GTBank, a leading commercial bank in Nigeria, has reduced its payday loans interest rate to 1.33% per month against competing aggressive lenders such as RenMoney which offers rates as low as 2.825%.
The lowering rate is expected to dovetail into intense competition between commercial banks, Fintech, and Micro-finance banks as each segment bid for larger shares of Small and Medium Scale Enterprises and personal loans market.
According to the Deputy Director, Research Dept., Nigeria Deposit Insurance Commission (NDIC), Kabir Katata, the brewing interest rate ‘war’ will help depositors and SMEs gain access to cheaper and faster credit. In the end, it will augur well for the fund-starved formal and informal sectors in Nigeria.
While most top tier banks still charge averagely 5% interest for payday loans, GTBank has set a new pace that will draw in other banks, fintech, and micro-finance firms into an aggressive readjustment of rate to stay competitive – although most of them are already extending payday product beyond normal employees of organisations to cater also for self-employed individuals.
For fintech, it is ‘game on’. Chinese-backed investment in the payment ecosystem in Nigeria, Kenya and India via Opera, Opesa and CashBean respectively has been termed ‘predatory’ going by a report by research and investment firm, Hindenburg. Other fintech platforms are not far from being ‘predatory’ too. While most them send waves of ads across social media announcing faster and attractive rates, the reverse is often the case.
After users have downloaded the fintech apps and saved personal info, they are denied the facility. Worse, they discover the terms of repayment are quite different from the ones publicly announced.
However, with Deposit Money Banks (DMB) such as GTBank suddenly waking up to leveraging their size and clout to give the tech-base competitors a run for their money, the ensuing competition will breed efficiency in the financing space.