Nigerian banks ride on branch closure to cut cost

...more lenders expected to emulate Standard Chartered

As a collection of fintech companies spring up in Nigeria, traditional banks are stepping up digital push, reducing their brick-and-mortar branches to tap from the evolving agency banking business, the cost-effective and sector’s new goldmine, according to BusinessDay findings.

This is following the evolution of the digital economy and consumers’ influence in driving growth in a financial service industry estimated at over $9 billion.

Standard Chartered, on Monday, revealed that it was closing about 50 percent of its Nigerian branches to deepen its focus on digital banking, according to findings by Bloomberg.

The Nigerian unit of the London-listed lender plans to reduce its brick-and-mortar presence in Africa’s largest population to 13 branches from the current location of about 25.

“For Standard Chartered and other banks, shifting away from a strategy that focuses on bank branches towards the branchless makes sense,” Ashley Immanuel, CEO of EFInA, says.

This is because bank branches are expensive to operate and the “traditional model is just not a business case for reaching the low-income group. That’s the reason why banks haven’t been able to do more to drive financial inclusion.”

The banked adult population in Nigeria has continued to lag its African peers largely due to the country’s bank-led financial inclusion model.

Before 2020, only banks and licensed financial institutions were allowed to provide financial services (bank-led financial inclusion model). Although telecom operators and other fintech companies indicated interest to operate in the market, the CBN policy would not allow them.

The Central Bank of Nigeria (CBN) gave its first set of licences to three non-bank industry players in August 2020, two years after it received applications.

The apex bank recently issued MTN Nigeria and Airtel Africa Approval-in-Principle (AIP) for payment service bank (PSB) licence.

While Nigeria went late to the party as the CBN only gave an official nod to telecoms and other non-financial companies to apply for a permit to offer financial services in 2018, the payment service bank by the regulator would enable players to offer financial services while deepening the country’s financial inclusion rate.

“For financial inclusion, bank branches have never been the answer,” Immanuel states, adding that it makes sense for banks to shift to more branchless options both for the sake of the banks and their customers, particularly for the low-income customers.

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EFInA’s 2020 access to financial services survey showed that for the first time there was a significant increase in the percentage of the Nigerian adult population using agency banking.

“We have seen on the supply side; more providers are telling us that they are deploying more agents. So, we see promising growth and opportunity there and banks and other providers can still do more to reach low-income and most excluded groups,” the firm that conducts Nigeria’s biennial financial inclusion survey states.

More Nigerian banks are expected to adopt fewer branches, more digital presence strategy to reduce their rising cost of operations, according to analysts.

“I see more banks following in the footsteps of Standard Chartered because it is the way to go, both in terms of cost and impact,” an industry player who pleaded anonymity, says.

Analysis of the financial report of five Nigerian banks showed that their aggregate operating expense jumped by over N30 billion between the first half of 2021 and 2020.

No wonder, two tier-one lenders – Access Bank and First Bank of Nigeria – are building networks of authorised agents to help sell their products and services in areas that would ordinarily require a bank branch.

Checks by BusinessDay show that most of the agents, especially those in the rural communities represent more than one service provider and require less operating cost, as the majority of the vendors have existing infrastructure due to their already established petty trade businesses.

EFInA believes the CBN and players need to work together to ensure that all the services consumers could do in bank branches are available through agency banking and other branchless channels.

While BVN remains a key requirement to accessing the basic financial services in Nigeria, banks still retain the power to issue the 11-digit numbers, and agents are yet to be equipped with the infrastructure to offer the same service.

According to another industry player who pleaded anonymity, “There is a specific fingerprint reader machine that is required during BVN registration, and what we are hearing is that the super agents are having trouble getting these devices while banks are getting preferential access.”

Explaining the implication of super-agents not being able to issue BVN due to lack of the required facilities, the top executive industry player states, “It means unbanked Nigerians would still have to go to the bank to get BVN.”

To address this, the contact person says, “We need to create ways to get BVN enrollment in other areas outside of bank branches.”

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