A lot of Nigerians now pay for goods online or make a bank transfer via mobile apps and are now accustomed to handling financial affairs as easily and conveniently as they do their email or Facebook page.
Excellent customer experience enabled by innovative technology is the new minimum standard in the fast-growing electronic payment space. Before financial technology (fintech) and telecommunications companies entered this space, banks provided this service from the comfort of their branches. Not anymore. Those transactions can now be done with mobile phones using apps made by fintech start-ups with no branches, less staff and other expenses that can come with running a branch. KPMG, a consultancy, in a report says that banks have never been under such pressure to perform.
Technology has lowered the entry barrier to providing a service that accounts for 30 percent of banks’ revenues in the form of service charges. Fintech companies have been able to leverage technology, bringing a basic banking service closer to customers.
The ease of doing this on mobile phones coupled with the better customer experience and at a lower cost is has seen the annual value of transactions surge to trillions of naira. Referring to the market in Africa, Segun Agbaje, chief executive of GT Bank, reckons “the amount up for [the banks] to fight for is $60 billion”. In the first half of 2019, earnings from electronic transaction of First Bank, GTB, UBA, Access and Zenith rose to a record high of N78.44 billion cumulatively against N45.11 billion reported in the corresponding period of 2018.
With about 66 percent of the adult population in Africa unbanked, Africa fintech represents a huge opportunity to drive financial inclusion outside of traditional banking systems. Nigeria FinTechs currently are attractive to foreign investors who see huge growth potential in the industry.
Though digital retail payment remains the segment were most FinTechs are focused, they are present in digital lending and payment infrastructure. Of late, there has been an increase in the lending space and emphasis on more technological innovation. Take, Tolaram Group, the Singapore-based manufacturer of Indomie, is partnering with Tala, a US-based fintech company, to offer uncollaterised loans of between $10 (N3,600) and $500 (N181,500) to customers without traditional bank accounts or credit histories via an app. Other non-bank players in the digital lending market include OPay Okash and PalmPay.
Banks will have to up their game, either by going solo or partnering with FinTechs or the Telcos who have been granted licenses to operate as payment service banks. Especially as they try to comply with the 65 percent loan-to-deposit ratio directive of the central bank. It means banks must battle for customers in an era where digital lending prevails. To remain competitive, Nigerian commercial banks would have to intensify moves in making strong and more effective digital products while improving on customer experience.
While this is good for deepening financial inclusion, the flip side for commercial banks is a lowering of lending rates to about 16 percent on the average amid sluggish economic growth, increasing the risk of loan defaults. However, to stimulate business activities in an economy, spending as to be spurred to stimulate GDP growth, hence the strong lending stance of the CBN.
Overall, however, gaps remain. BCG, a consultancy, in a 2018 report for Enhancing Financial Innovation & Access (EFInA) lists “access to funding, appropriate regulation, adequate information, establishing strategic partnerships, corporate governance limitations and intellectual property rights” as some of the challenges.
