Finance & Investing

The Future of Debt: Can Fintech Fill the Gap?

Fintech companies that use artificial intelligence and machine learning are changing the future of lending for businesses in Nigeria and beyond.

November 30, 2021

How can small businesses gain access to the working capital they need? Zach Bijesse of Payhippo and Tunde Kehinde of Lidya are trying to figure it out. Hear how new technologies are changing the future of lending for small businesses in Nigeria, Africa, and the world.

With over 200 million people and 40 million small businesses, Nigeria is the perfect spot to launch a fintech company that’s trying to push the boundaries of how businesses get capital. Both Zach Bijesse and Tunde Kehinde saw a huge market opportunity in Nigeria with its sheer size and strong startup culture. Their companies, Payhippo and Lidya, respectively, are using artificial intelligence and machine learning to make lending faster and more accessible for entrepreneurs and, in turn, more successful for this new breed of lender.

Bijesse makes the problem clear: “Businesses can’t get money in Nigeria when they need it. It’s that simple.”

Kehinde believes that artificial — and human — intelligence are key to filling the small business lending gap. “Humans are involved in setting the rules. I think on average per loan, we have close to a thousand data points we look at. And so humans are looking to say, based on our assessment criteria, is it working or not working? And if it’s not working, how do we tweak the rules to make sure the recollection is done properly?”

Likewise, Bijesse’s Payhippo endorses ongoing experimentation and the importance of training algorithms to get better over time. “People forget that you can only train your machine learning algorithm based on your data set. So, you know, we have a few defaults in our loan portfolio. That’s not a bad thing. You just have to give loans and figure out what works.”

Unlike most entrepreneurs, these two aren’t intimidated by competition, even from banks themselves. Instead, they’re always looking for opportunities to collaborate and partner. As Bijesse explains, “There’s a $46 billion opportunity for small business lending in Nigeria. Why would Payhippo need to take 100 percent of the market? Let’s keep growing and do what we do. And then once we get a little bit of bandwidth, it’d be great to empower the other guys and collaborate with them. That’s really exciting to us because then the whole financial infrastructure develops and it’s better for everyone.”

Listen to Bijesse and Kehinde’s story to learn how technology and new ways of thinking can impact how you approach and solve your specific business and market challenges.

Grit & Growth is a podcast produced by Stanford Seed, an institute at Stanford Graduate School of Business which partners with entrepreneurs in emerging markets to build thriving enterprises that transform lives.

Hear these entrepreneurs’ stories of trial and triumph, and gain insights and guidance from Stanford University faculty and global business experts on how to transform today’s challenges into tomorrow’s opportunities.

Full Transcript

Zach Bijesse: When we look at other players in the market, the cool thing about them is they’re all trying to just lend money to these businesses. We’ve had lenders reach out to us asking for help. That’s really cool. There’s a $46 billion opportunity for small business lending in Nigeria. Why would Payhippo need to take the whole market?

Darius Teter: Congratulations. You just sold all your inventory and your customers want three times as much of your product by the end of the week. The only problem is you don’t have the cash on hand to triple your inventory and grow and in Nigeria and many other countries across the African continent that might be the end of the story until now.

Zach Bijesse: Let’s keep growing and it’d be great to empower the other guys and collaborate with them. Because then the whole financial infrastructure develops and it’s better for everyone. We are creating an asset class in the market and creating that financial infrastructure from scratch. All hands on deck.

Darius Teter: Today, we’ll look at two different companies who are approaching lending with new technology and who are both in their own way contributing to the future of business in Africa. Tunde Kehinde runs Lidya, a company that uses artificial intelligence to deliver loans to Nigerian’s’ small businesses. Zach Bijesse’s company Payhippo offers a similar product. Both can get cash to you in a day or less. They’re both pushing the boundaries of how businesses in Nigeria get capital, but to understand how these companies came to be you have to understand a little bit about Nigeria.

