Financial Technology (FinTech) has transformed the financial landscape, offering a wide range of opportunities spurring new products and services from payments to financing, asset management, insurance and so on.
According to G. Y. Gana, Director, Insurance and Surveillance Department (ISD) of the Nigeria Deposit Insurance Corporation (NDIC), FinTech can strengthen financial development, inclusion and efficiency, enabling banks to harness smart solutions to operate more efficiently.
However, FinTech poses several potential risks to financial stability, integrity, and consumer and investor protection, which ultimately affects regulators/investigators, he said.
FinTech has been defined by the Financial Stability Board (FSB) as a technologically enabled financial innovation that could result in new business models, applications, processes, products, or services with an associated material effect on financial markets and institutions and the provision of financial services.
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“It is simply the application of IT to financial services,” Gana said in his presentation on ‘Impact Of Fintech In Banking Operations: Opportunities And Risks For Operators And Supervisors’, at the 2021 retreat for House of Representatives Committee On Insurance And Actuarial Matters, held recently in Lagos.
A look at the evolution of FinTechs in Nigeria showed that banks started employing technology at the back-end and front-end of their operations. The first Automated Teller Machine (ATM) was installed for the defunct Societe General Bank of Nigeria (SGBN) in 1987.
Technology companies such as Interswitch, E-tranzact and System-specs began to gain prominence as they rolled out fintech solutions.
Telephone banking adoption came on board during the post-1986 Structural Adjustment Programme (SAP), which led to increased competition in the banking sector.
First Bank of Nigeria introduced its first ATM in 1991. AllStats Trust Bank received the Central Bank of Nigeria (CBN) approval to introduce a closed system electronic purse called ESCA.
Gana noted that rolling out of cellular phones further facilitated transaction confirmation by banks. Valuecard, a card-based e-money product of SmartCard Nigeria Plc was launched. Smartcard became ValueCard Nigeria Plc and then Unified Payment Services Limited.
The CBN launched the Payment System Vision 2020 (PSV 2020), a policy developed for a future cashless society.
On opportunities created by FinTechs, especially in the area of financial inclusion, Gana said digital finance has improved access to financial services by under-served groups, adding that technology can reach remote locations.
The promise of digital finance to reach scale, reduce costs and, if coupled with the appropriate financial capability, broaden access is unprecedented. Financial services could be provided to more people with greater speed, accountability, and efficiency.
FinTechs create better and more tailored banking services. Banks are already regulated and know how to bring products to a regulated market. Fintech companies could help the banking industry improve their traditional offerings in many ways.
Banks may, for example, provide white-label robo advisors to help customers navigate the investment world and create a better and tailored customer experience. Partnerships with FinTech companies could also increase the efficiency of incumbent businesses.
FinTechs enable lower transaction costs and faster banking services. For instance, in the area of cross-border transfers , FinTech companies in some cases can provide faster financial services at lower cost.
In terms of risk to banks, Gana highlighted some risks to include cyber risks, liquidity risk and volatility of bank funding sources, outsourcing risk and strategic risks.
