Twenty-four years ago, Bill Gates made the statement “banking is necessary but banks are not”. Back then, this seemed like a bad prophecy over the banking industry. Fastforward to the present and it has begun to appear that Bill Gates might be right after all. The rise of fintech and the continual developments in the ecosystem has been causing a significant level of disruption in the banking industry. The bank dynasts believe that fintech and its innovations threaten the continued existence and relevance of their multibillion dollars investments. Hence, they are prepared to go to war to protect their dynasties. Some reputable bank CEOs were reported to have declared war against fintech publicly, referring to fintech as “disruptive technology” and acknowledging that they confront disruptive technologies for survival.
Although the banking sector has undergone past episodes of great innovation, the fast adoption of enabling technologies and the rise of new commercial models pose an increasingly daunting challenge for the financial industry. Fintech investments keep increasing in the Nigerian financial market, as a 2017 report showed that Nigerian fintech start-ups raised about $114.6 Million for that year. At least seven (7) out of ten (10) per Nigerians use one fintech product or the other and 80% of these users trust their fintech providers somewhat or completely.
From the above, we see the level of disruption fintech activities are causing in the banking industry and can see why bank operators are losing sleep over the kind of attention fintech has been pulling in the financial market. Whilst we know that the bank giants are apprehensive of fintech and its innovations (oh and they should really be scared, I mean who wouldn’t be, considering the kind of innovative products fintech companies offer and the ease of use that comes with it), I believe fintech adoption can significantly improve the traditional banks’ activities and can bring about optimum performance.
I don’t think fintech companies and banks have to go to war, the market is big enough and truly their service offerings can be complementary. Both sectors need to have a symbiotic relationship as it is our belief that one sector needs the other to optimize the services already rendered. For example, Bank Z can partner with a fintech company P to act as its acquiring bank in the online payment processing cycle. Undoubtedly, this scenario presents a win-win situation for both parties and more importantly allows the bank to profit from the innovation of the fintech company. I would further examine the various opportunities fintech provide for banking and whether in the light of these opportunities, traditional banks should be making bigger investments in fintech as opposed to playing catch up or trying to destroy its activities.
OPPORTUNITIES FINTECH PRESENT FOR BANKING
I have outlined some of the opportunities fintech presents to the banking industry below and how it has been making positive impacts on the financial market:
Financial Inclusion: Fintech offers banks an excellent opportunity to expand access to financial services, improve their financial portfolio and lower costs for customers. Studies have shown that a good number of the Nigerian populace have no access to banking. Millions of Nigerians are unbanked and or under-banked and as result have no access to financial services. The Central Bank of Nigeria (CBN) recently kick-started the campaign for financial inclusion and a number of policies were laid down with a view to expanding the people’s access to financial services. Recent activities in the fintech industry have shown the capability of fintech to reduce the number of the unbanked and under-banked through its innovative products. The traditional banks are mostly concerned with increasing their customer base without necessarily ensuring that their customers have equal opportunities to enjoy the financial services and products they offer. For example, it is nothing but futile for bank marketers to approach rural dwellers with bank accounts openings and ATM cards, when these rural dwellers have little or no access to physical banks or Automated Teller Machines.
Now, there came fintech solution companies like Pagatech, providing both opportunity and access with its customer-centric products allowing its customers (even the rural dweller) to make deposits and withdrawals into accounts maintained with traditional banks. Some other fintech companies even have products that allow people access to almost instant loans for their businesses without any of those rigid procedures people encounter with the Nigerian traditional banks. I wonder who wouldn’t prefer ease and flexibility to the lengthy procedures associated with the traditional banks! The keywords here are ease, flexibility and a customer-centric approach that traditional banks currently lack. The truth is, as compared to banking, fintech offers the agility and level of innovation that most traditional financial institutions cannot handle.
Innovative Payment and Money Transfer Processing: With the emergence of fintech, providing transparency and low cost services that most banking transactions lack, payment processing and money transfer have seen significant growth over the last few years. From paying for a canned drink with an app, ordering food online, to closing huge transactions through money transfer processing that is seamless and easy to use, a high number of people alternate banking processes with fintech services. Fintech offers a range of innovative payment systems that meet the need for cheaper, faster and easier payments processing. These range from mobile payment systems, hardware devices that can process credit/debit card payments, alternative money transfer services amongst others.
Undoubtedly, traditional banks have not reached this point but can however accommodate the opportunities fintech present to provide improved services to their customers.
Peer - to - Peer lending (P2P) and Micro - financing: Access to loans and other credit facilities in traditional banks involve a cumbersome process and an interest rate that is highly discouraging. Nigeria’s dysfunctional credit market means that it is nearly impossible for the average Nigerian to get a decently priced loan; if the bank doesn’t outrightly reject you, you get charged an exorbitant rate.
Fintech now creates an avenue for P2P lending processes that disintermediate the loan process simply by connecting loan providers with prospective borrowers through specialized P2P platforms. Thus, consumer and business credit are easily accessible and the process becomes simple, convenient and fast. Though the concept of modern P2P lending is fairly new in Nigeria, there are emerging P2P lending companies in the country that offer both instant and payday loans to people based on an individual credit assessment. The idea of borrowing on this platform is quite simple and easy; it goes like this: A signs up to a platform and requests for a loan. B signs up, funds her account, and chooses which loan(s) she wants to finance from a list of anonymous borrowers. So, if A wants to borrow ₦120,000.00 (One Hundred and Twenty Thousand Naira) for one year, B lends it to him and gets a monthly payment of a portion of the principal plus her monthly interest.
Also, there are other online financial service providers that offer instant payday loans up to N3, 000, 000.00 (Three Million Naira) made repayable when the borrower receives his or her salary. This kind of ease of access to funds makes fintech solutions preferable to traditional banking anytime any day. Whilst I acknowledge the fact that the banking industry is a highly regimented one, I believe that if the banks accommodate the innovation and ease of providing finance that fintech offers, they will better enhance banking services and broaden their customer base.
CONCLUSION AND RECOMMENDATION
Unfortunately, traditional banks see fintech and the innovation it brings as disruptive to their businesses. I believe the time is now for banks to change their outlook towards fintech and increase their level of investment in the space, whilst delivering more effective and efficient services to their customers. This will greatly help transform the image of the traditional banks – seen to be more focused on products, as against their fintech cousins, who the market see more as people-centric in their service offerings.
With an increased level of investment in fintech, the amount of catch-up the traditional banks will need to make will be greatly reduced. Its time for the bank to wise up to the fact that the number of people using one fintech product or the other grows with the passing of each day. This can only be because of its ease of use and customer-centric approach. Fintech innovations hold potential benefits for all users of financial services. This is a much-needed wake up call to Nigerian banks.