Although FinTech is a financial technology that supports banking and financial services, it has been preconceived as a disruptive technology. In Nigeria as well as other countries, there are fears that the initiative may take over the role played by the banking institutions. In this interview with Kunle Aderinokun, Managing Director of SystemSpecs Ltd, Mr. John Obaro, dispels the perception. SystemSpecs is Nigeria’s leading fintech firm and owners of Remita, a payment software, which currently serves corporate organisations across the country and the Treasury Single Account. Obaro opens up on the process that led to its selection as theTSA operator and once again clears the controversy surrounding its transaction fee. Obaro also speaks on how SystemSpecs, which he founded over 26 years ago has continued to change the landscape of financial technology in the country while highlighting the company’s extensive social investments in education and health. Excerpts:
FinTech companies are always perceived as threats to banks. From experience, what are the challenges SystemSpecs has encountered in cooperating with mainstream financial institutions?
In the first place, it is not quite right that FinTechs are a direct threat to banks. They are a threat to traditional banks that choose to remain conservative. Forward-looking banks will be excited about the possibilities of FinTechs. They will look at how to maximise partnerships with technology companies. In Nigeria, not all the banks are on the same level of cooperation with the FinTech industry. Some banks recognise that they stand to gain more by embracing FinTech, but some are still a bit confused and will need to be further informed to be part of the future of banking. FinTechs are only firms that have been able to use their resources to re-engineer some of the processes in traditional banking.
FinTechs cannot go alone, they need banks and that is where the partnership comes in. So, the confident banks recognise the need for this kind of partnership and the win-win model comes in. For instance, SystemSpecs came up with a solution for clients to see and oprated their accounts across multiple banks on a single screen. Initially some banks were scared but the truth is, the focus should not be on the banks, it should be on the customers. What do your customers want? A typical customer has account in multiple banks for various reasons. If you want to have an idea of what is going on, while Bank A may then think giving that solution to their customer is a threat to their own business, Bank B recognises that the way to hold customers is to give them what they want because after a while these customers will begin to shift their businesses to banks that put their own priority first and not banks that are trying to lock them down by any means.
SystemSpecs started over 26 years ago, how have you been able to remain relevant in the industry despite the proliferation of start-ups?
The interesting thing about software development is that you have to be innovative. Things change a lot. So yes, we started out twenty-six years ago and better still, I left school 39 years ago. At first, we did accounting with a foreign firm, then we did payroll and human resource management by ourselves indigenously and those were very successful. About twelve years ago when the PENCOM Act was enacted, we saw that those processing payrolls will need to prepare schedules for different PFAs (Pension Fund Administrators). That was when we conceived Remita.
We found a way to move salaries from the employers’ bank accounts to the employees’ bank accounts, irrespective of where they are. At the same time, we started thinking of how we could deliver schedules to PFAs and PFCs as well as pay tax. That was how we started the first version of Remita. I will probably call it Remita 001. It was well received, I remember we launched the product then with Late Fatai Rolling Dollar, we just wanted to use him to represent pensioners.
After we had conquered the payroll payment space, we went for a presentation at a multinational firm and the expatriate finance director made an observation: “This is a very good product, it will help me to meet salary payments, but I have a lot of other payments. Do you mean that I will continue to do those payments manually? It is going to create confusion to have some processes automated, some manual.” That day, we lost the deal but went back to the drawing board; we started brainstorming on how to include vendor payments. That was how we created a solution that will not only do bulk payments for salaries, but also do single payments for vendors. That solution laid the foundation for our involvement in the implementation of Nigeria’s Treasury Single Account, TSA.
What are the challenges SystemSpecs encountered in executing the TSA?
Well, we have had challenges and we have had fun. Overall, I will say it has been good getting to know a lot of things. The biggest challenge was that we probably came ahead of our time. As at the time we implemented the Treasury Single Account, not many people understood what it was about, so we became a victim of the backlash of that development. Initially, a lot of negative emotion was whipped up because people were not willing to listen or understand the value that Remita was bringing to the table. There was a bit of controversy about our charge too. Remita, banks and the Central Bank of Nigeria share 1per cent transaction fee, which is actually a non-issue in the overall scheme of things both in terms of international pricing or even in terms of local pricing. Most PoS payments in Nigeria are 1.5per cent, only recently was it reduced by CBN but generally it is 1.5per cent and outside the country you will get rates above 3per cent.
