While 2021 means many things to many businesses, for three Nigerian banks it will be the year they finally get to do things differently. It will be the year they learn what it means to be small, nimble and agile, character traits that have become strange to many big banks.
Any moment from now, banks like GTBank, Access Bank and Sterling Bank are expected to announce the approval of their holding company structure by the Central Bank of Nigeria (CBN).
When approved, the three banks will be joining the likes of UBA, First Bank, and Stanbic IBTC, which already operate holding company structures. The difference will be in the individual objectives of the institutions.
Segun Agbaje, CEO of GTBank, has never made a secret of the bank’s ambitions for the payment services in Nigeria. Hence, the licence is expected to unlock the tap for big investments in payment services.
While Sterling Bank has placed its priorities on a different vertical, the licence is seen as the last barrier delaying the launch of Access Pay Limited, a digital banking company being floated by Access Bank, according to a source close to the matter. The platform is expected to provide payment infrastructure that will power Access Bank’s expansion ambition across the continent. The bank wants to be in 22 African countries by 2025. It has already mapped out about eight countries for 2021.
GTBank, on the other hand, owns a couple of payment offerings in the likes of QuickCredit, GTPay, a payment gateway, GTCollections, a payment aggregator, and Habari, its e-commerce super-app waiting to be repackaged and unleashed on the market. But it is also eyeing the payment infrastructure.
“The business unit we are looking at commencing with would be Asset Management, a Pension Fund Administrator (PFA), and a payment company,” Agbaje told financial analysts in a meeting in 2020.
GTBank is in a hurry not to be left out of Nigeria’s growing payment market currently in the clutches of fintech firms. It has watched the likes of Opay dominate the mobile payments market, accounting for 60 percent of N102.4 billion of the total value of transactions as of April 2020, which was at N172.1 billion. By comparison, mobile banking brought in N5.6 billion in revenue for GTBank by the first half of 2020.
OPay currently processes about 80 percent of bank transfers among mobile money operators in Nigeria and 20 percent of non-merchant point of sales transactions, according to its managing director, Iniabasi Akpan.
Read Also: Rising credit exposure, bad loans concerns for banks in 2021
Paga also claims a major share of the mobile payment business with its 15 million users, while FirstMonie says it has over 40,000 banking agents.
But operators in Nigeria’s financial technology space are not new to grand plans by traditional banks to keep control of the market. Chijioke Dozie, CEO of Carbon, a digital banking firm, told BusinessDay that it is good for the market.
“I think more competition brings more awareness that may benefit-focused players,” Dozie said. Carbon has been very active in adding new features to its platform with the goal of strengthening its lending service. Carbon Zero, a card that allows users shop for items they want and pay in instalment at no interest, was launched in December. The company is preparing to add a quick response (QR) in 2021.
But experts say the battle will be fought and won at the customer experience level. According to one expert who spoke on the condition of anonymity, banks’ poor treatment of customers was partly responsible for the growth of fintech firms today. While they have the money to set up as many payment companies as they deem necessary, customers’ experience will remain the difference between the winners in the payment market.
“Banks don’t have the DNA for agility, good customer experience, and speed of execution. Fintechs would continue to run rings around them,” the expert says.
Firms like Paystack and Flutterwave, which appear to be GTBank’s target, have also been very busy adding new features that will make their platforms more attractive. One of such features is e-commerce that allows them to on-board merchants and enables them to display their items and get paid within the app. GTbank’s Habari has had the feature since 2018.
Nigeria’s e-commerce space is considered a major battlefield for payment companies due to the COVID-19 pandemic that has pushed the adoption of online commerce very high in recent times. Revenue in the e-commerce market is projected to reach $6.128 billion in 2021, data from Statista show. Revenue is expected to show an annual growth rate of 11.8 percent, resulting in a projected market volume of $9.567 billion by 2025.
Digital payments are equally rising due to the growth in e-commerce adoption. In 2020, some of the 27 percent of payments in online retail in Nigeria were by cards. Cash and bank transfers were the second most common payment methods, as each accounted for 24 percent of the total share. A popular way to pay online marketplaces in Nigeria is cash on delivery. In fact, data on credit card penetration in Nigeria show that the share of people owning a credit is quite low.
Apart from Flutterwave and Paystack, Interswitch and Unified Payment are expected to launch e-commerce verticals in 2021.
“I know the vertical GTBank will win at the end and despite their best efforts, it won’t be payments,” Eleanya Eke, CEO of Risevest, said. “Also, HoldCo is a good way to decouple from Nigerian regulatory limitations, which is great. Also, I can see a new foreign listing possibility here.”
But GTBank has been dominant in payment channels such as Unstructured Supplementary System Data (USSD). In fact, its *737# code brought the technology into the limelight as a payment channel.
In the first half of 2020, the bank said its USSD segment reached 356.4 million in volume, although the value dropped as a result of the pandemic. Also, the total revenue from USSD service declined by 32.2 percent following the reduction in transfer fees to N10 for transactions below N5,000, by the Central Bank of Nigeria (CBN). About 50 percent of all USSD transactions are below N5000. GTBank, however, welcomed 600,000 new USSD customers. So far, it has seen 356 million unique USSD transactions carried out by 5.4 million active users as of June 2020.
Notwithstanding, GTBank will need to muster enough focus to keep it from being dethroned from USSD by newcomers from the telecommunications sector. 9Mobile and Globacom now have payment service bank (PSB) licences and while the former has launched the latter is expected to launch in 2021. Telcos own the USSD technology that banks like GTBank are riding on. Hence, it is expected that they will deploy the service extensively in their push for market share in payments.
Experts also think the ability of fintech firms to collaborate with each also gives them an advantage. Nigerian banks are always in competition with one another, which to a large extent is responsible for the difficulty in interoperability of banking in Nigeria.
At a conference in 2020, GTBank’s Agbaje was asked whether the bank will consider merger and acquisition of any of the big fintech companies to give its market presence in the segment. He responded that the bank rather preferred to build from scratch to meet the competition. Hence, whereas a firm like Paystack may appear the dominant payment firm today, GTBank plans to meet it and possibly overtake it.
“Each bank creating a payment company would never have other banks as customers, which immediately limits the appeal and scale of the fintech they have created,” an expert state.