With 200 million people and over 40 million small businesses, Nigeria is one of the epicenters of entrepreneurship in Africa, but it’s also plagued with barriers to growth. Tunde Kehinde certainly felt the entrepreneurial spirit growing up there.

Tunde Kehinde: Culturally, in Nigeria, there’s just a strong sense of entrepreneurship. From a very young age, it was the norm in my entire family, both my parents, my uncles, my aunts were all small business owners. Even if you worked in corporate, it was always: I’m just doing this to get me to a point that I can launch my own business. From a very young age, I always knew I was going to be an entrepreneur and the power of that is there are lots of people who are having such a positive impact in their community. We’re all connected by that desire to control your own destiny and have your own business and positively impact your local community so it was almost a given from birth.

Darius Teter: Tunde is calm and straightforward. Short hair, sleeves rolled up. He’s a serial entrepreneur, Harvard and Howard University educated, but his focus is cut through every so often by a wide smile. I’m not sure anything really ruffles him, not even his neighbor doing construction upstairs during our interview.

Tunde Kehinde: If you look throughout history, it’s inevitably the biggest finance players in the world you might have … I’m sorry, some background in case you can hear some construction going on.

Darius Teter: No, we could just wait for a second unless it’s not going away.

Tunde Kehinde: It should stop in a second. My neighbor is doing some construction. Okay.

Zach Bijesse: I’m Zach, co-founder of Payhippo. I normally do a whole thing after that.

Darius Teter: Zach Bijesse started his journey on the other side of the planet from Tunde but it was a similar desire to have an impact that brought Zach to co-found a company in Nigeria.

Zach Bijesse: I didn’t know what a VC was. I didn’t know about any of that, but was reading the lean startup and all these rudimentary tech things and fell in love with it. Like, “Oh wait, you can use technology to solve problems at scale in a meaningful way? That’s crazy.” This whole time I’ve been trying to figure out what’s the best way to solve all these important problems. And then I found it and I just fell in love with the tech space from there.

Darius Teter: But for a country filled to the brim with entrepreneurs, there isn’t a very broad or deep system for lending them capital. This is particularly true for SMEs, the small and medium enterprises that make up Nigeria and most of Africa’s economic backbone.

Tunde Kehinde: We saw actually a bigger problem the businesses had, which is, look, when I have something that’s working, I don’t have access to the capital to scale it to the next level because in this part of the world and a lot of emerging markets, because there’s no real credit system where I have a credit score that can be used to unlock mortgages, auto loans, et cetera. It means that to get a facility from a traditional lender, I need cash or land or machinery to back against that loan, which excludes 99% of businesses.

Zach Bijesse: Businesses can’t get money in Nigeria when they need it. It’s not simple.

Darius Teter: So how are Payhippo and Lidya trying to solve this problem and get money to SMEs quickly?

Tunde Kehinde: We said, look, we’re now in a digital age and there’s so much data. You can assess these customers and get them the capital they need to grow. A typical customer of ours is a retailer. Either you are a grocery store company, you’re a gas station, you’re a pharmacy, and typically they come to us looking for working capital. I already have my location, I need some money for inventory, but I need a decision quickly.

I don’t have three months to compile a bunch of paperwork. I don’t have three years of financial, five years of projections, I just have my data. Literally, by integrating or sharing some information with us, we can make a decision same day and we can disburse that capital same day as well. That’s the power of what we’re doing and what we’re offering our customers.

Darius Teter: Of course, the risk of lending money to someone is that they don’t pay you back and they leave you stuck with an NPL, or non-performing loan.

Tunde Kehinde: As you know, with lending, of course you want to grow and scale is important for a number of reasons, but it also requires skill. To your point on who will survive, ultimately if you lose discipline around how you assess and make big mistakes in how you fund your loan book, you almost likely will not survive.

Darius Teter: I wanted to know how Lidya and Payhippo have cracked the problem of making lots and lots of small loans very quickly while avoiding NPLs.

