Technology is rapidly reshaping financial services operations. Banks and Financial Technology (FinTech) companies have identified a shift in consumer behaviour towards digital channels. Rising acceptance of FinTech start-ups’ services by bank customers threatens lenders’ control of over N30 trillion assets and revenues in the banking sector. That dominance is changing as FinTechs begin to offer products and services previously exclusive to the banks. Many lenders are fighting to reclaim lost businesses by investing in technology. COLLINS NWEZE captures the ongoing digital disruption in the banking sector and what it means for operators and customers.
Michael Phillips, 35, was leaving home for work when his smartphone beeped with a familiar Facebook message alert. It was another reminder for him to renew that month’s subscription for his DStv – pay-to-view cable service.
His four-year-old daughter, Nancy, had reminded him the previous night that the subscription would be expiring that Monday morning. Two payment options came to his mind. The first was to renew the subscription through internet banking platform. The other option was to use the Paga network.
Few minutes later, he opted for the Paga option, one of the Financial Technology (FinTech) firms and money transfer service provider. FinTech is the new technology and innovation that competes with traditional banking methods in the delivery of financial services.
As little as the N100 transaction fee seems, it represents one of the millions of revenue leakages facing commercial banks daily. Paga now has over 7.5 million customers in just eight years of its operation.
A few years ago, Phillips could not have imagined paying his bills online without going to the banking hall.
Another bank customer, Lucy Osademe, chatted endlessly on her two mobile smart phones as she waited in a long queue within Ikeja to withdraw N10,000 at an Automated Teller Machine (ATM). Then the machine stopped dispensing cash; the long queue disappeared.
Osademe decided to go into the banking hall where he met a longer queue. One hour later, a customer service officer announced a system downtime.
“Please, the system is very slow. Kindly give us more time to process your transactions,” the officer pleaded. It took one hour before Osademe was paid.
Yet, for the likes of Phillips, willing to leverage on the FinTech opportunities to settle their financial obligations, many, like Osademe, are frustrated by the poor quality of service they get from their banks. There are equally a larger number of customers who have lost confidence in the banks’ internet or mobile banking platforms.
“Mobile payment is where the world is heading and Nigeria cannot afford to be left behind. We do not compete with the banks since our funds are saved with them. But, there are places where we clearly compete, and there are more places where we collaborate to do what we are doing,” Paga’s Co-Founder, Jay Alabraba, who has been in a rush since taking up the top job eight years ago, said during a chat at his Lagos office.
The Paga chief insisted that change was needed because brick-and-mortar approach to banking is expensive and not accessible.
He said: “Nigerian consumers are changing. They are getting busier with no time to waste. They want to get their services nearer to where they work or live. Shopping is becoming entertainment and recreation while the phone is becoming their most intimate relationship. That explains why we are stepping in.”
As the banks and FinTech firms battle for the control of the more than N30 trillion banking assets and revenues in the financial sector as highlighted in the Central Bank of Nigeria’s (CBN’s) economic report for June, their customers are taking strategic decisions on which platforms to embrace.
But, it is not just Paga that is making banks rethink their continued existence, since technology firms crept into some businesses traditionally meant for the lenders. Social media platforms, e-commerce providers, and mobile money services, technology payment firms have brought new twists to how banking is done.
Managing Director, Cellulant Ghana, Albert Ngumba, said his firm facilitated payment for agricultural value-chain, helping Nigeria farmers to buy fertilisers, paying through Cellulant platform instead of banks. Famers can also perform financial transactions, including savings, transfers, loans, micro insurance using its platforms.
“We sit between the banks, mobile operators and merchants. We power payment and make transactions easier for the people,” he said when contacted on telephone.
“Our wallet account holders can now enjoy the convenience of ATM cards to take out money from a machine and buy products or services. They don’t have to carry cash because they can get it from almost any ATM machine and pay bills easily and quickly,” he added.
Also, before the coming of Treasury Single Account (TSA), Nigeria’s notoriety in the public finance management brought the country to the state of near-economic-collapse.
But today, Remita, an e-payment solution developed by SystemSpecs and adopted by the CBN for the payment and collections of funds for the Federal Government has turned the backbone of TSA implementation.
