Wealth management or wealthtech startups in Nigeria currently find themselves in a tight spot.
On one hand, they have to keep customers happy by offering them decent interest rates on their savings/investments. On the other, these startups are now being forced to ‘prioritise safety over customer happiness’ due to the present realities of Nigeria’s financial markets.
In other words, wealthtech startups in Nigeria have been forced to slash the interest rates on their savings/investment offerings significantly — there’s been as much as a 50 percent drop in some cases.
In plain terms, a savings plan that was yielding 11-15 percent per annum as of early 2019 is currently generating somewhere around 6 percent per annum on a platform like Cowrywise , for instance, which claims to be big on transparency and security of user funds, as opposed to luring people in with attractive rates that are questionable and unsustainable. Another popular Nigerian wealthtech startup, PiggyVest (formerly Piggybank.ng), is currently offering a paltry 1.7262 percent interest on its “Safelock” savings plan with a duration of 63 days. Previously, the same savings plan could yield between 8-10 percent interest. Now, that’s quite some drop! What’s happening to wealthtech interest rates?
At the moment, wealthtechs are sort of faced with two important tasks of which they can only really handle one without creating room for trouble. They have to guarantee returns by pooling resources and investing in risk-free instruments, and they also have to keep customers happy by serving up good returns.
But those risk-free instruments are currently not yielding sufficient returns and wealthtechs find themselves needing to manage customer expectations while attempting to keep users somehow satisfied with significantly shrunken returns. And that’s no easy task.
“When you [look at] the recent drop in interest rates on Cowrywise, it is easy for people to assume that we just decided to cut interests but ideally, the truth is we don’t have that power,” Feranmi Ajetomobi, Head of Brand Engagement at Cowrywise, told WeeTracker.
“What we can only do is to adjust the rates to reflect what is happening in the market space where we invest the money. As a firm, we invest user savings in treasury bills and government bonds. Given that savings can fall within 3 to 6 months, the majority of that will go into treasury bills.”
He added, “Hence, a bulk of the representation of the rates will depend more on treasury bills which have […]