Traditional banks and fintech: How Zone is bridging the gap

The divide between traditional banks and fintechs in Nigeria is gradually closing up. From technology to regulation, a lot has happened over the years that have made both of them grow similar.

However, there used to be a chasm between traditional banks and fintechs. The evolution of Nigeria’s financial industry is a good way to note these differences and see how things have changed over time.

In the early 2000s, banking in Nigeria was primarily a physical, branch-based experience. Customers had to visit bank branches to complete transactions, whether it was depositing or withdrawing money, paying bills, or transferring funds.

These processes were often slow and cumbersome, involving long queues and a significant amount of paperwork. The introduction of the Nigeria Inter-Bank Settlement System (NIBSS) in 1993 was a critical milestone in addressing these inefficiencies.

The launch of the NIBSS Instant Payment (NIP) system in 2011 marked a turning point in the way payments were processed in Nigeria. NIP allowed customers to make instant, 24/7 transfers between banks, significantly improving the speed and convenience of transactions. This development laid the foundation for the country’s digital payment infrastructure, which would later fuel the rise of fintech companies.

It is important to note, however, that there were already fintechs like Interswitch, Unified Payment, e-Tranzact, and Appzone which existed as far back as the early to late 2000s and played significant roles in developing digital payments in Nigeria.

This means that before the mid 2010’s when Nigeria’s fintech ecosystem started to flourish and players like Paystack and Flutterwave came along, there were already fintechs.

This evolution also shows that the traditional banks were the foundation of Nigeria’s modern-day fintech landscape. However, according to Inside the business of card payments in Nigeria “a major problem the earliest financial institutions faced was that they were elitist in their operations, and did little to cater to the banking needs of the masses.”

Fintechs focused on underserved populations in Nigeria, where a significant portion of the population lacked access to formal banking services. They accelerated the pace of innovation, pushing banks to adapt to the digital era.

The result of these was partnerships between fintechs and banks or banks building out more innovative products.

Essentially, traditional banks set the precedence for financial service evolution and fintechs built on it and accelerated it. The symbiotic relationship between fintechs and banks shows how important both are to ushering in the next phase of development in the financial services sector.

This next phase has been touted by some to be blockchain-based. This is why it is no surprise that some of the largest banks in the world like Goldman Sachs and Citibank took a total of $913 million bet on blockchain between 2021 and 2022 — investing in blockchain.

In Nigeria, one company is leading the blockchain integration into traditional financial services and that company is Zone. This company is redefining partnerships between fintechs and traditional banks by creating a regulated blockchain network that brings all of them together.

First of its kind in Africa and even some parts of the world, this solution will change how we think about partnerships, and close the gap between traditional banks and fintechs.

On Zone’s regulated blockchain network, fintechs and banks can directly route transactions between themselves because they are provided with nodes that essentially make each of them a payment switch.

This means faster communication, significantly reduced transaction error and zero chargebacks and chargeback fraud.

It also means that banks and fintechs can focus on improving their services in other ways as the infrastructure that powers these services has gone through a major technological shift. Zone is levelling the playing field for banks and fintech, which points towards the fact that financial services in Nigeria will become more interesting in the coming years.

However, only time will tell if Zone’s blockchain network can handle the high volumes of digital payments as more financial institutions are on-boarded.

Yewande Adewunmi, writes from Lagos