The TSA consolidates all inflows from government agencies, using the Consolidated Revenue Account (CRA) at the CBN.
Prior to the advent of Remita, commercial banks were responsible for the collection, processing and management of government revenues. The deployment of Remita has reduced government’s debt servicing costs, lowered liquidity reserve needs and boosted effective use of surplus cash.
“Remita processes over $30 billion transactions every year, and that’s just within Nigeria,” SystemSpec’s Chief Executive Officer, John Obaro, said.
Besides lowering the level of corruption, he said the TSA greatly exposes the emerging potential of FinTech industry in the country.
Other platforms that have taken chunks of banks’ businesses and profitability are: Facebook, Twitter, LinkedIn, My Space, Tumblr, Instagram, Alibaba, Jumia, Konga, Supermart, Amazon, Square, Cellulant, Apple, Google, Visa and MasterCard.
Companies, such as Uber, Taxify and Airbnb have equally developed radical business models that continue to surprise many institutions.
Secure online payments systems, such as PayPal and mobile payments and transfer solutions, are changing the ways in which payments for goods and services are made. These firms are helping consumers to make payments, secure credits, and do things that banks consider impossible. They satisfy customers’ thirst for speed and variety, leaving banks struggling for customer loyalty.
An Executive of the Research and Policy Department, Nigeria Deposit Insurance Corporation (NDIC), Kabir Katata, said digitisation has changed financial services landscape.
To him, FinTech firms are latching on clear evidence that consumer behaviour and expectations of service and experience are changing.
He said the take-off of e-commerce and emergence of fast-rising online outlets, such as Jumia, Konga and Supermart, are opening up new avenues for e-payments and data collection that were previously left for banks.
Speaking at a media conference in Kano State, Katata described FinTech as a technologically-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.
He said: “Multiple technologies poised to drive the next wave of financial services are converging in maturity. FinTech threatens to disrupt financial markets with the banks taking the threats like the loss of control, the emergence of a non-regulated environment, market fragmentation, and loss of revenue—very seriously.”
Katata disclosed that while many banks have been able to retain their customers through traditional channels and digital service offerings, recent shifts are threatening the customer base of those yet to key into it. Even long term banking relationships at traditional banks, he added, is susceptible to disruption.
Managing Director, Nigeria Interbank Settlement System (NIBSS), Adebisi Shonubi, noted that transaction at banks’ branch transactions have dropped by 25 per cent in the last one year, as more customers embrace electronic payment.
“Banking transactions are moving towards zero human interactions, saving cost and time for customers,” he said.
A Senior Manager, Management Consulting, KPMG Nigeria, Bode Abifarin, disclosed that one-third of Nigeria’s population is below 24 years. The implication is that with a growing middle-class population, internet penetration and usage, which are the backbone of FinTech firms, the sector is set to grow significantly.
Abifarin said: “KPMG survey shows that 77 per cent of Nigeria’s banking customers now use social media for personal purposes. The problem is that Nigeria’s banks have largely failed to translate this passion for the internet and social media into increased adoption of internet and mobile banking solutions and that is what FinTech firms are leveraging on.”
Echoing him, Partner, Technology Advisory, KPMG in Nigeria, Boye Ademola, said that digital platform businesses are also leading a quiet revolution in Nigeria and indeed, Africa. Over the last 18 months, Jumia, an e-commerce platform and another Nigeria’s leading FinTech firm, attracted investments of $425 million and $250 million respectively. He said these firms are valued at over $1 billion each. “They both have footprints across Africa and are looking to become formidable platform businesses,” he stated.
Even global financial institutions have seen the rising influence of FinTech firms.
Speaking at the 2017 Annual Meetings of the International Monetary Fund/World Bank, IMF Managing Director, Ms. Christine Largade, acknowledged the rising excitement about FinTech.
She said: “We cannot be sure, but we know that digital currencies, new models of financial intermediation, and artificial intelligence will change the way we do our job. Our key message is that it would be wise for central bankers and regulators to prepare for the potential benefits and challenges of FinTech,” she advised.
Ms. Largade said that FinTech might provide solutions that respond to consumer needs for trust, security, privacy, and better services, change the competitive landscape, and affect regulation.
She admitted that boundaries among service providers are blurring, barriers to entry changing and improvements in cross-border payments likely.
