Okpala: Digital Platforms to Accelerate Banks’ Growth

Nonso Okpala is the Group Managing Director/Chief Executive Officer of VFD Group Plc, a financial services holdings company in Nigeria with interests in foreign exchange, debt investment, international remittance, real estate, banking, leasing and payment businesses. In this interview he speaks about the

Group’s businesses as well as plan to raise N13.5 billion from the investing public this month. Obinna Chima provides the excerpts:

What is your assessment of the immediate past year?

Well, I think it has been a mixed bag in the sense that the year was not short on challenges and was not short on threats. The year got people very apprehensive and disrupted a lot of things, in terms of our way of life as well as our business operations. But that is generally speaking. On the flipside, it was good to know that we have a very resilient business model. It is good to know that despite the challenges and the threats that existed in the course of the year, we were able to sustain growth; we were able to maintain profitability and we were able to take care of our people. It is worthy to note that not even one of our staff was laid off in the course of the extremely difficult year. So, I would say it was a mixed bag and I am very sensitive to challenges that people have faced differently in their personal and professional lives; in the country and many organisations. But, be that as it may, we have been able to pull through and deliver good tidings for our stakeholders.

For the country, looking back into 2020, is there anything you think the federal government ought to have done differently to address some of the challenges the economy faced last year and what is your assessment of the response of the Central Bank of Nigeria (CBN) to the pandemic?

You would recall like I stated earlier, it was an extremely challenging year. From the case of the COVID-19 apprehension to the lockdown of the economy entirely as well as shutting down peoples’ ways of lives, to the challenge and restiveness that occurred during the #ENDSARS and the drop in crude oil prices – all these things were challenges that would knock any government that is not well set up. I think the federal government has done a good job in managing things and ensuring stability; ensuring the rule of law and putting things in the right perspectives. Of course, a lot more could have been done, but to a large extent I think they have done well. The CBN is also part of the federal government’s response. So, I think with respect to how they ran the economy in the last 12 months, the CBN played a key role in how the economy was managed. As you know, we are not in a terrible place. So many other countries are still licking their wounds. So, I would give them a pass mark. If you look at how the exchange rate has been managed, to a large extent it could have been worse. But things have been managed to the extent that we have not experienced a systematic shock; we have not experienced a run on the banks and we have not experienced a wholesome loss of trust in the economy. Of course, there is room for improvement this year; but I think they have done well in maintaining a stable economy thus far.

The VFD Group recently got shareholders’ approval to raise N13.5 billion; can you explain to us what necessitated the capital raising and what the funds would be utilised for?

We are very grateful to members of the company led by the board of directors in obtaining the approval for them, for N13.5 billion capital raising, which is broken down in three tranches. First is a N4.1 billion proposed rights offer, followed by a N4.9 billion proposed special placement and public offering of shares and a N4.5 billion planned debt issuance. Of course, the board and members were gracious enough to allow directors to make a call as to how best this capital could be raised and in what proportion. But we are very optimistic based on the excitement within in the ranks of our members and even prospective investors, that we would successfully raise the said funds. I have always said that the VFD Group is the best and most compelling investment opportunity in the country. And if you look at our track record from 11 years ago when the initial shares were issued at N2 and currently we have a valuation that places our share price at about N600 per share. Of course, this is subject to regulatory approval by the Securities and Exchange Commission (SEC). But we are optimistic that it will be in that neighborhood. Over the last 11 years, value has undoubtedly been achieved, growth has occurred and profitability has consistently happened in every year of our operations in the past 11 years. We have grown from a single business operation to operations that span over 11 companies of which we have stakes in them and about five more that we have significant stakes. And they are doing quite well. Ultimately, our aim is to provide all the products and service offerings that we have within our subsidiary portfolio on a technology platform that would provide a very compelling ecosystem for Nigerians. With respect to the plans for the N13.5 billion. The primary objective is to secure a proposed banking license from the Central Bank of Nigeria in addition to pushing our virtual bank franchise deeper and to grow adoption. We have dedicated this year to grow adoption. We have a simple plan and that plan is to get two million active customers on the platform; as well as grow our deposit liabilities in the first instance to N12 billion, but ultimately to about N30 billion on that platform. Since inception last February, we have been quite excited about the results we have received. We think that last year provided the requisite base for us to significantly ramp up in 2021. So, that are the two major aspects we intend to deploy the funds to.

