For banking, it is no longer business as usual. Banks are to either innovate or die. Why? New competitors from adjacent industries and financial technology startups are flooding the market with products and services previously exclusive to banks. This reality has caught many banks watching their multi-billion naira transactions slip away, writes COLLINS NWEZE
As 25-year old lawyer Zainab Okosun waited outside the courtroom for her colleagues, her smartphone beeped with the familiar facebook message alert. That was another reminder for her to buy her friend’s wedding fabric popular as aso-ebi.
“We’re not going to the market again after this,” the message from her friend, Amina Yusuf advised. With her phone, Okosun quickly ordered for the aso-ebi and also paid for the pair of silver shoes she had seen on one of the online retail stores, Jumia. A few years ago, she could only have imagined being able to shop and make payment, online and with such ease without going to the banking hall.
Conversely, a few streets away from the Marina, David Okafor, a civil servant, could not seem to stop chatting on any of his two mobile phones as he waited on a winding queue to make cash withdrawal at a nearby Automated Teller Machine (ATM). Then seconds later, the machine stopped dispensing cash; the long queue disappeared.
Okafor 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, be patient with us until the system comes up,” the officer stated. It took another 45 minutes before he was paid.
Yet for every Okosun who is willing to leverage the internet for financial transactions, there are four Okafors who are frustrated by the poor quality of service they get from their banks.
Again, before Tunde Abiodun left home for office, his four year-old daughter reminded him that the DSTV subscription had expired two days ago. Being on holidays, watching Cinderella cartoons is always her hobby. She got a promise that the subscription would be renewed that day. By evening when her father remembered to fulfill the promise, banks had closed for the day. The only option was to pay using his debit card via Paga, a money transfer service provider, where in three minutes, the subscription was renewed.
“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 Co-Founder, Jay Alabraba, who has been in a rush since taking up the top job three years ago said at his Lagos office.
It is not just Paga that is making banks rethink their continued existence, since technology firms crept into some businesses traditionally meant for them. Social media platforms, e-commerce providers, and mobile money services, technology payment firms have brought new twists to how banking is done.
Facebook, Twitter, LinkedIn, My Space, Tumblr, Instagram, Alibba, Jumia, Konga, Supermart, PayPal, Amazon, Square, Cellulant, Apple, Google, Visa and MasterCard are now part of banking operations, taking chunks of banks’ businesses and profitability. They are helping consumers to make payments, secure credits, and do things that banks consider impossible. Customers now think of speed and ways to have access to varied offers from the new competitors, leaving banks struggling for customer loyalty.
Managing Director, Accenture Financial Services, Toluwaleke Ademosun, said digitisation has changed the financial services landscape. For him, these firms are latching on clear evidence that consumer behaviour and expectations of service and experience are changing.
“With 25 banks and a network of 5,500 branches nationwide; 25 million banking customers against 127 million active mobile connections and 25 million users of smartphone, there is no doubt that a fertile market for digital play exists.
“Besides, Nigeria has over 63 million internet data subscribers; 11 million Facebook users and fourth fastest growing number of users worldwide. On Twitter, the country has 1.6 million profiles while 1.03 million business profiles and an unconfirmed number of professionals are hooked to LinkedIn. Digitisation is no longer a future possibility for Nigeria, it is today’s reality,” he concluded.
The Accenture boss 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.
He explained 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.
The Minister of Communications and Technology, Mrs. Omobola Johnson, said Nigeria would continue its movement towards a more digital and cash-less economy through increased internet access, more affordable data and improved mobile connectivity.
“The annual value of e-commerce had soared from $35 million equivalent in 2012 to $550 million in October. While electronic transactions remain dominated by the use of ATMs, there has been very strong growth in online purchases through leading industry players such as Konga, Jumia, DealDey and Quickteller.
“The increasing number of active mobile lines has facilitated the expansion of e-commerce. The most recent data from the Nigeria Communications Commission (NCC) showed that there were 130.8 million lines last June,” she said.