SystemSpecs Executive Director, Deremi Atanda, said the rising influence of FinTech in banking is not a threat, but would improve banking penetration in key segments of the economy.
He said that technology is key in realising the CBN’s financial inclusion plans.
“If financial inclusion is about bringing people into the formal economy, then FinTech is making that happen and that can only boost economy. So, FinTech is accelerating the rate of economic growth by bringing more people into the financial system,” he said.
Atanda, who spoke on the theme: “Regulatory concerns on risks: Challenges and the resulting impacts on FinTech adoption” at a financial inclusion conference in Lagos, said the introduction of FinTech cannot in anyway threaten banking services. Rather, it will compliment them.
He said: “Well, I do not think the banks are jittery about FinTech roles in providing financial services. It is not an immediate threat in this immediate environment. At the end of the day, payment is cultural. And it must also be within context. And so, technology will always follow the ways and manners of people, even though it can be disruptive in nature.”
The SystemSpecs’ director said lenders will have to leverage on infrastructure such as internet penetration, data, identity, which FinTech firms are trying to ramp up. Atanda said: “It is not that FinTech is going to disrupt banking per say, the mix of it accelerates the growth, exchange of value, and boosts the economy in general.
“The role we (FinTech) play is just as enablers and facilitators within a collaborative ecosystem, because one party cannot do it all alone. We are going to be working with regulators, banks and other financial service providers and generally everyone focused on seeing transactions thrive.”
According to him, 70 per cent of FinTech transactions are centred around remittances and lending as they do not take deposits like commercial banks.
Pointing out that it was not unusual to see regulators clash with FinTech innovators, Atanda said regulators must ensure that technology being adopted does not have unintended consequences that challenge what they saw in creating those things.
The CBN Director in charge of Banking and Payments System Department, ‘Dipo Fatokun, said the demand for the services of FinTechs will continue to rise, even as they need commercial banks’ for them to operate effectively.
He noted that the increasing roles of FinTech companies in the payment system will allow banks to focus more on their traditional role of financial intermediation.
Fatokun predicted the rise in the need for collaboration between the FinTechs and banks, as none can displace the other.
The CBN director explained that banks in developed world focus on their core functions and leaving other roles to service providers.
Fatokun said: “FinTechs have always been in existence. It’s just that more prominence is being given to their roles. In some jurisdictions FinTechs are being allowed, or plans are under way to allow them connect to the central bank which, previously, was the exclusive preserve of the commercial banks.
“The fear has always been there that FinTechs will take over the roles of the banks and that a time will come when there will be no bank. FinTechs are not licenced as financial institutions, they cannot take deposits. They can only facilitate payments or make it easier but the banks will still continue to play a very big role.
“Banks provide hundreds of services outside of payments. They open Letters of Credit (LC), give out loans and you can only give loans if you take deposits. The banks provide guarantee, either an advance payment guarantee or a performance bond for contractors. For you to do that, you need to be a licenced financial institution.”
According to him, FinTechs have played a complementary role for the baking industry and that have made it possible for banks to provide services at cheaper rates and expand their services to the grassroots.
Konga said it has opportunity to create an operating system for e-commerce not only in Nigeria, but across Africa. It admitted that one needs heavy lifting and deep pockets to succeed in this business insisting that the entrepreneurial energy of Nigeria is greater than what Konga alone can do.
Jumia is taking the local market very seriously, just as it has taken precautions to guide against fraud.
It said the online retailer introduced cash-on delivery policy to ensure that customers match request with product quality.
But, Board Chairman, Parkway Projects, owners of ReadyCash Mobile Money, Richard Obire, explained that three parties are involved when mobile money transaction takes place.
The banks, telecom operators and the mobile money operator are all involved, sharing the fee that come with the transaction.
Obire, who was former Executive Director, Keystone Bank, said the cash involved in the transaction sits in the bank, although represented by electronic wallet.
He said the coming of mobile money is not totally taking away business from the banks, but is helping the lenders to tap into the unbanked market.
“The entire banking system is an ecosystem where the players are given roles to play. Such roles including banking the unbanked through mobile money will deepen the financial system,” he said.