When would the offers commence?

The rights and the private placement would open late January and it would close in February next year. Of course, that is the plan, but it is subject to regulatory approval.

You said you have about 11 subsidiary investments, can you take me through the business model of the VFD Group and what you intend to achieve by investing in almost every sector?

So, what we are trying to achieve is quite interesting. I think that when we roll out in full form in about eight to ten years’ time, Nigerians would be proud to associate with what we have achieved. We see ourselves as a propriety investment company and we started making investments in the financial services industry. Some of those early investment we made were in microfinance bank, in lending, in assets management, in currency exchange, real estate and in remittance. Those were the initial set of companies that we had. We started these companies from scratch, Greenfield investments and we have grown them to be quite enduring, matured and they have been growing consistently with good returns on investments. We also invested in other areas which include automobile, we invested in Germain Auto at some point. But we disposed that stake and started a new automobile company because we felt it was time for us to give the business back to the family that founded it. We also invested in a company called Atiat Leasing, which is into leasing business. We think that on the back of that, we would push beyond auto leasing and go into leasing to support the oil and gas sector. In addition, we invested in a mortgage bank, early in 2020. We are currently in the process of applying for a banking license from the Central Bank of Nigeria. This does not include other businesses that we have associate status or a main investment status in. For those businesses, as they perform, we might increase our stake in them and get more involved in their operations. But the most interesting thing we try to achieve is to bring to bear the selling ability of all the businesses that we are involved in, such that we create a platform in the back of the virtual bank that allows for customers and the general public to meet all their needs – be it financial needs, be it purchase of vehicles, purchase of real estate, maintenance of vehicles, lifestyle shopping, and so many other things on that platform. Of course, in the first we put our products and offerings on it and as we go along, the objective is to allow other people host their products on it and be part of the entire process. So, we think that is an ecosystem that enables us to choose our strategic focus is what would give us a strategic edge, when we are done with the structure we are putting in place.

What are the success stories and challenges that comes with managing a group with so many subsidiaries?

I know I am biased, but I will tell you that the reason why I think that the VFD Group is a remarkable company goes back to how it was founded. VFD Group was founded by a group of young professionals, who at a very early stage in their career came together; clearly understanding that they had limited resources or capital, but they had the know-how and with the aspiration to become great managers and captains of industry. So, we came together, put the little funds that we had, committed to world-class governance, committed to transparency and accountability, committed to enhancing themselves through the business model that we decided that we would invest those funds in. And over the years, we have all grown in that prospect. Seven years down the line, we exited our main jobs and got into full time engagement with the company. We started initially as an investment club, with a group of people coming together just to play the market. Then, we saw the opportunity that existed and then we started a lending business. Then as an investment club, we still had our 9am to 5pm jobs respectively and we focused on working and setting up the company at weekends and our spare time. So, we did this for about seven years and we never took a penny from the company, but we just kept on compounding the funds and retained the earnings in the business, until we started resigning. I resigned from Heirs Holdings as Chief Finance Officer; Gbenga Omolokun resigned from KPMG where he was a senior manager; Bolaji Adewumi resigned from FirstBank, where he was working with the Group Managing Director of the bank; Azubuike Emodi resigned from Zenith Bank and joined us. So, it was a similar story for all us. We have been together and we grew this company from scratch. So, I think the objectives that brought was together, the passion, commitment and single-mindedness of putting this company ahead of us is what makes it quite interesting for us. I think that is one sure component that would see the VFD Group achieve its objectives in the long-run.

You are considering getting a banking license, what is you assessment of the state of the Nigerian banking industry?

