Credit 3.0: The Next Fintech Market Frontier

“The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth” – Ps 37:21 (KJV)

“There is no peace, saith the LORD, unto the wicked” – Isaiah 48:22 (KJV)

The Ancient Greeks had a very interesting relationship with credit – renowned Greek philosopher Aristotle despised lending with interest (tokos), he called it “unnatural wealth creation” as money was seen as “barren” and not meant to “breed” more money¹, centers of worships – particularly the Temple of Apollo (Greek god of music and poetry), acted as mini-banks by issuing credit to citizens, and borrowing money (and promptly paying it back) was a way to build and maintain your social status. Credit (with interest) was not completely outlawed from Greek society or non-existent in the case of the ancient Inca civilisation, but guardrails were designed to manage who could issue it, and how much could be charged as interest. Credit was a contentious topic more than 2,000 years ago; it still is today – some things just never change.

Regardless of what anyone tells you, credit issuance is by far the single largest revenue lever in the African financial services industry today. In Nigeria, the FUGAZ banks² generated roughly N9.66trillion (US$6.03bn) in interest income in 2024 alone, credit reportedly makes up 20% of Moniepoint’s revenue profile, and more than 200 companies have registered with the FCCPC to become digital lenders. This is a market that has huge tailwinds acting in its favour; there are a ton of SMEs orphaned by traditional banks who require credit to stimulate their businesses, individuals without structured income sources who need loan facilities, and young people starting their careers who need money to furnish their apartments, get new gadgets and more importantly flex on their mates with a 2012 Toyota Camry. All of these components point to the massive opportunities embedded within the credit vertical alone.

A simple person reading this section will be tempted to think that starting a credit business is God’s call over his life (especially since his pastor said he will come across information that will change his life this week), however, just as a Boeing 737 can successfully transport 400 passengers across 3,450 miles from Heathrow, London to John F. Kennedy, New York in about eight hours, but if anything goes wrong can just as easily send all 400 passengers to the afterlife, a credit business can (depending on how things go) either get you a Tesla or end up testing your patience (p.s: this was honestly the best Tesla car joke that came to mind while writing this). Why this happens is quite simple – the credit dependent and interconnected nature of developed markets like the United States and Europe means that taking a loan and not paying back (or paying back late) has real consequences. A bad credit score can make it impossible for you to buy the new iPhone 17 when it comes out in September, change your car, or in more serious cases own a home – all of which can be highly undesirable. Without developing repayment infrastructure to manage credit obligations, these default consequences are enough to keep people on their feet and focused on clearing their credit obligations when due.

If you are reading this from Nigeria, you know very well that “consequence infrastructure” of this scale does not exist in Nigeria. In Nigeria, a person can plead with you and be very obsequious just before they get a facility from you, they may even say a short word of prayer for you when you finally give them the loan, but when repayment day comes you may start to hear things like “is it because of <insert loan amount> you’re disturbing me”, “how much is the money sef? (a rhetorical question he fully well knows the answer to)” and maybe the worst of all “even Nigeria dey owe (as if the N149.49 trillion (US$93.4billion) debt profile of a sovereign oil producing country is a laudable achievement worth emulating)”.

This lack of infrastructure creates two broad challenges: one, low-interest credit from low-risk appetite lenders (see deposit money banks) remains largely inaccessible to SMEs and individuals who genuinely intend to pay back, and two, a lack of market consolidation³ within the SME and consumer credit verticals.

The main reason we have hundreds of disparate consumer lending fintechs with high interest loans, horrible user interfaces, and exceptionally uncreative names like SharkCredit, LoanTiger and CreditElephant is because a single infrastructure layer that allows everyone connect and compete on user experience, product performance and distribution doesn’t exist, this single infrastructure layer is the missing link required to drive credit penetration in Nigeria from 14% to 40%, this single infrastructure layer is the key to improving business outcomes for small businesses, and this single infrastructure layer is the key to birthing Nigeria’s first all-credit unicorn. This single infrastructure is quietly being built.

Credit 3.0

The credit ecosystem, similar to the payments ecosystem in Nigeria has evolved significant over the years. Two main phases have characterised this evolution – Credit 1.0 and Credit 2.0:

• Credit 1.0 was lenders issuing credit on the back of physical collateral (properties, cars, etc.) and stringent know your customer requirements (bank account statements, international passport data page, etc).
• Credit 2.0 was siloed lending underwriting on the back of data within the purview of the lender in question (i.e, Zenith Bank providing credit facilities to only Zenith Bank users).

