BYD is giving Tesla  a tough time in China. The implication is that Tesla will lose China and could also struggle to hold its global position as the Chinese automaker continues to advance: “China’s top electric vehicle company BYD has not only overtaken Tesla in sales there, but is close to surpassing it worldwide.” The dominance of China in the EV market is evident, and if Tesla cannot hold these Chinese brands, what that means is that the future of automobiles, at least in the EV space, could belong to China, globally.

Tesla isn’t saying why it’s a no-show at this year’s main industry event for EVs in China. The world’s leading electric vehicle maker hasn’t introduced a new model there since 2021, The Wall Street Journal notes. But it’s also facing intense competition from local manufacturers: Last year, 107 new electric or plug-in hybrid models launched in China, pushing Tesla’s market share down to 10% from 14% in 2020. Meanwhile, the Texas-based company is shifting gears to making more EVs in Mexico to ensure they qualify for customer tax credits under the Inflation Reduction Act.

Tesla fights with price cuts; this user explains. And even price cuts are not helping the market share in China.

Is Tesla cutting prices to fight a “price war”? Musk denies and reveals why

Musk further explained: “Many wealthy critics don’t understand that mass demand is constrained by affordability. There is a lot of demand for our product, but if the price is more than people have money, then that demand doesn’t matter. “

This month, Tesla set off a wave of price cuts around the world, sparking speculation about a price war:

On April 7, Tesla cut prices in the United States. Model 3/Y cut prices by $1,000 and $2,000 respectively, while Model S/X cut prices by $5,000. The overall drop was between 2% and 6%. Tesla also officially launched the low-priced Model Y model in the United States, starting at $49,990.

On the 12th, Tesla announced in Hong Kong, China that the price of the Model 3 high-performance version and long-range version were cut by more than 10%. On the 14th, Tesla Denmark reduced the price of the Model 3/Y high-performance version by more than 9%.

However, in the global market, Tesla currently has the lowest price in China. Taking the rear-wheel drive version of the Model 3 that has attracted the most attention as an example, the domestic price starts at 229,000 yuan, the lowest in the world. 

Indeed, BYD is so good that Warren Buffet’s company which invested in it is smiling.

Berkshire Hathaway chairman Charlie Munger says that Tesla is far behind BYD in the Chinese auto market, as stated during a virtual meeting in recent weeks that was covered by CNBC. Munger considered the answer easy when he was asked whether he preferred BYD or Tesla as an investment.

“I have never helped do anything at Berkshire [Hathaway] that was as good as BYD and I only did it once,” Munger said on a meeting call in recent weeks. “Tesla last year reduced its prices in China twice. BYD increased its prices. We are direct competitors. BYD is so much ahead of Tesla in China … it’s almost ridiculous,” Munger later added.

Some weeks back, a former coursemate of mine reached out via Whatsapp to ask a very important question – between OPay and PalmPay, which would I recommend? According to him, his bank was showing him “premium wickedness” and he was in desperate need of an alternative. It was a funny question – some years back conversations like that wouldn’t exist. Today they are the norm.

The cash crunch of recent weeks has created significant discomfort for Nigerians and opportunities for well-positioned players. Two of such players have been OPay and PalmPay.

Over the past couple of weeks, OPay and PalmPay have trended on Twitter for various reasons. While OPay has been in the news for its preference and relative stability compared to more conventional banks, PalmPay agents have been in the news for chasing debtors on bikes, seizing their generators, and all sorts of meme-worthy activities that may or may not be true but have made me laugh a great deal this period.

While I don’t have any data to back this up, I believe OPay has probably gained more customers in the first quarter of 2023 than they did in any individual quarter since their business began.

I have seen people who ordinarily do not even transact via digital channels not only onboard on OPay, but even request debit cards. The Central Bank of Nigeria’s tiered KYC system that allows customers onboard and access financial services at Tier 1 (without any serious documentation albeit with a maximum single deposit of N20,000 (US$43) and a maximum cumulative balance of N200,000 (US$430.6) which in most cases is just sufficient to get these financially excluded people going) has also greatly contributed to this.

I have an OPay account (among the many other fintech apps I download for market intelligence purposes, and rarely ever use) and I have personally tried to decipher how OPay was able to guarantee efficient transaction processing even when banks were down. Two thoughts come to mind:

·        Modern Core Banking Platform: if the issue conventional banks had during this period was based on core banking failures (due to massive transaction volumes), then fintechs like OPay, Kuda, and even Tier 3 Deposit Money Banks running on more modern software stacks would probably have no issues (I am told that Zenith Banks issue during this period was more of a core banking challenge – they recently announced a revamp of their software stack, I have sha removed any serious money from them, it is not me they will use to wash plate).