Equally, the Central Bank of Nigeria (CBN) approved Globacom to establish 500,000 Mobile Money Outlets via Glo Xchange in partnership with some banks offering mobile banking services. Deputy Director, Bank Examination Unit, at Nigeria Deposit Insurance Corporation (NDIC), Mohammed Umar, said such feat would make banking available to the unbanked.
He said no country in the world has large number of licenced mobile money providers as Nigeria. Umar said in the next 10 to 15 years, traditional banking branches of bricks and mortar would be drastically reduced, if not eliminated. For instance, younger customers, who are less interested in convenient branch locations and more interested in accessing digital services at the time and place of their choosing, are increasing likely to consider a branchless digital bank.
“The idea of “convenience” in banking is undergoing shift toward digital products and services that interlock with consumers’ “smart” mobile-empowered lives,” he said.
Chief Executive Officer of Konga, Sim Shagaya said the firm has opportunity to create an operating system for e-commerce not only in Nigeria but across Africa. He 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 but, “we are going to leapfrog”.
“$6 billion worth of e-commerce transactions is done daily in India, and we are looking at ways of achieving similar feat in Nigeria. I admit that online retail remains a tough business; we have to do a lot of convincing. We bought over 127 motor bikes for Lagos market alone and want to replicate same across the country,” he said.
Co-Chief Executive Officer, Jumia, Nicholas Martin, who for eight years, worked with McKinsey & Company, says Jumia is taking the Nigeria market very seriously and is also taking precautions to guide against fraud. The online retail firm has over 100,000 Nigerian customer accounts with sales increasing by 15 per cent a month. He said the online retailer introduced cash-on delivery policy to ensure that customers match request with product quality.
“We always insist on genuine products,” he said.
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 like 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.
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.
Global trends
At the international level, Alibaba Group Holding, the Chinese e-commerce giant said first-quarter ended June net income almost tripled to $1.99 billion. Revenue rose 46 per cent in to the equivalent of $2.54 billion. The company had 188 million mobile monthly active users in June, up from 163 million in March. The firm, this year raised over $21.8 billion from shareholders.
At $68 per share, Alibaba is valued at about $167.6 billion and is one of the most valuable technology companies on the planet ahead of Amazon.com, which has a market capitalisation of $150.2 billion and behind Facebook, which is valued at $200.2 billion.
PayPal is a top online payment choice after credit cards, used in 193 countries, 26 currencies. Amazon, has 230 million accounts, and dominates online shopping. Itsnet sales increased 23 per cent to $19.34 billion in the second quarter, compared with $15.70 billion in second quarter 2013.
Apple has 600 million credit cards on file while Google is on one billion Andriod phones. Visa remains the biggest network, got $4.4 trillion in purchases and 74.2 billion transactions in 2013. MasterCard, self-proclaimed fastest network achieved $3 trillion in purchases involving 45.5 billion transactions last year.
Odds against banks
Most times, banks carry out excess charges or debits in customers’ accounts, which are so minimal they are usually ignored by the victims. It is this little charge that overtime, constitute large chunk of bank income. Besides, some of the charges are not consistent with the monetary policies and bankers’ tariff stipulated by the CBN Guide to Bank Charges released last year.
The newly re-introduced N65 ATM fee on other banks’ machines is also a sore point for customers. In many other cases, Commission on Turnover (CoT) fees was breached, with funds running into several billions of naira illegally taken from customers.
Although CBN Director, Banking & Payments System Department ‘Dipo Fatokun explained that the N65 fee on remote-on-us ATMs (Other banks’ ATMs) was to cover huge financial burdens borne by banks which cover the remuneration of the switches, ATM monitors and fit-notes processing by acquiring banks, not many customers were convinced.
CBN records also showed that banks lost over N20 billion to 2,478 cases of fraud and forgery in the last six months. The figure, according to KPMG 2014 customer satisfaction survey said, represents an eight per cent increase over the previous year’s volume and indicates a significant increase in value of over 200 per cent from 2012.
