Under the hood: A deep dive into how investments work at Cowrywise

In this article, we will break down what it means to trust Cowrywise with your money. We will highlight the dynamics of building wealth safely and securely, the distinctions between your regular bank account and an investment account on Cowrywise, how we can offer higher returns than your bank, and the technicalities of the disbursement process.

Cowrywise is an asset manager, not a bank

We are an investment company, not a bank. So far you have a plan on Cowrywise, the mechanics of operating it, and how funds are disbursed are the same. But, before we discuss this, let’s highlight some key distinctions between a regular bank account and an investment account on Cowrywise.

Licensing

Cowrywise is licensed by the Securities and Exchange Commission as an asset manager, and the core of our business is managing investments on behalf of our users. We are not a bank, and as such do not have a license to operate as a bank.

In a nutshell, Stash was built as a funding channel to save and invest, as an alternative to debit cards. This means the flow of funds should be from your bank account to Stash to an investment plan and back again. Depositing money in Stash only to withdraw it again defeats the very purpose for which it was built. Therefore, from a legal and regulatory perspective, Stash is not a substitute bank account, and should not be treated as such.

Any plan you have on Cowrywise is an investment account

Insurance Coverage vs Custody Structure

An attribute of a typical savings account offered by banks is deposit insurance coverage to protect your funds from loss. As such, any entity (banks and neo-banks) with a banking license from the CBN, is also required by law to have coverage from the Nigerian Deposit Insurance Corporation (NDIC), whose mandate is to safeguard deposits in case of a bank failure. The maximum insurance coverage for depositors in Deposit Money Banks in Nigeria is capped at ₦5,000,000. The equivalent of deposit insurance for an asset manager like Cowrywise is the custody structure.

A custodian is a regulatory requirement from the SEC for every asset manager. The custodian serves as a third party that holds 100% of the assets of an asset manager’s customers for safekeeping. One of the roles of our custodian, Zenith Nominees, is to hold your investment securely on your behalf. This means that at no given time, are your funds ever in our possession. As a result, when a withdrawal request is made, it has to be processed by the custodian to ensure you get value in your account. This process takes time, but more on this later.

For more details on the role of a custodian, check here.

Instant vs time-based settlement

A fintech’s operations are heavily dependent on its industry and licensing type, as this affects the entirety of its business model. Banks can facilitate payments and instant settlements because that is what they were built to do. They have the infrastructure to manage it; their license permits it and their direct connection to the Nigerian Inter-bank Settlement System (NIBSS) empowers them to do so.

Cowrywise on the other hand, is licensed by the SEC to manage investments on behalf of its customers. We are not a bank, and as such we are not directly in the business of payment facilitation. We partner with third parties to facilitate the payment component of the process of investment.

We are primarily in the business of managing your investment portfolios. All our products are registered with the SEC and have to pass through the custodian structure to ensure the safety and security of the assets your funds are invested in.

How the disbursement and settlement process actually works

As stated earlier, we are an investment company, and our major responsibility to you is to invest and manage your funds. Have you ever wondered why we can offer higher interest rates than your regular bank savings account? That is because your funds are not in our possession, but are invested in low-risk assets to generate returns on your behalf. These assets, by regulation, are then held by the custodian on your behalf. 

Here’s a simple illustration of how this works. Remember, we mentioned it works the same way as an investment since the goal is to build wealth.

Illustration 1: Flow of funds from top-up to withdrawal into regular bank account

This is the typical disbursement cycle for an asset manager. As a result, the disbursement of funds from any plan or portfolio MUST follow the same process that involves the custodian. In a nutshell, if it generates returns, it is being invested. And if you are regulated by the SEC, customers’ funds and assets must sit with the custodian.

I see you nodding. You understand the entire process better, but you still aren’t clear on why it should take 24 hours to process your withdrawal requests.

Based on the regulatory requirements, it is imperative that as we scale, we continue to comply with the dictate of our license and the regulatory frameworks that guide our operations. Again, we are not a bank and do not have your money sitting in a vault. Every withdrawal request must follow the process explained above which is part of the regulatory framework to protect you as an investor. You should have serious concerns if your asset manager does not have a custodian.

Responses to some comments and questions

Some customers have asked us questions or made comments about their experience with this process. The following responses should provide additional clarity. 

“The processing period is too long. I’ll rather remove all my funds. Why would I keep using Cowrywise?”

Ultimately, it’s your money, and we have no right to tell you what to do with it. We can only advise you within the confines of our core vision which is to help you build wealth. We appreciate every single customer we have. But, we have kept true to our word of building, preserving, and protecting your wealth. This is why we have worked tirelessly to introduce measures geared toward beefing up the security of your account.

Everything we do is to PROTECT your wealth.

When you decide to stay, know that the 24-hour processing period, though inconvenient in the short term, will be beneficial in the long run, and our advice is that you plan ahead as much as you can, and withdraw wisely.

How does this process affect Stash since it doesn’t offer any returns?

All funds are held with the custodian and must go through the highlighted channels. We do not advise you to leave funds idle in Stash. Rather, you should put it to work. Stash isn’t a bank account to hold your funds. It’s an in-app wallet to fund your plans and receive payouts, which can then be sent to your regular bank account.

Final words

We are reiterating our commitment as your trusted wealth manager to providing you with the best possible means to build wealth safely and securely. Our goal as always remains the same; to help the young generation of Nigerians build wealth by cultivating and making better financial decisions. 

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Keep planning. Invest wisely. Grow wealth.

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