Banks fight back with innovation, collaboration
As banks’ revenues fall, the lenders are looking at areas to bridge the gaps. There is the zeal to raise cheap funds, finance power sector projects, mortgage, agricultural and educational businesses.
Some banks have also gone into Facebook banking, social lending and partnership with global payment and technology firms.
Wema Bank’s Deputy Managing Director Ademola Adebiose said his bank is playing big in the digital space, where lies the future of banking. He said the mid-tier lender introduced Alat, a fully digital platform, to enable it capture the grassroots customers and the youths. Adebise said: “Digital banking is becoming more attractive to banks and their customers. It is catching the attention of everyone thinking of speed, efficiency and cost saving in banking.”
He explained that the lender had reviewed its marketing strategy, and made huge investments in the digital space. The Alat platform, he said, has over 100,000 customers, mostly the youths.
According to him, WemaBank is collaborating, not competing, with FinTech firms.
Adebise said: “I think we should see it as how do we build an eco-system. Yes, I have my customers. The FinTechs have their products. They will need to access my customers and we need to collaborate.
“It is not an issue of whether they are taking over or not. And mind you, the business of banking is regulated. The CBN is charged with the responsibility of regulation. But we cannot rule out the threat presented by FinTech and any forward looking organisation or bank must identify the areas of collaboration to build the ecosystem. You cannot be competent on everything.”
Besides, FirstBank, Fidelity and Union banks have partnered with PayPal to enhance online payment for shoppers. The partnership enables the lenders’ customers to register for a PayPal account from their internet-banking accounts.
By linking their-issued debit, prepaid or credit cards to their new PayPal account, customers can then shop and pay on millions of websites around the world from their personal computers, tablets or smartphones, without having to share financial information with the seller.
Fidelity Bank Chief Executive Officer, Nnamdi Okonkwo, described the introduction of PayPal as a deliberate attempt by the bank to make financial services easy and accessible to its customers.
Specifically, he said that the development is in line with the bank’s commitment to consistently deploy innovative strategies to make life easier for its customers.
Aside partnership with payment firms, some banks have also developed products that are technology-driven. The GTBank Instant, First Instant and Sterling Social Lender accounts were built by GTBank, FirstBank and Sterling Bank respectively to enhance social banking.
Here, customers can open accounts online, and that creates convenience for them.
For instance, Sterling Bank’s Social Lender Account allows it to grant loans to customers on Facebook. It provides a platform for online fans, followers who are customers of the bank to obtain micro-credit loans via social media starting with Facebook and Twitter.
The bank said approval of the loan happens within 10 minutes, and that borrowers can make the request online and get their accounts credited with the fund.
It explained that although it started with N3, 000 for borrowers, the amount will gradually rise, and is targeted at customers with urgent cash need.
Adaku Obi, a customer who benefitted from the loan narrated her experience: “While going to Yaba some days ago, I had no cash in my wallet. I needed cash badly. My cheque book was not even with me. I couldn’t find my bank branch around because I wasn’t familiar with the area.
“So, I tweeted at the handle of my bank. The response was swift. In 10 minutes, my account was credited with N3, 000 short term credit. That is how interesting banking has become.”
Access Bank Plc, Visa and shoptomydoor.com, an online shipping company are collaborating to give Visa cardholders opportunity to shop online at retailers in the United States (U.S.), United Kingdom (UK) and China. Such customers, the bank’s Executive Director, Personal Banking, Victor Etuokwu, said, will also enjoy exclusive shipping discounts and shop from the world’s major international retailers with more flexibility and convenience.
Stakeholders speak
Financial pundits believe that banks do not fear other lenders but the start-up in a bedroom. Managing Director, CRC Credit Bureau Limited, Tunde Popoola, said deepening the financial landscape creates room for new players to emerge.
Popoola said: “When the financial system is deepened, the banking industry will be the ultimate gainers. The good thing is that people now have more choices to make. It is only banks that key into the new opportunities that will benefit.
“But, if they are able to innovate, and device ways of seeing their customers not necessarily coming to the banking halls, but getting the services they need wherever they are, then, they will be the gainer at the end of the day. Lenders that are unable to get to their customers through some of these forms and processes will lose the market.
“Organisations such as Paga, Cellulant, are all part of what we are expecting. More of them will come. We have those who are in the telephone territory. There are those in the credit card territory and they are not formal banks. These are the things that will become the formal feature of our economy.”