Tunde Kehinde: Everything we do is really built around three main, at least for lending, it’s built around three main pillars. One is your ability to repay. Getting a sense of, look, how much cash flows through this business? The second pillar is your willingness to repay. Have you taken a loan in the past? How did that loan perform either with us or with an external party? Then the third thing is KYC (know your customer). Are you who you say you are and do you have the authority to enter into a loan agreement on behalf of this company?

Those are the three main pillars. We’re looking at a number of things. One of the things we’ve seen is businesses have multiple bank accounts. For example, when you’re trying to assess ability to repay, the beauty of our business is there’s no real switching cost, there’s no need for you to set up an account with Lidya. We can literally assess your accounts across multiple banks and the power there is when we now present a unified view, we can get a true sense of your treasury position.

What I mean by that is if you’re looking at distinct bank accounts and not taking into account intercompany transfers, on a gross level it might seem Tunde has $100,000 worth of transactions every single month. “Wow. I should give him a big loan.” But a lot of the transactions might be because I use my Chase account for payroll so when it’s time for payroll, I move money from my Bank of America to Chase and back when I get a payment because it’s cheaper to receive money through Stripe for something else so what the algorithm is doing is beginning to eliminate those intercompany transfers so that we can actually have a true sense of the cash flow position of this company and now against that cash flow say this company can afford to pay X.

That’s an example of what we’re looking at. The second thing that we’re also looking at is beginning to tease out now on the willingness to repay, beginning to understand of all the transactions going out of your account, what’s the context of the transactions? Is it regular business transactions, meaning payroll, et cetera, or is a lot of it going to pay other interest? Trying to get a sense, is this person fully levered and they’re taking a loan from Lidya to pay another person’s loan? Of course at some point that will cause a potential issue so it is things like that.

Darius Teter: Basically reverse Ponzi scheme.

Tunde Kehinde: Yeah. Exactly, to avoid those.

Darius Teter: Are humans involved in that decision making or is the whole system driven by a technology-first loan review?

Tunde Kehinde: Humans are involved in setting the rules. What I mean by that is we are digesting lots of data. I think on average per loan, we have close to 1,000 data points we look at. Humans are looking to say, look, based on our assessment criteria, is it working or not working? Working means we disburse and it gets paid back to us. Our write-off rates are less than 1% of what we do and if it’s not working how do we tweak the rules to make sure the recollection is done properly.

Darius Teter: Help me balance the importance of building the track record versus the value of the bank statements.

Zach Bijesse: Fancy algorithms aside, put our machine learning aside, all that. It’s really simple. If a business is larger and they can handle more money, they get more money in a financing than a smaller business. Assessing the business helps us know where to start a business but you don’t necessarily know the actual credit worthiness. In other words, you don’t know what’s going to happen when it’s time to repay that loan so that’s why when we give that first loan, our algorithm is tracking all their data when they pay that first loan, then for the second one, the third one, and does two things. One, it helps them prove out their track record and their creditworthiness with us but the other thing of course is it makes our algorithm stronger. Because that way each time a loan’s repaid we get better and better at it.

Darius Teter: KYC, or know your customer, is an important mantra for any company. After all, customers are your lifeblood and you can’t survive without them. But with automated lending, a human being might never talk to a borrower during their whole customer journey. So I asked Tunde how he balances this tension. Okay. I feel like there’s inherent contradiction between having an automated system for making loan decisions and yet deeply knowing your customers so you can always be at the front-end of solving their pain points.

But I think what you’re saying is if you have 1,000 customers in the specific industry or sector, you can mine the data to understand them as a cohort or as a group, retailers, pharmaceutical distribution, whatever it is. Is that what you mean? I’m trying to still understand how much Lidya actually knows about individuals and how much is really data mining from the sheer volume of the loan applications.

