the factors that influence the acceptance and perception of online loan companies among Nigerians.
- To examine the challenges facing online loan companies in Nigeria, particularly Fair Money Nigeria, and proffer solutions to address these challenges.
- To highlight the benefits of using online loan companies compared to traditional lenders and create awareness of these benefits.
1.5 Research Questions
- What is the level of awareness and knowledge of online loan companies, particularly Fair Money Nigeria, among Nigerians?
- What are the factors that influence the acceptance and perception of online loan companies among Nigerians?
- What are the challenges facing online loan companies in Nigeria, particularly Fair Money Nigeria, and how can they be addressed?
- What are the benefits of using online loan companies compared to traditional lenders, and how can awareness of these benefits be increased?
1.6 Research Hypothesis
H0: There is no significant relationship between the acceptance, perception, and knowledge of online loan companies and their usage among Nigerians, particularly Fair Money Nigeria.
H1: There is a significant relationship between the acceptance, perception, and knowledge of online loan companies and their usage among Nigerians, particularly Fair Money Nigeria.
1.7 Justification of the Study:
With the increasing popularity of online loan companies in Nigeria, it is important to understand how Nigerians perceive and accept these platforms. Fair Money Nigeria, being one of the leading online loan companies in the country, provides an ideal case study for investigating the acceptance, perception, and knowledge of online loan companies in Nigeria.
The study's significance lies in its potential to provide insight into the acceptance, perception, and knowledge of online loan companies in Nigeria. The findings of the study will be useful to a wide range of stakeholders, including online loan companies, policymakers, and other actors in the digital lending industry.
The findings of this study will enable online loan companies to improve their reputation and attract more customers, leading to increased financial inclusion in Nigeria. Ultimately, the study will contribute to the existing literature on online lending in Nigeria and provide a basis for future research in the field.
1.8 Scope of the Study
The study will focus on online loan companies in Nigeria, with a specific focus on Fair Money Nigeria. The study will involve individuals who have used or are currently using Fair Money Nigeria.