Connecting past with future
White Sapphire’s Chief Executive Officer Biyi Fashoyin said it is not just the banks that need to innovate, the world itself is now a global village, and the social media is a community by itself.
Fashoyin said: “Any corporate entity that ignores the social media and technology is just on its own peril. Everybody now is now on social media, including the kids. Any wise bank will know that’s where the market is. It is a ready market.
“The industrial revolution came at a time. Europe, America and some other countries took part. Some other countries especially in Africa stayed back. Eventually those that participated became the global powers. Those that abstained were labeled third or fourth world countries.
“That is exactly what is going to happen to the business world. Any bank that is stepping back now, running away from the current realities which reside in the social media space, or the virtual world, will soon be out of business.
“My advice is that every bank should come in and plug into it. That’s where your market is. That’s where your future is. Your future is actually in the social media,” he said. Fashoyin, who is a social media adviser, admitted that the platform has become a place for the good, the bad and ugly.
Global trends
At the international level, FinTech firms are among global business leaders. Alibaba Group Holding Limited, a retail and technology conglomerate provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals and electronic payment services.
As of last month, Alibaba’s market capitalisation stood at $486.27 billion. It is one of the top 10 most valuable and biggest firms in the world.
PayPal’s services allow people to make financial transactions online by transferring funds electronically between individuals and businesses. Through PayPal, users can send or receive payments for online auctions on websites like eBay, purchase or sell goods and services, or donate money or receive donations.
Amazon, has 230 million accounts, and dominates online shopping. The tech giant is the largest Internet retailer in the world measured by revenue and market capitalisation, and second largest after Alibaba Group in terms of total sales.
The PricewaterhouseCoopers (PwC) 2017 digital banking survey found that 46 per cent of customers skipped bank branches altogether, relying instead on smartphones, tablets, and other online applications.
U.S. Financial Services, Industry Leader, Neil Dhar, writing in this month’s edition of the PwC Financial Services report titled: Digital Transformation in Financial Services, said both wholesale and retail users now expect a digital experience from their financial institutions.
Dhar said: “It is about differentiated customer experience, providing what customers want, when they want it, and how they want it, whether you are a bank, insurer, or asset manager.
“This is not just a matter of cosmetics. Banks need to change their back-end operations to support it. And they will need to think differently about how to solve problems because technology is not a silver bullet.”
Stakeholders proffer solutions
Wema Bank Executive Director of Retail & North Directorate, Moruf Oseni, advised banks to take steps that would enable them meet customers’ needs better. He said that customers should be given a priority in designing banking products and services.
Oseni advised: “Banks must become customer-centric because the disruption in the banking industry is real. There are two ways to react to it. Its either we sit down and wait to be protected by the regulators or work with the ecosystem to build the future of banking.”
On competition in the industry, he said: “Competition in the e-payment space is stiff. Bank to bank competition is not even as deadly as FinTech startups-bank competition. Any bank that is not innovative in the times we live in will die a natural death.”
Ms. Largade advised regulatory authorities to balance carefully, efficiency and stability trade-offs in the face of rapid changes, and ensure that trust is maintained in an evolving financial system.
She urged the authorities to calibrate regulation in a manner that appropriately addresses the risks presented by FinTech firms without stifling innovation.
In the days and years ahead, the big question will not be whether FinTechs have come to disrupt or complement banking operations, but which of the sectors controls the over N30 trillion assets and revenues that define Nigeria’s financial sector as a leader in the sub-regional banking businesses. The market will always favour operators that meet customers’ demand for speed, efficiency and security, in the delivery of financial services.
In a report by Ernst & Young (EY) entitled: “Unleashing the potential of FinTech in banking”, the multinational professional services firm, advised banks to determine how best to engage with FinTechs, given the contrasting sizes and cultures of their respective organisations. FinTechs also need to know how best to approach and navigate their way through banks.
EY said the most successful banks will be those that improve speed and reduce costs by collaborating with a range of different partners in building the strongest network.
To achieve the future state, the banks must unleash the FinTech potential in their own organisations – and both must forge ahead to get better to successfully drive innovation. There is no alternative to this collaboration to stay in business.