Tunde Kehinde: Maybe if I step back and I think of our long-term vision, it’s clear to us we want to be the primary finance partner for small businesses in our markets. That part is clear. What that means is we will do more than lending over time. I think lending is an important product for a lot of our customers, but we’re seeing that they have bigger issues beyond just lending. The face-to-face discussions are important but we make sure that we mine the data so that it’s not random anecdotes that don’t serve the bulk of our customers.

A face-to-face discussion sparks a thought but then everything we do we have to have the discipline of digging into the numbers to say, look, this is actually affecting a large number of customers, or look, it’s an interesting data point but our customers don’t care about it. That’s how we approach it.

Darius Teter: In fact, Tunde thinks that their digital-first process can give Lidya a better understanding of their customers compared to traditional methods.

Tunde Kehinde: Are we understanding the customer’s problems? Because I think it’s very easy for us to tell the customer what we think their issue is, but what is the data telling us in terms of what the customer needs? It might be, they’re looking for a working capital solution but is there something else we’re seeing in the data that we can now use to help the customer achieve his or her goals?

Darius Teter: It is generally true that the larger and more varied the data set in an experiment, the more reliable the result. The same is true for lending algorithms. Who pays you back, who doesn’t, and what are the common features of those groups of borrowers? Humans do this in banks, of course, but with far fewer borrowers, and hence a much smaller data set.

Zach Bijesse: You know what’s crazy about the ML (machine learning) thing is, it is real, it is powerful, it is as amazing as people think it is, but it also has limitations people forget about. You can only train your ML algorithm based on your data set. We have a few defaults in our loan portfolio, that’s not a bad thing. That’s a part of a healthy loan and growing loan book and on the flip side, it helps train our algorithm. Our algorithm’s really good at 30-day loans. Our algorithm hasn’t been trained on long-term loans so at some point your current algorithm isn’t going to satisfy other types of products.

For us we still want it all to be completely data-driven, whether it’s qualitative or quantitative data, it’ll be a mix of the two. But in order to get there on the ML side we need to start with the early experimentation with these couple loans we’re doing now, grow it, keep experimenting. That’s really the only way to do it is just the hard truth, you just got to give loans and figure out what works.

Darius Teter: Right. A good experiment has failures. Otherwise you’re not learning much. I wonder, if everyone is collecting the same data on the same borrowers how does any one fintech player differentiate itself?

Tunde Kehinde: I think the differentiation ultimately will be, do you have a proprietary flow of data that only you see? Lending on credit has been around for a very long time. You’re seeing now, obviously, with the folks like Stripe, like Square, looking to do loans to customers, Amazon has a very big SME loan book. There’s just some data that only they see and there’s just, to an extent, captivity of the customer that only they have. I think over time that is what’s going to differentiate players.

If you are seeing the exact same data as everybody else, and you’re acquiring the customer from the same pool as everybody else, then it quickly becomes a race to the bottom and there’s no differentiation, it’s tough to scale. In the end, the winners will be … you just have a proprietary flow of data that nobody else sees that you’re able to better assess the customer.

Darius Teter: Tunde sees a strong data set as the foundation to expand into other products. With increased understanding of the customer and trust earned through consistent dependable service, lenders could become a one-stop shop for a customer’s financial needs.

Tunde Kehinde: What comes to mind for me is I see the customer the same way as us as individual customers. Look, I only shop on Amazon. If you’re in the States, Amazon will just get you what you want when you want it. It’s trusted, they have more or less everything you need, it will come the next day. I see the same thing whether I use Uber or Lyft, I press a button and it comes to me instantly. My instinct is that the customer will want a primary partner in finance.

I think the customer will want instant solutions. I press a button or this partner is proactively recommending to me financial solutions, and I think data will be key to being able to offer those instant solutions. The person who gains the trust of the customer and has access to as much data as possible will become that primary partner.