I think the banking sector has traditionally done well. It had led the service industry in this country. If you typically compare the banking sector with the insurance sector, in developed nations, the insurance sector is more profitable and has more capacity than the banking sector. But in Nigeria, the banking sector has been far ahead of the insurance and every other sector within the financial services industry. So, in general terms the banking sector has done very well historically. Currently, I think we are at a crossroads and it is a crossroads that can see the banking sector grow in leaps and bounds, especially with the influx of digital banks and the leveraging of technology in financial services going forward. Historically, the overhead of banks was quite huge because of the operational needs, the personnel engagement and even the lack of flexibility in service delivery has been a major issue for the banking sector. That was why prior to now, we had a lot of unbanked and underserved customers. But we think that with the advent of technology and fintechs, most of these things would be addressed. But key to the whole process is for the traditional banks, the virtual banks and the fintech companies to come together and work in harmony, knowing fully well that all that the fintech companies and virtual banks would do would complement and add to the results of the traditional banks. Once that is done and a good regulatory framework is put in place and players in the industry adhere to rules, make the interest of the market as well as the customers paramount in their operations, of course in think the banking industry would perform exceptionally.

A recent report by McKinsey and Company urged Nigerian banks to plan for another round of consolidation in order to thrive beyond the crisis. What is your take on that?

I think that the traditional banks have had their focus on blue chip companies and high net worth individuals and there is the tendency for the winners or a group of winners to take all. So, yes, within the traditional banks, you would expect that the leaders, which are the likes of Zenith Bank, GTBank, United Bank for Africa Plc, Access Bank, would continue to grow in disproportionate form compared to other banks. But with the advent of technology and fintechs like I mentioned earlier, you would see more players who to a large extent would increase the participation in the sector and as well create opportunities that ultimately would benefit the customers. So, even if there is a recapitalisation, you know the indication that came up when the Central Bank of Nigeria muted that plan, was to have it in category. So, to the extent that you maintain categories for recapitalisation, I do not see any of the traditional bank currently that would not meet the regulatory or recapitalisation requirements. So, from a regulatory perspective, I don’t think that a consolidation would be driven; but from market trend perspective, I think that there is tendency for the industry to see a trend towards winners taking all; in which case it will benefit the leading banks that I mentioned. But that does not mean that it is going to run the smaller traditional banks out of the industry. In addition to that, the fintechs are here to stay; virtual banking is here to stay and the central bank is increasingly embracing it. The agency banking is here to stay and different innovative forms of payments are coming up under the fintech banner. So, collectively there would be more participants within the banking sector serving different markets, but ultimately reducing the number of unbanked and under-served customers in the industry, which ultimately is the objective of the central bank as well meeting the goals of financial inclusions that was set in the industry.

Your target is to acquire a banking license, what gap does the VFD Group intends to fill in the banking industry?

You know the gap is very obvious. The big banks are here to serve the blue-chip companies and the ultra-high net worth individuals. We are here for the masses – for people that earn N50, 000 and those that earn N100, 000 and around that range. It is possible for us to deploy great services and high quality of products and service delivery because of the flexibility of the technology we have and the ability of that technology to be customised to the needs of the market. And so, we are focused on the everyday people. We are focused on them because our business model is such that supports exceptional service delivery and products to that level. So, consumer lending is one aspect that we are playing in and consumer financing is another aspect. We are focused on the retail market and we have been doing this in the past 11 years. You will recall that our first business was consumer lending and that was how we started the VFD Group.

What is your V-banking solution all about?