·        Vostro Setups: If this was an NIP issue, in which case the NIBSS rail that powers real-time payments for the majority of banking players was down, then OPay should also have suffered downtimes, unless they were either running on alternative payment rails like RITS (Remita Interbank Transfer Service), or they had Vostro Setups with the banks (Vostro setups indicating they keep settlement positions with certain DMBs for faster transaction processing – this basically means that when their customers make funds transfers or merchant payments to beneficiaries with accounts in these DMBs, they are able to secure debits from their customers and settle those beneficiaries from their settlement positions at those banks which would basically be internal ledger updates at the bank.

These transactions will not run on NIP and will in all likelihood be faster, howbeit at a cost to the fintech (they would need to tie down money in a bank’s position and replenish that position on a recurring basis).

Some days back, I saw “OPay to OPay” trend on Twitter. This clearly indicates that OPay wants to leverage the growth it enjoyed this period to promote more intra-wallet transactions that guarantee faster payment processing for their customers and cheaper fees for them.

However, this article is not to praise OPay. Some weeks back, I was at my “cash plug” (The POS guy that Jesus raised to provide cash for me during the cash crunch, the same way he raised ravens to feed Elijah during the famine in Samaria lol), when I heard a guy sharing that while he had an OPay account, he was not going to provide the information required on the app to upgrade his OPay wallet from a Tier 1 wallet (transaction limit of 20,000 per single deposit) to a Tier 3 wallet (No transaction limit).

The major reason he gave? OPay didn’t have a bank branch he was aware of, so he didn’t trust them.

SOLVING THE TRUST ISSUE

A founder friend of mine who runs a fintech in the financial inclusion space shared some interesting insights with me a while back. Of the many things he shared, trust was a key reason these so-called “financially excluded” people didn’t use banking services actively. The same way I prefer to have a conversation with a human being at the bank’s end when I am debited for a failed transaction and not a bot is the same way these people want to have real human beings they can talk to and hold accountable when their financial transactions fail. They don’t want to “send an email” or “call customer care”, they want a human being to engage and share their issues with.

The same way the Ajoo agent they make contributions to is a real human being they know (and can trace to his house and beat if they are sensing Mago-Mago (Nigerian slang for foul-play). They also want their core financial service provider to be a real human being they can hold and beat (this is supposed to be a joke btw, nobody is beating anybody o, but you get the drift?).

The key summary rehashes what certain pundits in the financial services space have been saying from the onset – a core digital strategy will not solve the financial Inclusion problem in Nigeria, players must adopt a hybrid approach. This hybrid approach means that someway and somehow agency Banking must evolve from being an in-glorious human ATM withdrawal arrangement to becoming a true extension of banking services.

REGULATORY STANCE

Some days back, The Central Bank of Nigeria released an exposure draft on the Agency Banking Business detailing certain new modifications to the business arrangement. The lack of control over POS agents during this period may have contributed to the development of this document as their constant pleas and eventual threats to agents to stop charging exorbitant withdrawal rates (essentially selling the Naira to Nigerians) fell on deaf ears.

The problem? agency banking in Nigeria is a multiple-provider business. Most companies who count agents under their networks are really “double counting”. An agent can acquire for multiple providers at the same time while each provider registers them on their network as “their” agents. I remember meeting an agent at the popular Oshodi bus terminal in Lagos, Nigeria a while back who was acquiring transactions for MoniePoint, OPay, and MTN and shuffled customers between those three terminals depending on various factors (MoniePoint for transaction efficiency, MTN for pricing, can’t remember why she used OPay). Even my “Cash Plug” acquires for two providers – a fintech company and a Tier 3 DMB (and I personally don’t care, he can acquire for JP Morgan for all I care, as long as I get cash when I need it, I’m good).

CBNs exposure draft details a new arrangement that mandates agents to work with a single principal, disallowing multiple acquirer arrangements. I imagine a central database will be constituted to enforce this and prevent agents from jumping ship sporadically or in better words being on two ships. While this arrangement has its pros and cons, I do believe it creates a new opportunity to expand and morph agency banking going into the future and to properly serve the financially excluded.

THE FUTURE OF AGENCY BANKING

The future of agency banking will involve agents morphing from being just withdrawal and deposit agents to being a true extension of banking services to the unbanked. This could potentially change the dynamics of the business, because agents, therefore, become first responders to customer complaints and are given priority access within banks for speedier customer complaint resolutions.

So when a bank, fintech, or any other financial institution develops a location-based customer acquisition strategy to capture customers in a certain geographical area, part of their support strategy will be to place an agent at a certain customer-per-agent ratio to service customers in those areas. This agent would not only provide core banking (cash in/ cash out) services to those customers, they will also provide speedy complaint resolution services.