Darius Teter: Payhippo currently offers small short-term working capital loans. But with access to larger data sets, particularly on specific borrowers, Zach is confident that they’ll be able to expand into larger loans which could provide Nigerian SMEs the capital they need to grow.

Zach Bijesse: We do have some cool things we’re working on. We have businesses who’ve been with us for over a year now. They have proven out their creditworthiness. Now it’s time for us to start really experimenting with other financing models. We’ve been doing this 30-day working capital facility and that’s really good for the specific problem of running your business and being able to satisfy customer demand.

But that’s a specific use case of working capital. There are other needs for financing, as well as we know. We have businesses that run stores and could use the capital to expand and dial their locations, open new outlets, and that’s really interesting for us.

Darius Teter: Lidya is also exploring larger loans and as Lidya and Payhippo’s customers establish a track record of reliability and grow their businesses, they need different types of credit that will enable even more growth. If Lidya and Payhippo can provide that credit, both companies will grow themselves in the process. This virtuous cycle has the potential to benefit all parties.

Tunde Kehinde: For now, we’re only doing 30-day loans. Because the idea is just working capital and it was inspired by a credit card where, look, at the end of the month you pay off your obligations and get reassessed for a facility. That’s how we’ve designed it. But it’s beginning to evolve because now as a company we’re over four years old and we have a number of customers who’ve said to us, “Look, who I was two years ago versus who I am now, it’s completely a different business. I went from three stores, now I have 10 stores. I went from 10 employees, now I have 50 employees. One, my financing needs are completely different, but I’ve proven to you I am a good credit so what does that mean for me in terms of the loan product? But also, potentially I have other finance needs. Can you, as my finance partner, help me solve those problems?”

Darius Teter: Ultimately, this is the challenge that SMEs across the continent hope will be solved. Access to bigger loans beyond just working capital, for capital investment, for market expansion, for new products. Perhaps larger loan sizes are on the horizon as these lenders expand their customer base, their confidence and the sophistication of their lending systems. Of course, wherever you have consumers borrowing money, you will have some kind of regulation to protect the integrity of the financial system, and that includes both the borrowers and the lenders.

The problem is that not all regulatory environments are as agile as the technology they’re trying to regulate and others simply act as extensions of entrenched interests who feel threatened. I asked Tunde of Lidya how has he approached the still evolving regulatory environment for fintechs in Nigeria. I was wondering if you could just give us a little bit of a background on the regulatory environment for your business.

Tunde Kehinde: I will say we’re a bit fortunate across all our countries because we focus on small business because inevitably small businesses worldwide create the most jobs. I find that policy in general tries not to put up hurdles that negatively impact them because they create the most jobs. In all our countries, Nigeria, in Eastern Europe, in Poland, in Czech Republic, we’ve actually found the regulation quite positive which allows us to get capital to SMEs quickly. That has been good. To be fair, I do understand the position of the regulator because particularly for businesses that deal in consumer finance, ultimately you want to make sure our monies are being protected.

To be fair, I think in particular to the regulatory here in Nigeria, a lot of policies actually have really enabled financial inclusion because the quality of the banking infrastructure in Nigeria I’d say is probably one of the highest in the world because it was built almost from scratch. Whereas in a lot of the West you’re dealing with legacy infrastructure and trying to fit into what’s already been built, what we’re able to do around KYC, instant transfer, opening accounts for customers in one day, is pretty cutting-edge.

My sense is there are more negative headlines that maybe catch the eye but don’t really talk about 90% plus of the positive work that’s being done because all this growth you’re seeing, like Flutterwave and Paystack, in the last three, four years, is on the back of the regulator. Someone said to me once, “Look, if you’re willing to go talk to TechCrunch, why aren’t you willing to go talk to the regulator?” I think you have to proactively position your business. If not, decisions will be made without your inputs and your feedback, which will negatively affect your business.