On cybercrime, the report said at two per cent of retail customers indicated that they were fraud victims last year, adding that while this number appears small today, it may signify be the start of a potentially disturbing future trend.
Banks fight back with collaboration
As banks’ revenues fall, the lenders are looking at areas that would bridge the revenue gaps. There is new zeal to raise cheap funds, fund power, mortgage, agricultural and educational businesses. Some banks have also gone into Facebook banking, social lending and partnership with global payment and technology firms. 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.
FirstBank Group Managing Director/CEO, Bisi Onasanya said the partnership would boost e-commerce evolution in the country. “We are glad to provide e-commerce transaction options for our customers and the generality of Nigerians,” he said.
PayPal’s Regional Director for Africa and Israel, Efi Dahan said its payments are trusted by international retailers hence the practice where international companies reject cards from Nigeria will no longer arise.
Fidelity Bank CEO, Nnamdi Okonkwo said that the introduction of PayPal is 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.
Eyes on innovation
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, creating convenience for them. 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’s Head, Social Media, Kelvin Steve-Igbodo 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. He said although the bank 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 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”.
Innovation from other banks
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 US, 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.
“They can make purchases online in these countries as if they are local residents and also have them shipped in a few business days,” he said.
United Bank for Africa (UBA) Plc has equally introduced Twitter-based transaction alerts that allow customers receive transaction alerts in their Twitter direct messages inbox.
“Twitter is increasingly becoming a popular means of communication, especially among the young adults. We are giving the youth, who are increasingly banking with us an option to get transaction alerts on their preferred platform” Rasheed Adegoke, UBA’s Director, Information Technology said.
Access Bank CEO, Herbert Wigwe, said the lender is taking banking to the grassroots via the Access Money Powered by Airtel. “We will be reaching out to million of people across the globe. We are not the first, and won’t be the last. We looked at the models where it has been successful. Those that have succeeded found partners that complemented their values. They found institutions,” the bank chief said.
Managing Director and Chief Executive Officer, Airtel Nigeria, Mr. Segun Ogunsanya, noted that Airtel was strategic in partnering the bank to create an enabling avenue for millions of Nigerians to gain financial inclusion. “With Access Money powered by Airtel, millions of Nigerians will be able to make purchases, pay for services and receive payments by the touch of a simple button on their phones,” he said.
Stakeholders speak
Founder & CEO of design and innovation agency, Super Being Labs, Darshan Sanghrajka explained that lenders were preparing for the ensuing competition.
“A senior Barclays’ executive in London, said Barclays is not fearing other banks but fearing the start-up in a bedroom. What we’re seeing is big banks finally realising that their competition is nimble, smarter and able to take more risks. Social media platforms and new start-ups can develop financial technology and deploy them faster, better and in a way that connects better with the consumer,” he said.
This, he added, has prompted banks to invest in their own FinTech incubators across the world.
“They want to capture the talent, nurture it and then roll it. They need to do this because, internally, they can’t innovate or take risks at this speed. Well, banks will have to justify exactly what value they provide and ensure they don’t take their customers for granted anymore.
Sanghrajka, who spoke at a media training in London, advised banks to win hearts and minds by being brands that a more discerning generation wants to be a customer of, rather than trying to hijack attention on social media.
“To put it simply, be the bank that young people can identify with and practice values that young people can get behind. Then, they will start talking about your brand on social media and word of mouth will spread amongst their friends. That’s how social media should work. At the moment, banks just interrupt young people on social media platforms. Why? It’s futile,” he said.
For him, banks need to focus on what makes customers really happy and then simplify their offerings to give them exactly that.
The Managing Director, CRC Credit Bureau Limited, Tunde Popoola, said deepening the financial landscape creates room for new practictioners and segments to emerge.
“When the financial system is deepened, the banking industry will be the ultimate gainers. All transactions at the end of the day still go to the banking system. It is about money coming into the pockets of people. It can come though different ways like credit cards, transfer, among others. But 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,” he said.