Riding on the CBNs latest posturing regarding Open Banking, we are now gradually making the move to Credit 3.0: interoperable lending on the back of decentralized user data, fully digital repayment and disbursement rails, and a consequence layer that punishes bad behaviour.

The Credit 3.0 Infrastructure Stack

So, what does the credit 3.0 infrastructure stack look like? There are four main layers of this stack:

1. Underwriting Layer: the ability to verify whether a prospective borrower has the capacity to repay a facility being issued to them.
2. Digital Mandate Setup: the ability to set up fully digital debit authorisations on a borrower’s bank account in seconds.
3. Digital disbursement: the ability to send approved funds to a borrower’s account digitally
4. Consequence Layer: the layer that documents the journey from 1-3, deduces whether a borrower is good or bad, and feeds that information back into the underwriting layer.

To a very large extent, the digital disbursement bit has been around for a while. Account-to-account payment rails from companies like NIBSS, Remita, Interswitch, eTranzact, etc. have solved this problem more than 10 years ago. While the digital mandate setup layer has existed for years, the new direct debit API service from NIBSS that fintechs like Paystack, Flutterwave, Mono, and Lendsqr are adopting to complete their product propositions moves the mandate setup layer from previously being a semi-digital service to a fully digital one that completely eliminates the need for a user to visit a bank branch. The consequence layer exists in some form today via credit bureaus; however, an intuitive, fast, cheap, and interconnected way to capture, interpret, and share new information to improve end-to-end credit decision-making is still lacking.

The prospective August 2025 open banking roll-out announcement by the CBN is the key ingredient that moves the Credit 3.0 stack from 50% to 75% in 2025. A well-functioning open banking layer can significantly improve the underwriting ability of lenders. What the open banking roll-out message entails is that borrowers are no longer stuck with their banks or other stores of value providers for their credit needs, as they can now provide third-party access to their data across multiple banks for underwriting purposes. While all the banks are yet to provide open banking compliant APIs for third parties to consume, the addition of this layer to the Credit 3.0 suite will drive a new paradigm for credit issuance in Nigeria, and force more conservative lenders (with large user bases) to either improve their user experiences or risk losing customers to fintechs and other fledgling players.

Opportunity Waves

One of the most popular TED Talks on entrepreneurship is a 2015 talk by Bill Gross titled “The single biggest reason why start-ups succeed”.  A key messages from that talk was the importance of timing and its role as a determinant of runaway success in entrepreneurship.

Timing as a key lever is a very amorphous variable to peg your entrepreneurship journey on. For one, what does timing actually mean? Was Facebook more successful than Myspace because it launched seven months later? Is OPay more successful than Paga because they were founded five years later or because Chinese money is not your mate (OPay reportedly raised a US$400 million Series C round in 2021), likewise is LemFi a runaway success in international remittances because 2020 was the God-ordained year to start a remittance company or because they were the only ones who could execute at scale (or possibly both)? I don’t think I have an articulate answer to these questions, I do, however believe that all breakaway successes in the technology industry are a mixture of great execution and the right “Opportunity Waves”.

Execution + Waves

Good execution is the secret to a good business, but good execution + the right opportunity wave is the secret to a great business that builds a long-term sustainable flywheel.

What are waves? A wave is a massive extenuating force that creates scalable market opportunities for businesses within a specific vertical. More often than not, waves tap into a latent customer demand for a specific need that hasn’t been met (or met properly).

All great technology businesses within the Nigerian and broader African clime are a product of some type of wave or another:

• Technology Induced Waves: a new product solves an existing need in a novel way that unlocks massive latent customer demand, i.e, Paystack, Flutterwave.
• Regulatory Induced Waves: a policy direction unlocks a new market opportunity that didn’t exist hitherto, i.e, Appzone, Remita, Interswitch, new generation banks of the 90s,  etc.
• Transferred Waves: someone does the hard work of creating a market but is unable to capture it due to weak execution (think Jacob taking Esau’s birthright), i.e, Chowdeck, OPay, Moniepoint, etc.
• New Model-induced waves: a rethink of how a certain process should work unlocks latent demand for a solution to that problem, i.e, Moove, PiggyVest, etc.

Credit 3.0 will create a massive wave that will open four major doors.