Darius Teter: At least for now, the regulatory environment has not discouraged new entrants. I wondered how Zach and Tunde viewed this competitive landscape. What I learned was that the potential upside is too huge to be captured by any one player. In fact, collaboration and partnerships are one way of growing the pie for everyone.

Zach Bijesse: No one’s fighting in the market. Everyone’s figuring out how to collaborate and we keep seeing that come back to us. When we look at other players in the market, the cool thing about them is they’re all trying to just lend money to these businesses. Or the consumer loans, it’s to consumers, which we don’t do, but we’ve had lenders reach out to us asking for help. They either need their own capital, or they need to use some type of tool to pull data, or they need help with the ML side of things. We’ve gotten these help requests and we haven’t really had the bandwidth to do it, because we’re focused on our first product, but presents a lot of opportunity for us to take our learnings and support other folks trying to lend in the market, and that’s really cool.

There’s a $46 billion opportunity for small business lending in Nigeria. Why would Payhippo need to take the whole market, all 100% of the market? Let’s keep growing and do what we do, and then once we get a little bit of bandwidth it’d be great to empower the other guys and collaborate with them. That’s really exciting to us because then the whole financial infrastructure develops and it’s better for everyone.

Darius Teter: Then the revenue model there is your intellectual property?

Zach Bijesse: Yeah. We have it, we’ve developed it, we’ve put resources into it. We’ve developed an algorithm for lending to small businesses during 2020, the hardest year to be lending to small businesses, the hardest year for small businesses to operate. We know how to lend to small businesses and when we have a little bit of extra bandwidth, running a company is hard for the first thing you’re doing but when we have that extra bandwidth to be able to support folks, that’s going to be really exciting. Imagine us being able to take our tools, that kind of IP, and be able to empower a lender to do even more at a higher repayment rate.

Darius Teter: Based on that comment, it sounds like partnerships will continue to be super important for defining the future of the sector.

Tunde Kehinde: I think we have no choice. The reason why I say that is just the evolution of technology is scary. Some things that were not available a year ago or six months ago are available now. The quality of APIs, the quality of partners. If you are not partnering to understand what’s out there and attempting to build everything yourself in a silo, I think you’ll wake up one day and you’ve lost your market position. There’s just so much plumbing that you can tap into and ultimately the customer doesn’t really care who makes or how the sausage is made. What they care about is, are you solving and offering me a strong value proposition?

Darius Teter: It isn’t just partnering with other startups that can be beneficial.

Tunde Kehinde: We partner with banks because a big part of how we acquire customers is through partnerships. I think the banks too are looking for a partner like us because in most times, given the overhead cost that a bank has assessing even a loan of $50,000, it’s tricky. What we are saying to these banks is, “Look, give that capital to us so you are dealing with one person. We can now, because of our DNA, we’re able to assess these customers for the true risk of these customers, handle not just the assessment and the disbursement, but typically the trickier part is the recollection. Then we just pay you back, the bank, what’s owed to you.”

Darius Teter: You become the borrower because I understand originally your loan book, you were funding it with equity, but now you can be the borrower from the bank so you’re the SME intermediary.

Tunde Kehinde: It’s obvious to me that this whole discussion of are we friends or are we frenemies with banks, we need to all get past that very quickly because what’s being built just needs to be interoperable because the customer now has multiple bank accounts and there are certain things that if we collaborate more, you can give a stronger value proposition to the customer and they’ve been very clear on the things that they care about. They care about speed in terms of transactions being settled, they care about fees, not being so high that it eats into their margins. They care about trust. If something goes wrong, can it be resolved quickly? That partnership piece is very important to me.

Darius Teter: Payhippo also sees the potential for collaboration rather than competition with traditional banks. A bank could observe how profitable you have found it to be in this space and just decide we want to buy a tech-first online platform to extend our banking products to that market segment. We’re not going to build it ourselves, we’re just going to create a subsidiary which is Payhippo as part of a traditional brick and mortar bank in Nigeria.