At 1per cent, it was an excellent deal for government but because many people didn’t understand what we were getting, there was an uproar. It was further compounded by the fact that many people see SystemSpecs as apolitical and that if you’re going to play in that terrain you need strong political presence. But we felt no, there is a place for politics and there is a place for professionalism. Now, more people now understand what TSA has done for the economy and we remain proud that an indigenous company is behind this. Just before we came in, the previous government had decided to delay TSA for at least another two years because they believed that there was no technology that could support it. We showed that it could be done, it was quite some rigorous process to reassure the CBN and foreign consultants that we could handle the project. We feel very proud and happy that we were able to pull it through.
You said that the government planned on delaying the TSA for another two years, were you involved at the initial stage?
They had planned to delay it for another two years because they had concluded that there was no technology before they became aware of Remita. Incidentally, CBN came in for their inspection of electronic platforms in Nigeria and that was when they saw what we were doing. Thereafter, we were invited to Abuja to make our presentation and we got the TSA project.
TSA actually started under the previous administration and we managed the project from the beginning, but it was of a smaller scale. The payments were less, just about 200 MDAs were on the TSA then for out-payments. The collection side was still on the pilot. This current administration was the one that gave life to whole process when the President adopted it as a full policy of the government and directed that all MDAs should come onboard.
Before TSA, has SystemSpecs ever worked with the government?
Yes, we had worked with some state governments. We had worked with the Federal government through the World Bank on IPPIS, Integrated Personnel and Payroll Information System. SystemSpecs did the pilot for the TSA with seven MDAs, later leading to thirteen MDAs. It was a World Bank bid, we competed with 14 other firms, mainly international software providers and we were selected. If you read former President Olusegun Obasanjo’s book on his presidential years, he commended SystemSpecs. He was proud that the company that brought IPPIS that successful bond was a Nigerian company, SystemSpecs. So yes, we have worked with the government.
Remita is often confused as a product owned by the federal government, can you please clarify this by explaining the role you play in your business with the government?
Remita is a software that allows you to move money from point A to point B. We also deliver payment schedules to match payments where necessary. We started out actually supporting corporates, our focus was more on the corporate world. Yes, when the federal government opportunity came, it was a big one, but that is not where we started. In fact, it came about because we had succeeded in the corporate world. So, we had a number of oil companies, many multinationals and some indigenous companies that were already using Remita. That was part of what gave assurance to the government to bring us on board. It is a big project and we are grateful for that opportunity, but that is not where we started. It is certainly not our last bus stop.
After stabilising TSA now, our next port of call is actually going to be SMEs and MSMEs. In the next few days, we are doing a launch for that focus because it is the same concept that you are using to run TSA that a typical business should use to run itself. You want to be able to have a single view of your operations. Many corporates have accounts across multiple banks. You need a dashboard to be able to see what you are doing and what is happening there. So that is part of what we will bring to the table. It is also for individuals to be able to keep track of their finances. Pay your bills, we have a number of dealers on the platform. You pay your bills, make transfers, create standing orders, view your balances, all on the single platform.
SystemSpecs is now mostly famous for Remita, what led to the development of Remita?
We had a human resource application focused on payroll. We were running payroll for quite a number of organizations and at the end of the month, we will prepare bank reports to be attached to a schedule to take to each bank. With changes in technology, it got to a point where we could deliver the schedules on CD, in those days. It was an interesting innovation at that point that you would write schedules on CDs and these organisations could take the CDs to the banks. Interswitch came in along the line and we felt instead of taking CDs to the banks we might as well electronically transmit data through Interswitch to the banks. Our very first customer on Remita was Interswitch. We were able to transmit data to the bank but unfortunately, at that point in time, Interswitch itself was also settling down and had some challenges with bulk payments. We thought, we might as well write our routines to take care of bulk payments. That was how we applied to CBN for our own license and we started bulk payments. After we perfected bulk payments we moved on to single payments, which is the one for vendors. In summary, we started from payroll, to transmission to the banks, to bulk payments and then single payments and today we are a full blown FinTech organisation.
Apart from Remita, what are the other products SystemSpecs offer and what problems dothey solve?
Incidentally, part of the challenge we have had is that we started from Human Manager, talking of our own indigenous products, but Remita itself now has an inbuilt payroll and HR which is supposed to be a lot easier for organisations especially SMEs and Micro SMEs to implement by themselves. So, within Remita, we have a payment module, a collection module, a payroll, and a HR module. We have also moved into the loans market. We are working in partnership with loan providers to provide a platform for them to give loans to our clients. For instance, quite a number of organisations pay their salaries through our platforms we are able to work with banks and other loan providers to give loan to them while we assist in the repayment process. That way everybody is happy. Our customers are able to get easy access to loans, banks are better assured of repayments and therefore the interest rates can be lower because the default rate would be lower. We are bringing lenders and borrowers together in a secured platform to create a win-win for all parties.
This means that SystemSpecs is like a party to recovery of loans?