I remember the UBA and FirstBank back in the day, when we were quite young and they were advertisements about these banks where their competitors had customers that had mats and mattress in the banking hall because of the time they were expected to spend in the banking halls. That was the tally number era. So, if you compare that now with the prevailing trend, you will see that there is a new trend. This generation of customers don’t want to be in the banking hall. Initially they wanted to be by Automated Teller Machines (ATMs), but increasingly they don’t even want to be by ATMs. And with the occurrence of the COVID-19 and level of hygiene that people are expected to maintain, you will see that people want contactless technology as well as contactless services. So, there is a huge demand for it. And true to our visionary form, we had started working on a virtual banking license before the pandemic broke out. That was why at the onset of the pandemic, we were quite responsive to deploy the virtual bank called ‘V’ by VFD, popularly known as V-Bank to the astonishment of the market. The market has embraced it and we see it as a trend that would occur. With the App, you can open a valid bank account in less than two minutes, you can move funds from your other banks into that account and you can receive proceeds of business that you have done or your salary in that account. Beyond that, you can make investments immediately. Typically you will call your account officer to establish a fixed deposit for you, but with ‘V’ by VFD, you don’t need to do that. You will just go on your phone and set up a fixed deposit account or investment, by yourself and you will see the report and confirmation of it and at every point in time that you want to check the status of that investment, you will easily get it. You can see an analysis of how you spent your funds; you can see an indication of the budget that you set up for yourself and that App can also hold you accountable to the budget that you had set for yourself. One of the most intriguing feature of the App is the fact that if you have challenges with putting money aside, it can help you do that as you can set it to deduct a certain amount on a daily, weekly or monthly basis and overtime you will find out that you have accumulated a great level of savings which you probably wouldn’t have been able to do if you didn’t have the App. You can request for your cards on it, for those that still want to patronise the ATMs. But if you don’t want to use ATMS, you can go for a virtual card. So, there are lots of options and support that this App can give you. It is a virtual and digital bank. It is the direction of the financial services industry and I think that those who have not embraced it should try it out and see how compelling it is. It is very well interwoven with how you live your life. If you want to go to a supermarket to buy things, you want to pay directly from your accounts, you can do it easily without even having to pull out your card to make payment. So, it is one product that we are excited about. But the most interesting thing about this App is that on a quarterly basis we tend to enhance it. We tend to understand the market, understand the customers’ needs and tweak the App to reflect those needs. We know that overtime, we would be able to align directly and consistently with what the customers need and provide it to them.

But despite the increasing adoption of virtual banks and digital solution, there is the belief that cash remains king?

The definition of cash is what is misleading in the quote. When you say cash is king, money in the bank is cash. Your ability to spend the money that you have with ease and without complications is what is defined as cash. Now, imagine if you want to buy an item for N500, 000, you wouldn’t want to carry N500, 000 and be roaming about. The fact that you have your phone which people hardly forget, you can transact banking anytime. We have done a research and we found out that people hardly forget their phones. They hardly leave their phones at homes. But sometimes they forget their wallet, sometimes they forget their bags, sometimes they don’t go with their ATM cards. So, it gives you the propensity to deploy cash whenever you need to make payments. So, I agree that cash is king, but in the definition of cash, V- bank is paramount in that definition. So, with V- bank, cash is still king to you and cash is in your hands and on your phone.

When are we likely going to see VFD Group listed on the Nigerian Stock Exchange?

Currently we are listed on NASD and incidentally we also invested in the NASD this year. We are quite excited about what the NASD is doing and we think that they hold great opportunities and we are very optimistic that the current leadership of the NASD understands the market and understands what the players want and if they are true to the innovation that they have pledged, we might not need to list on the NSE. We would probably maintain our listing on the NASD. Currently, our shares are being traded freely and we are excited and satisfied with the level of liquidity that exists on those shares. People have exited and people have invested. We think that the NASD can deliver on what we want. That said, if the need of our investors tilts towards the NSE, of course we continue to execute the plan which we had, which is to get listed by 2022.

What is your projection for the VFD Group in the next five years?

In the next five years, we see the VFD Group as a leading Nigerian investment company with interest in key sectors and key industries in the Nigerian economy. Beyond five years, we see the VFD Group within the next 10 years as a leading African company with a replication of the successes that we expect to achieve in Nigeria across key locations in Africa.

And your projection for the Nigerian economy in 2021?

I am usually very reluctant to make economic predictions. But as a businessman I can sense the mood, I can sense the sentiments within the economy and I can read trends. My general assumption is that in 2021, we would see some substantial recovery on the losses that occurred in 2020. So, if I am to make decisions based on that, I would embrace opportunities and investment considerations that come my way in 2021. Of course, key to this is the fact that the roll back of the COVID-19 has started and with the success of the vaccination that are ongoing in some western countries and ultimately would start coming down to our locations, we expect that the scourge of the pandemic would start to be better managed. And once that is done, the restrictions that had occurred in the last nine months would be lifted and we would expect better trends in 2021.