This also changes the relationship between FIs and their agents. While today this relationship is a basic agent relationship, FIs may want to create incentives that not only draw but keep agents within their fold.

Some fintechs for instance are considering opening up services like micro-pensions and health insurance via their agents to extend to customers. These services could also become available to agents (paid by their principals) to consume themselves, conditional on meeting certain transaction bands after a period of time. In other words, FIs will begin to extend services like health insurance and micro-pensions as incentives for agents to remain on their networks.

The competition dynamics will also change, today agency banking is basically a proximity play – I use the agent closest to my location, in this arrangement, branding, and product differentiation will play a huge role.

Financial Institutions with dominant brands and more product offerings (and even service reliability) will stand out, displace and “snatch” agents from other service providers with smaller, less dominant, and poor-quality service.

There may also be regional competition dynamics, where certain agent networks will have significant dominance in the northern regions, a weaker presence in the southern regions, and vice versa.

This will also curb agent-backed fraud as agents supporting fraudulent entities will not only be easily identified but barred and blacklisted from participating in any agent network at all (due to the existence of a single database to verify agent data).

This agent database may morph into becoming some kind of leaderboard of sorts for qualifying the value of agents and pushing FIs to create more incentives for their agents who don’t just process transactions, but open accounts for customers and manage them at the grassroot level.

This essentially solves the trust issue as customers know who to reach out to when transactions fail, and banks prioritize agent requests. It also weeds out weak players, as nobody wants to be an agent for an FI with persistent network downtime (make them no come beat am for house lol).

In other words, the agency banking business will end up evolving to become a true extension of banking services, creating real and trustworthy value for the financially excluded, and ultimately promoting financial inclusion.

CONCLUSION

Events of recent weeks have shown the need for more robust financial services and solutions especially those targeted at the financially excluded who have been greatly affected by the cash crunch.

A properly executed agency banking play has the potential to not only onboard the hitherto financially excluded, but break the trust layer that prevents these players from embracing financial services and solutions.

Inspired By The Holy Spirit

The value of electronic payment transactions in Nigeria jumped by 298 percent to N135.52 trillion Year-on-Year (YoY) in the first quarter of 2023, as cash crunch pushes more Nigerians to online transactions.

The transaction volume which was released by the Nigeria Inter-bank Settlement System (NIBSS) marks a significant increase from the N34.04 trillion recorded in the same period last year.

“The number of e-payment transactions shot up by 984 percent to 4.7 billion in Q1’23 from 433.4 million in Q1’22, while the value rose year-on-year by 298 percent to N135.52 trillion in the first quarter of the year (Q1’23) from N34.04 trillion in Q1’22,” the NIBSS said.

Analysis of data showed that the value of e-payment transactions stood at N42.42 trillion in January but went  down by 4.3 percent, month-on-month,  to N40.6 trillion in February from where it rose  by 34 percent to N54.5 trillion in March.

The volume of e-payment transactions stood at 1.12 billion in January rising by 29 percent, Month-on-Month (MoM) to 1.45 billion in February and up by 46 percent, MoM to 2.13 billion in March.

NIBSS Instant Payment (NIP) channel had the highest value of transactions with N123.72 trillion and the largest volume of transactions with 2.5 billion during the period.

While the increase gives a boost to the nation’s cashless policy, it was masterminded by the cash scarcity emanating from the naira redesign policy – introduced by the Central Bank of Nigeria (CBN) late last year.

The implementation of the policy, which involved phasing out old N200, N500 and N1,000 notes within a short deadline of a few weeks – amid insufficient new notes, created a cash crunch crisis.

The CBN had originally fixed January 31st as the deadline for the old naira notes to be returned to the banks, declaring that they’d cease to be legal tender after then. But the feasibility of the deadline was not attainable, forcing the apex bank to extend the deadline to February 10.

It took judgment from the Supreme Court, annulling the policy, to force the apex bank to allow the old naira notes to co-circulate with new notes.

While the CBN mopped up more than N2 trillion of the old notes from circulation within the period, the redesigned notes were overwhelmingly insufficient. The resulting cash scarcity threw the economy into chaos, forcing a shift to digital transactions as people looked for alternatives to cash payments.

However, the banks are still struggling to contain the increase in online transactions, which has created rising cases of failed transactions.  More than 40 percent of failed online transactions are yet to be resolved.

Banks’ failure to resolve the issues have been attributed to shortage of infrastructure and reduced manpower in the banking sector. This is partly as a result of most technical staffers of the banks leaving Nigeria for better jobs overseas.

The CBN said it is working with the banks and other stakeholders to see that the issues, which are becoming a deterrent to people’s eagerness to embrace cashless policy, are resolved as soon as possible.