Continuing, he said: “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,” he said.
He said that those means of transferring financial services will keep on expanding. “Last year, when I wanted to send money to my children for their school abroad, I had to go to the bank to fill Form ‘M’ and all that. But it was through my laptop I did it this year. I did not leave my office. So, that’s the kind of things we are beginning to see. When you say you want to make a place, a financial hub, these are the kind of things you see. If you are a bank that still wants to be sitting face to face with your customers, then you have already lost the business because everyone is moving into de-personalising transactions.
“Organisations like 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. They are being licenced by the CBN to be able to give credit to people using plastics even without having bank accounts. These are the things that will become the formal feature of our economy,” Popoola said.
For him, banks now have to make profit, not by charging customers more fees, but by having volumes of transaction from everyone.
Connecting past with future
Chief Executive Officer, White Sapphire, 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.
“Any corporate entity that ignores the social media and technology is just on its own peril. Every body 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,” he said.
Continuing, he said: “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.
“Some people go to the social media to commit atrocities. So, I expect banks to go there now, and have a positive impact on the lives of the people they meet there, especially the youths who form the majority of users. They have to promote values that would help orientate these children all over the world, and help them see the good of that community,” he advised.
Sterling Bank’s Head of Retail Products, Gbenga Adegoke said the coming technology do not pose any challenge. “It is not going to cut banks’ profit. Remember that technology is for everyone and I can tell you that most of our services are technology-driven. They are up to date and get customers to do businesses with us seamlessly. Paga or other forms of payment services are welcome, and I do not see their coming as a competition, but as an opportunity to evolve as a bank as well,” he said.
Managing Director, Cowry Asset Management Limited, Johnson Chukwu also agreed with Adegoke. For Chukwu, the new comers redefine the nature of banking services, hence the need gradually move away from the brick and mortar services, and connect with the present demand by customers.
Solutions by stakeholders
For Ademosun, banks need to take a fresh look at the digital customers, knowing the implications of not doing so, and benefits if they do. He explained that new technologies are changing the way customers and financial service providers interact and introducing a new demand for how banking services are delivered. “The Millennials, that is people under 30 years of age, have distinct preferences regarding financial services and digital technology; hence a customer-driven plan for digital experience is imperative for competitiveness. Customers are becoming dissatisfied with banking relationships that are merely transactional, rather than driven by advice or a broader relationship,” he said.
“Digitally aware customers expect a new service proposition. They want banks to help make their financial lives easier by enabling them manage their money more proactively. Banks that do not craft a meaningful response, risk losing customers and revenues to other more digitally focused financial services providers,” he said.
Founder, Development Diaries, organisers of the Nigeria Social Media Awards, Femi Aderibigbe said that to compete in the evolving environment, banks need next generation functionalities and capabilities to support key operational building blocks for competitive advantage. This, he said, can be achieved by having a structure as efficient and effective as possible; being able to seize opportunities in times of change and continuous innovation.
“By truly focusing on customer needs and integrating data, analytics and insight with product development and delivery, lenders can transform not only the service proposition they offer, but the perceptions of their brand. That, in turn, will help drive overall loyalty,” he said.
Aderibigbe explained that the next banking level would encompass more complex services based on insights from various sources, such as social networks, mobile devices, apps, and harmonised internal data as seen in some developed and developing countries.
For instance, Vodafone and Safaricom created M-Pesa to serve the largely unbanked Kenyan population. The product allows users to pay cash into their account at an agent, such as a gas station or supermarket, and then use their mobile phone to pay retailers or other individuals. M-Pesa serves as an alternative to bank accounts and credit cards, which is especially appealing to the rural population. In 2012, about a third of the Kenyan population used M-Pesa.
For Fashoyin, banks’ tomorrow has started today. He believes that lenders that refuse to key into the new developments risk being left behind. “The opportunity for banks to continue to be relevant and position for growth and competitive advantage will be driven by relevant and higher valued propositions to customers,” he said.