Yes, and it is a very simple thing. If somebody earns maybe a hundred thousand naira monthly, we’ve seen the pattern, we have the data and we have his history over the last one year. Therefore, the bank can feel comfortable to lend maybe twenty thousand or thirty thousand to such a person, knowing fully well that the chances of default are very minimal.
Do you think that with this product, the interest rates paid by borrowers may increase because the bank will need to pay for the service you have rendered?
It is actually the reverse. It is going to reduce the interest rates. This is how it works, one of the reasons why interest rates are high is because the banks also have to make provisions for defaults. They are not able to give loans easily, in terms of the scope of people they give loans to, because they need to be sure. So today, a good portion of that is done manually. They have to monitor and go through a lot of paperwork before taking a risk, and of course they have to price that risk, so you won’t blame them if the rates are high. But working with partners like us, we have the data for these applicants, so it becomes easier for them to appraise each individual. The risk is better controlled. They can afford to offer lower rates because they know, with a higher degree of certainty, they will get back their money. It may not happen immediately, but that will be the direction because they can grow the volume and better manage the risk.
SystemSpecs is one of the major partners of Lagos State government on Code Lagos, Educate Lagos, and Ready, Set, Work. How do these schemes benefit the participants in the long run?
The Ready, Set, Work is in its fourth year now, and it is a scheme we are happy to be involved in. We are preparing our youths for the real world after school. Many graduates have to go through a longer learning curve before they can settle either in the corporate world or become successful entrepreneurs, but with the Ready, Set, Work, they get to meet people in the industry. They get to benefit from experiences on the practical side of life. We have been involved from inception and we have had some of the products join us in SystemSpecs.
A few days ago, I signed a full employment letter for one of the beneficiaries that came in from attachment, then eventually did youth service here. We find them readier to kick off in the business than people who have not had that benefit of experience. For the Code Lagos, an ambitious game, again to create that awareness and get young startups and people to see the potential in understanding how to code. They are learning more current coding languages to use. So people who go through such programmes are more likely to be of immediate benefits to us than people who have gone through traditional institutions, knowledgeable but not quite current. That is why we are involved in those two programmes.
Recently, your organisation was in the news for building a Social Welfare Centre in Aminu Kano Teaching Hospital and renovating classroom blocks for children in a special needs school, what informed these projects?
As part of our CSR, two of the major areas we look at is education and health. Incidentally, my father worked in Kano for a little over thirty-five years, so it was a good opportunity to go back to my roots. My dad was a nurse; today his first son is a Professor of Radiology in the UK and his last son is a Professor of Paediatrics is in the US. I didn’t study medicine but the project is the closest I can probably go in showing that I still identify with the medical field which was his own. We had an NGO in Kano that was able to bring this to fruition and we are very grateful for that opportunity and to the Kano State Government who also did quite some work. The Social Welfare Centre will cater for a number of people from the rural areas who have to come to Kano for treatments and need a stopover centre, a rehabilitation centre, a kind of halfway home, a structure and that is what we focused on.
Why did you decide to leave your flourishing career in the banking sector to set up SystemSpecs?
I started my career in the 90s, for briefly six months I was supposed to be selling computers. I realised that I wouldn’t do well selling what I don’t know so I decided to leave to practice my craft which was software development. I joined UBA, I was there for about two and a half years, then I moved on to then International Merchant Bank, where I was for seven and a half years. Six months after I got there, I was appointed as the head of department. For those seven years, it was like I was doing essentially the same thing. I was being promoted almost every year or every other year. The money was good.
For a young man I had all the perks of office, the fully serviced duplex in Victoria Island, five minutes from work, you know, every young man would love that, but I didn’t see my future doing something repeatedly, so I took the plunge and left. At that point in time, banking was the only sector of the economy that had some level of computerisation and then of course the oil companies.
The other sectors of the economy especially the manufacturing industry which is stronger than they are today, lacked the efficiencies of computers. And we saw an opportunity there. We partnered with a company in the UK now known as Infor Systems, and supported their product called SunSystems in Nigeria for about twenty-five years. It was only about a year ago we ended the partnership because Remita had grown and required a lot more of our attention. So, we were with Infor for about twenty-five years, we benefited a lot from the relationship before we drafted our own home-grown solutions.
What were the initial challenges at SystemSpecs’ budding stage?
Starting is not always so easy. We had a number of young people that we trained, but they left in search of greener pastures. The greener pastures, ironically most of the times, were not local. Sometimes in a year you may lose like ten people to Canada, US, because these countries, especially Canada, have legalised entry for Computer Science graduates. So, when you have people from SystemSpecs, they apply, within a few months they go. It has been a challenge for the company. The nature of business that we do is something that will benefit government but doing business with government can also be very challenging especially if you choose not to be a conventional business man. In a society where agreements mean nothing, you take a higher level of risk working with governments. Then of course the usual problems of the society, though I won’t call them problems per se. Things like power, because in fairness; for power, you can always create your own solution.
