Addressing the Global Underbanking Crisis with Fintech Innovation

Globally, over 1.7 billion individuals are considered underbanked, with the vast majority residing in developing economies. Accessing financial products like loans presents a significant challenge for this population. Fintech companies are actively working to resolve this issue.

FairMoney: A Mobile Banking Solution for Emerging Markets

One approach these companies utilize is to enhance financial inclusion through proprietary algorithms that facilitate credit underwriting. FairMoney, a company founded by Laurin Hainy, Matthieu Gendreau, and Nicolas Berthozat, exemplifies this strategy.

FairMoney positions itself as “the mobile banking revolution for emerging markets” and operates as a licensed online lender. It provides immediate loans and bill payment services to consumers who are underserved by traditional financial institutions in developing nations.

Expansion into India: A Strategic Move

Following a successful three-year period offering mobile lending services in Nigeria, FairMoney initiated operations in India, the second most populous country in Asia, in August 2020.

Prior to this expansion, the company experienced substantial growth in Nigeria regarding loan disbursements. In the previous year, a total loan volume of $93 million was distributed, marking a 128% increase compared to 2019. This represents an impressive 3,189% growth rate since the company’s launch in Nigeria in 2018.

The company anticipates a $300 million loan disbursement volume by the close of 2021. CEO Laurin Hainy stated that FairMoney has been able to disburse 25-30% more loans than its competitors, establishing it as a market leader.

Growth and User Base

Since its launch in Nigeria in 2017, FairMoney has undergone significant development. Initially, the company served just over 100,000 users. Currently, it reports having 1.3 million unique users who have submitted over 6.5 million loan applications.

Loan offerings range from ₦1,500 ($3.30) to ₦500,000 ($1,110.00), with loan terms extending up to 12 months. Annual percentage rates (APRs) vary between 30% and 260%, with Hainy attributing the higher rates to increased default risks within the Nigerian market.

Despite this, FairMoney maintains a non-performing loan (NPL) ratio of less than 10%.

Data-Driven Expansion Strategy

The decision to expand into India was informed by data-driven insights. The Indian market shares similarities with Nigeria, where only 36% of adults have access to credit, leaving a substantial market of approximately 141 million individuals unserved by microfinance institutions.

However, India offers more favorable unit economics for lending businesses and a more supportive regulatory framework compared to Nigeria. Hainy emphasized the necessity of targeting large markets to achieve the company’s ambition of becoming the leading mobile bank for emerging markets.

“We evaluated our products in 10 different markets, considering factors like yield economics, NPLs, risk costs, customer acquisition costs, and infrastructure expenses. India emerged as the most promising option,” Hainy explained.

Early Success in India

Within six months of its expansion, FairMoney has processed over half a million loan applications from more than 100,000 unique users. This translates to 5,000-6,000 loan applications daily, with APRs ranging from 12-36%.

Notably, the company has achieved this growth without incurring any advertising or marketing expenses.

Challenges and Opportunities in International Expansion

Expanding internationally presents considerable logistical challenges for African-based startups. However, some companies have successfully undertaken such ventures. For example, Nigerian fintech Paga, with 15 million users and a network of over 24,000 agents, acquired Ethiopian software company Apposit to accelerate its expansion into Ethiopia and Mexico.

FairMoney is following a similar trajectory. The company currently employs over 100 staff members across Nigeria, France, and Latvia, and plans to establish engineering and marketing teams in India.

Strengthening the Team for Growth

Last month, Rohan Khara joined FairMoney as its chief product officer (CPO) to facilitate the expansion. Khara previously served as the head of product for financial services at Indonesian super app Gojek and held senior positions at Microsoft, Quikr, and MobiKwik.

Hainy believes that Khara’s extensive experience in building consumer products in large emerging markets – India and Indonesia – will position FairMoney for substantial growth in both Nigeria and India.

“We share a common vision: that financial services in emerging markets require improvement. Rohan brings the expertise to help FairMoney scale from almost a million users to 10 or 20 million users,” Hainy stated.

The Founder’s Journey

Laurin Hainy, born to a Nigerian father and German mother, began his entrepreneurial career in 2015 by launching a food delivery company in Sweden. Seven months later, he founded Le Studio VC, a Paris-based startup studio and €15 million fund, which he led as CEO for three years.

“After three years, I realized that being an investor wasn’t my passion yet. I felt I was too young and wanted to build something myself,” he said.

Inspired by the rise of neobanks like Revolut in the U.K. and N26 in Germany, Hainy sought to create a similar service for Nigeria, recognizing the widespread lack of access to affordable financial services during a visit.

Adapting the Neobank Model

Despite studying existing neobank models, Hainy and his team found that replicating them in a developing market like Nigeria was not feasible. Traditional Nigerian banks were significantly underserving the credit needs of the population due to their stringent loan allocation methodologies.

Recognizing this opportunity, they launched FairMoney as a neobank with a credit-first model, similar to Nubank in Brazil. While initially focused on providing loans to address the credit gap, the company’s broader vision is to evolve into a full-service commercial bank.

Future Aspirations

The company is currently pursuing a microfinance bank license to operate as such in Nigeria. However, obtaining a commercial bank license is expected to take longer, potentially five to ten years, according to the CEO.

“Within the next five to ten years, I envision two out of the five largest commercial banks in Nigeria being neobanks. We aim for FairMoney to be one of them,” he said.

Having raised an $11 million Series A round in 2019, the company plans to secure its Series B funding to prepare for the transition to a commercial bank.

Looking Ahead

Regarding future expansion, the CEO indicated that no immediate plans are in place. The company’s current focus is on transitioning from a credit-led value proposition to a comprehensive financial service provider, strengthening its existing verticals, and replicating its success in Nigeria within the Indian market.