1. The Credit Infrastructure Layer: This layer will underpin the entirety of credit 3.0, allowing lenders to check creditworthiness across all banks (and possibly stores of value), disburse funds, and manage repayments all via a single set of API tools. Being an infrastructure provider is sexy on paper – for instance, hearing that NIBSS supports more than 90% of the Nigerian ecosystem’s funds transfer volume sounds mouth-watering, but earning asymmetry in technology markets has a way of pushing the infrastructure provider to the bottom of the food chain. NIBSS is a cash cow, no doubt, but when you hear that banks mark up the N3.75 they are charged by NIBSS with N6.25, N21.25, and in certain cases N46.25, it becomes pretty obvious that having some kind of user-facing play may not necessarily be a bad idea. The credit infrastructure layer will create a similar asymmetry. The infrastructure provider will charge a fixed amount for the multiple API calls that power these transactions (and probably take a percentage cut on the direct debit repayments), but the vast majority of the value will be captured by the lenders who take on the non-trivial risk of taking this to market. My guess is that some of the players at the credit infrastructure layer will eventually find ways to forward integrate (lend directly to users based on their existing infrastructure).
2. Consumer/SME credit ecosystem consolidation: a single plug-in infrastructure for lending will create a level playing field for digital lenders and drive huge displacement effects. Users will naturally (without any coercion from regulators) flock to credit providers with sleek user interfaces, great technology, and novel business models, as opposed to archaic credit providers with ugly and uninspiring user interfaces. This will ultimately lead to consolidation around a handful of players (two or three companies) and the decimation of “unserious players”. This is a good outcome for users, regulators, and the discerning investors who have either already placed bets on these companies (as I suspect the proposed three winners are probably already operational today) or are going to.
3. The Consequence Layer: in the future (and if everything goes according to plan), we will not need to force people to repay loans by slapping debit mandates on their bank accounts – creating a consequence layer that punishes deviation and rewards compliance will drive a new era for this market by making the idea of borrowing money and not paying back a very bad one. The consequence layer will connect to the credit bureaus (if it isn’t actually one itself) and provide an integrity verification service that doesn’t just let borrowers verify creditworthiness, but also allows your future landlord, your future employer and even your future spouse verify if housing you is a potential gaffe, employing you comes with inherent risks, or marrying you is a bad idea. Whether a standalone company will be founded to take this up or one of the existing credit bureaus rises to the challenge is not clear as of now, but one thing is for sure: it’s going to happen, and it may be sooner than we expect.
4. Ancillary services: Credit 3.0 will unlock a plethora of novel services and product offerings – BNPL will finally become very practical. I see a world where Moniepoint (or any other provider with similar distribution) can set up a BNPL channel on their terminals:
   • Users choose to pay via the BNPL channel
   • They get a notification that prompts them to provide their BVN
   • If the checks are successful, they get a notification to set up a mandate on their account.
   • If step c is successful, value is offered to the customer, and repayments start immediately.

This may obviously not be optimal for quick service restaurants and malls, but it will be good for white goods purchases and other merchants that aren’t plagued with in-store queues.

BNPL is just one of such possible services. We may eventually see the birth of credit cards that work at scale for users of all kinds. Models that disburse credit to small businesses, issue them payment terminals, and collect repayments as a fraction of payments processed on said terminals, making repayments feel easy (this already exists today, btw, making this work at scale is the objective).

The Playbook

While Credit 3.0 contains a ton of opportunities, its success is largely dependent on the Central Bank keeping its word and “forcing” the banks to provide open banking APIs that fintechs and other entities can plug into to complete their propositions.

While we’re waiting for the CBN, players are already taking positions – Paystack and Flutterwave have built layer 2 and 3 and will likely take a shot at building layer 1 out when the APIs are live, I expect Mono and Lendsqr to thread a similar path – the former because they will do anything to stay alive, the latter because their founder is one of the first Apostles of Open Banking. We cannot ignore the likes of OnePipe and a plethora of other CBN-licensed companies who will connect to the NIBSS direct debit API for repayments and connect to other payment rails for disbursement. So, while the opportunity is large, no one is folding their hands waiting for someone else to take it from them.

Conclusion

The future of financial services from a credit perspective is about to change drastically. Unless the CBN reneges on its August 2025 deadline and doesn’t go through on its promise, the potential for consumer and SME lending in a post-open banking world is massive, the revenue opportunity is mouth-watering, and its ability to drive massive displacement at all levels is worth it.  Can’t wait to see how it all pans out.

Inspired By The Holy Spirit

1. One of my grandmother’s favorite quotes is “you use money to make money”. Safe to say Aristotle would not have liked her.
2. FUGAZ banks refer to the top 5 tier 1 banks in Nigeria: FirstBank, UBA, GTBank, Access, and Zenith Bank.
3. Market consolidation speaks to the tendency for technology markets to converge around a handful of winners – Payment Gateway (Paystack & Flutterwave), Agency banking (Moniepoint & OPay), Consumer savings (PiggyVest & Cowrywise), etc.