How would you describe the journey so far and what would you say is SystemSpecs biggest achievement till date?
The biggest achievement is that despite all the odds, by God’s grace we have been able to remain standing for 26 years. In those twenty-six years, we have seen a lot of bright IT companies come and go. The environment has not been very friendly, especially when we had the TSA distrust. Somebody stood up on the floor of the Senate with wild allegations that the company was making twenty-five million naira daily, and it became an issue. But come to think of it, if this country wants to develop we need to open up our minds to appreciate good numbers for good jobs. A few days ago, Apple was being celebrated in the US for making a trillion-dollar mark. In Nigeria, if you make a billion, there is a pulling down syndrome. We need to outgrow that and encourage people who are doing proper work to make good money. That is the only way you can encourage young people to also do good and not cut corners.
SystemSpecs is said to be a fully indigenous company, what is the percentage of expatriates to Nigerians in the workforce?
There is something called zero per cent. No expatriate has ever worked with us. The closest we have had to what you may call expatriate is that we have had a number of Nigerians return from the Diaspora.
We have had a few come join us who understand and can see the vision of what we are trying to do but in terms of foreigners, we have not had the need to engage any. Remita and Human Manager were developed right in Obalende, the heart of Lagos, by Nigerians.
John Obaro: TSA is an Opportunity to Showcase Indigenous Technology to the World
It promotes two things, work-life balance and networking. It started from us as a group, we wanted to find a way for our staff to be able to relax and have some fun and we thought this will even be better if we share with our customers and then with the industry where we play. We were able to work with MediaVision to craft this Remita Corporate Champions Cup, which brings together the champions from different industries. It is a good time for our own staff, our customers and the industry generally to come together during weekends and have fun; and also meet with people who have made their mark in soccer. We have been able to work with legends like Peter Rufai all the while, just to encourage even the younger ones on what you can do.
What can you say about the future of FinTech in Nigeria?
There are many brilliant minds in the FinTech space. I just hope they can be allowed to blossom. CBN also has a role to play in that area in terms of regulations that protect the customer but at the same time allow for innovation. It is a very tricky balance and exercise so that you don’t shift to one extreme. If we can get that balance, I still believe that Nigeria may be the FinTech capital, not just of Africa, but even of the world. We have human intellect, we also have a market.
Do you think Nigeria’s fintech industry has what it takes to compete globally?
In terms of the competence, we have what it takes to compete globally. I read recently that a major bank in the UK is being celebrated because they have now been able to aggregate balances for their customers across multiple banks. Remita has been doing this for close to ten years, but we have not had the privilege to make that noise on a global scale.
What would have been a good opportunity is the TSA, which if we had the support of the government, would have been a good opportunity to showcase indigenous technology to the world.
There are a number of interesting things coming up. I meet a lot of other tech companies with brilliant ideas, these are not only pioneer solutions, but are solutions that if they are able to project it properly to the world, can be made to scale. Rather than condemning ourselves that nothing good can come out of Nigeria, we need that mental reorientation to celebrate our own successes and then the world will join us in celebrating.
The software industry in Nigeria is dominated by foreign companies, what do you think is responsible for this and what should be done?
I believe there is a lot to gain from these companies. Like I said earlier, we supported a foreign company’s product in Nigeria. However, we need to consciously give preference to Nigerian solutions, such that even when they are not as good as the foreign products but have the potential to be good, we adopt them. For instance, if a foreign product scores 90per cent in an evaluation and a local product scores 60per cent, we should rather give the local product and help that local product to scale, rather than always give preference, for whatever reason to foreign solutions.
Today, the central accounting package for the nation is a foreign product from a country, Estonia. It is a good product, but I honestly believe that if we encourage Nigerian companies, there is no reason why in the not too distant future, we can’t domicile the operation of such in Nigeria. SystemSpecs pioneered IPPIS, but somewhere along the line, some people said it should be given to a foreign firm when it was time to scale. Such self-defeatist attitude is a mental mindset we have to change because most of those foreign companies do not understand the Nigerian environment. They are not customised for operations and so they cost way beyond the software cost because most times the support and the revision costs can easily get out of hand.
In the next five years, where do you see SystemSpecs?
By God’s grace, we want to have entrenched more especially in the SME market. We want to have moved out to a number of African countries and certainly be more visible. Five years is such a long time but with the foundation that we have now, I believe that we are set to be a major player in the FinTech industry globally.