• Monday, December 11, 2023
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Unlocking the future of pensions: Fintech’s transformative role

Unlocking the future of pensions: Fintech’s transformative role

Fintech, short for financial technology, refers to the application of innovative technology solutions to enhance and automate financial services. It refers to the increased deployment of cutting-edge technologies such as artificial intelligence, blockchain, big data analytics, and mobile applications to create more efficient, accessible, and customer-centric financial solutions.

Over the last decade, advances in computing have revolutionized the way in which financial institutions interact with customers. In Nigeria, the fintech revolution has resulted in increased use of payments via electronic transfers, growing deployment of banking services via mobile applications and increased adoption of digital platforms in servicing customers. Within this rapidly evolving landscape, the pension industry is not left untouched. Fintech empowers organizations and consumers alike, enhancing financial operations and processes through the strategic use of technology.

The fintech wave in pensions

Since the landmark reforms in 2004, Nigerian pension assets have expanded at an annual pace of 20 percent to N17 trillion at the end of July 2023 servicing over 10 million customers. The growth in customer count and total assets provides an opportunity for increased technology adoption to drive improved service delivery for all stakeholders. We are witnessing a wave of innovation in the pension sector driven by Fintech. Here, we explore how these advancements are shaping the industry today and what to anticipate in the near future.

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Digital channels can improve user experience and service delivery: Given the rapid growth in customer numbers, the old system of managing customers via dedicated account managers comes with increased costs and the risk of poor user experience. Fintech brings the opportunity to leverage digital channels like USSD, chatbots, omnichannel communications, virtual assistants, mobile apps, mobile money, and web portals, which have become standard. Notable trends include the adoption of Rich Communication Services (RCS), which enable richer customer interactions. Push notifications subtly guide customers, while AI chatbots, beyond basic inquiries, assist savvier clients in investment management and retirement planning. This personalized approach puts customers in control of their information on the one hand and has redefined customer relationship management within Pension Fund Administrators (PFA’s). Customers now enjoy seamless interactions without the need for physical visits.

Expanding coverage and payment services: Fintech’s evolution opens doors for PFAs to improve coverage, penetration, and payment methods. Notably, it extends pension services to the previously untapped informal sector. PFAs are now offering micro-pensions to this sector, with the adoption of mobile banking and agent services driving market capitalization. Self-service chatbots streamline registration, inquiries, and withdrawals. PFAs can tap into secure and convenient transaction methods, including USSD banking, mobile money, and third-party payment services.

Read also: Here is how PFAs performed year-to-date on multi-fund structure

Empowering investment management: Fintech equips PFAs with tools for enhanced investment, securities trading, portfolio management, and back-office automation. It enables quicker resolution of customer requests, data-driven financial analysis, real-time reporting, and regulatory compliance. Advances in cybersecurity bolster customer data and PFA infrastructure security. Even smaller companies can access risk management applications, levelling the playing field. Cheaper investment management tools, robo-traders, automatic rebalancing, and algorithmic trading provide means to maximize returns and foster competition regardless of market size.

PFAs may face some challenges when adopting these new technologies, some of which include a lack of proper implementation/adoption strategy, misunderstanding the competitor’s use of the technology, regulatory constraints especially for solutions affecting customer data, building all features instead of starting with a Minimum Viable Product (MVP), just to mention a few. Getting help from technology experts and adopting an incremental approach to adopting new technologies will help overcome some of the challenges stated above.

In conclusion, fintech’s transformative power in pensions is evident in its influence on customer interactions, market reach, and investment management. The industry is set to witness further disruptions and improvements, ensuring pensions remain a reliable pillar of financial security in an ever-changing world. Obaloje, chief technology officer, Access Pensions.