Zach Bijesse: Imagine, that would be really cool. Banks in Nigeria know the power of the small business segment but also to give them credit, they do already great business on the large corporate finance side. They earn a lot of money through large corporate finance like servicing the Coca-Colas of the country, these blue chip companies. So if we can help them diversify into this channel, that’s awesome. We would love for them to do that.

This is different than other industries. This is not a threat to us. The more we can help them do, the more sophisticated the lending market is and it’s better for everyone. We are creating a layer of an asset class in the market and creating that financial infrastructure from scratch. So all hands on deck.

Darius Teter: While Payhippo is focused on Nigeria, at least for now, Lidya is expanding into Eastern Europe in part because of its founders, but also because the problems SMEs face in Nigeria are actually not that different from those faced by SMEs around the world. Let’s just quickly go into the whole Poland thing. Why Poland? Is that based on your business partners or …? I’m laughing because we interviewed another company in Nigeria and their big expansion is Mexico and I’m like, “Okay, why Mexico?” I’m going to ask you: Why Poland?

Tunde Kehinde: My view is, why can’t we build global businesses from Nigeria? We said to ourselves from day one, why do we limit ourselves that we must be a Nigeria business? Or we must be an African business. If you think about a lot of businesses in the States, they think of the world. I’m going to go where I see the opportunity. We are showing that the quality of founders coming out of Nigeria, coming out of Africa, are globally competitive. From day one we said, “Look, we have the professional experience, educational experience, let’s go create a global business.” That was the idea.

Darius Teter: SME credit gap … of course it’s a different scale of credit need but it is interesting to hear that SMEs face similar challenges in those markets as well. Can you say a little bit more about what your research found?

Tunde Kehinde: It’s really fascinating, to be honest. I think the opportunity is even present in the States. I think even in the US, you have SMEs who say, “Look, I don’t have access to enough credit.” What we’ve seen that’s consistent worldwide is just given the setup of traditional banking, it’s very difficult cost-wise to assess a loan of $10,000, which is very meaningful to an SME. Because if you think of the complexity, it’s one thing to give me or you a credit card. Look, every month X amount of money comes into our account. You can assess that.

But when you think of business, different sectors have different complexity, different margins, different seasonality, different velocity of capital. And on that $1,000 loan, how much am I really going to make? I’m going to incur all that cost to assess this customer. It doesn’t really make sense to do so. The second thing, when you think about it, banks are a bit to an extent poorly positioned because of their customer base. What I mean by that is, look, if three quarters of your revenue comes from banking the large multinationals, or from individual retail like me and you, no matter how much emotion we have towards small business you’re not going to change your entire business model to serve 5% of your customers.

I don’t know how we solve it. But it’s also obvious that the world is increasingly becoming digital and global. If you think of Nigeria, a lot of our business is a gateway into west Africa and you think of Poland and Czech Republic, it’s a corridor back and forth between Eastern and Western Europe. What that means is our customer is as likely to deal in a foreign currency as they are in their local currency. So how can we make that experience as seamless as possible for them to receive a payment, make a payment, settle an obligation without them spending 5% of the transaction value just on settling fees. Are we tapping into this global universe?

Darius Teter: Tunde is also excited about the prospects across the African continent, but he’s taking a patient approach.

Tunde Kehinde: We’re very curious to see how this Africa, all the free trade zone talk evolves. If we can actually begin to truly collapse those borders, one currency as much as possible, one view towards lending, easy movement of goods, capital, and people across borders, I think Africa becomes very interesting because it’s a complete wide space. Don’t get me wrong, I’m Nigerian so I’m naturally bullish on Africa. But I do think to your point you have to approach it the right way because even in Nigeria, Lagos is very different from Abuja. These are complex markets and if you get it right, the beauty is you can be the dominant player. But if you get it wrong, it’s tough to dig out of it sometimes.

Darius Teter: What does the future hold? Even with all of the artificial intelligence and advanced technology at his disposal, for Tunde success still lies with people.

Tunde Kehinde: I feel that the businesses that stay very close to the customer, it’s kind of a cliché statement, but the companies that stay close to the customer will end up winning. I say that very deliberately because I find that some of the things that we push to the customer, it’s typically not their biggest problem. I’m always surprised whenever I say it to the CEO, a treasurer, and I say, “Look, what’s your biggest problem?” Typically, I’m very off-base with what I thought it was going to be.

For example, a story I always tell, it’s obvious in hindsight, but a story I tell everyone, I met with a head of sales at a very large consumer brand because we work with big enterprises to lend to their value chain and we spent the whole discussion talking about his value chain. And I thought at the end, when I said, “What’s your biggest problem,” that he’d say, “Look, my biggest issue is how can I get my distributors and my retailers more capital?” But he said, “Look, my biggest issue actually is access to foreign exchange.”

He said, “It’s exacerbated this year because in a COVID world, where before it took 45 days to go from port to port, now it takes six months and it’s taking me three months to also get access to foreign exchange and a lot of what I’m buying is in foreign exchange, so it’s nine months to get the raw materials I need to finish in the country. If someone can solve this issue for me, that’s a very big deal.” If you are a CEO or a startup, I just go and I push my small business lending product to him. He’ll listen, he’ll be polite, but I’m not solving a pain point.

If we are not staying close to the customer and that’s through these discussions, but also do we have the ability to digest the data that we’re receiving, apply the right context to that data and then say, “Look, wow, we are seeing 1,000 customers and they’re all saying this. We need to react very quickly.” I think it’ll be tough for us to win, is my sense. Whenever we solve the problem of the customer in general, they tend to solve our problem.

Tunde Kehinde: We had a very great conversation, but ultimately, if you project five years into the future for Lidya, if we are not staying close and in tune with our customers, we won’t be as successful as we want to be. That always needs to be our guiding north star. Are we helping our customers build great businesses? If we are, they’ll carry us along for the ride.

Darius Teter: I think it’s really telling that these successful companies are implementing this technology in a way that centers on people. You hear it in how Tunde talks about creating relationships with regulators or how Zach talks about partnerships with other businesses. They’re using the capabilities of AI and machine learning to better understand their customers and they’re augmenting that with powerful partnerships along the way to find more customers and to finance their loan books.

Darius Teter: They’re doing it all to create an ecosystem where other businesses can thrive. Can this new generation of fintechs fill the SME funding gap? I think the answer is yes for certain types of businesses with high turnover and modest needs. That still represents a huge unmet demand, not just in Nigeria, but across the continent and in many other markets. Filling that gap and partnering with other players to provide a more comprehensive suite of business services will enable many of these SMEs to grow with broad, positive impacts up and down the value chain.

For these fintechs, the next opportunity is to refine their algorithms and their business models to efficiently offer credit services to SMEs that want to expand their manufacturing, to introduce new products, to add retail outlets, to reach new markets. That gap has yet to be solved in Nigeria and across much of the African continent but the motivation and the momentum seems to be there. I’d like to thank Tunde Kehinde of Lidya and Zach Bijesse of Payhippo for their thoughtful words and even more thoughtful work. I wish them all the best.

This has been Grit & Growth with Stanford Graduate School of Business and I’m your host, Darius Teter. If you like this episode, leave us a review on your podcast app. It really helps us to share the stories of these incredible entrepreneurs with as many people as possible. To learn how Stanford Graduate School of Business is partnering with entrepreneurs throughout Africa and south Asia, head over to the Stanford Seed website at

Laurie Fuller researched and developed content for this episode with additional research by Jeff Prickett. Kendra Gladych is our production coordinator and our executive producer is Tiffany Steeves, with writing and production from Andrew Ganem and sound design and mixing by Alex Bennett at Lower Street Media. Thanks for joining us. We’ll see you next time.

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