Nigeria’s fintech bosses aren’t making any bold statements about disrupting the existing banking system. They often speak of being alternatives to the big financial service providers or collaborating with these established institutions. When they’re on conference panels together, commercial bank CEOs and fintech startup founders talk of joining forces to usher in a new age of boundless possibilities in the payments space, enabled by digital technology.
Needless to say, not everyone is nodding along with this public chorus of unified purpose. Critics sense there’s a battle brewing in the background- if it’s not already spilled out into the open -and it’s between the old guards of the financial sector and the fintech companies. Even if it doesn’t seem obvious to the regular person on the street, the bank is wary of the new guys in the rapidly expanding digital payments space.
But what is there to be concerned about?
Why the Banks Have Cause to be Concerned
Fintech – short for financial technology – is really the deployment of general or specialized technological tools in the rendering of financial services. For example, online payments companies utilize digital technology to enable buyers and sellers to make and receive payments over the web. Online lenders use a web platform to connect borrowers who urgently need money with funds from savers/investors.
These sorts of ventures are doing the jobs of the traditional banks- and they seem to be doing these things more efficiently, thanks to technology. They receive, approve and grant loan requests online. They’re helping their customers save their monies. They’re facilitating payments in trade so that merchants and buyers don’t have to physically meet to conclude trade transactions. And yes, they’re offering interest rates that are probably more competitive than a lot of banks present to their borrowers or account holders.
With them, it becomes even less necessary to sweat it out in long queues at your local bank or have those difficult back-and-forths with troublesome tellers at the counter. Most of the things you’d usually get done at a brick-and-mortar bank branch can now be done on your smartphone or tablet anyways, thanks in great part to fintech. What use then, for a physical bank?
Earlier in 2018, the CBN Governor Godwin Emefiele said that fintech was a threat to Nigeria’s banking industry. His comment raised some eyebrows and probably got not a few stakeholders in the country’s fintech arena shifting uncomfortably in their seats. Perhaps the ominous feel about those words has lost its ominous feel. But it’s clear that the bank boards are taking this supposed threat seriously.
What the Bank Bosses Actually Think
You would think that the banks are battening their hatches and preparing to square off against the supposed adversary in fintech. At least, that’s what the picture we’ve just painted might suggest. It turns out that they’re probably not as worked up about the whole talk of disruption you would expect.
A report published by Accenture, a global management consulting firm, suggests that bank CEOs from across the world are largely confident that the traditional financial institutions will adapt well enough to the changing landscape to survive and thrive in it. The thinking behind this optimism was this: the big banks could either reinvent themselves to fit into the new digitally driven world, or they’ll simply buy up the fintech companies. On the whole, about three out of every five respondents thought it would all turn out fine for the banks. Only one-fifth of those polled thought the future was the eventual dissipation of the old order.
While it’s worth noting that this report is global and might miss out on some local nuances, you get the feeling that it mirrors the attitude of Nigerian banks to the rise of fintech. Besides the CBN Governor’s blunt assessment, it seems that there’s a tempered belief in the banking industry that they’ll eventually learn to live with (if not subsume) the evolving fintech ecosystem.
The Signs of the Times
A look at banks’ response to the challenge posed by fintech startups suggests that they’re working with at least two strategies:
- Adopting technologies that’ll help them stay competitive
- Attempting to gain a foothold (at the very least) in the emerging fintech industry.
Banks have transformed significantly over the past couple of decades. They have incorporated electronic transactions into their regular service menus, introduced USSD for money transfers, and launched mobile apps. More recently, they’ve begun to create AI-powered digital banking assistants; UBA’s Leo and Diamond Bank’s Ada are ready examples of this. These innovations are making bank customers do more banking at any time, from wherever they may be.
But the old financial institutions are going a step further. They’re now battling it out for a slice of the growing fintech pie. Maybe they actually want all of it.
This year, Nigerian banks have opened a number of innovation labs, including First Bank’s digital lab and Stanbic IBTC’s Blue Lab. These spaces should have fintech startups building products within their walls, and collaborating with these banks in the process. It’s hard to not see this as banks wanting to have a say in how Nigerian fintech evolves from where it’s currently at.
There’s also been a gradual increase in the number of bank-sponsored fintech competitions. Eco Bank’s Fintech Challenge and the team pitches at First Bank’s Fintech Summit are examples. Winners of these contests get funded by and collaborate with the banks that organize them. With these interventions, commercial banks are increasingly playing a role in the cultivation of independent fintech. They could be gaining allies in the sector as well.
Where All of this Could Lead
The traditional financial institutions want to have a seat at the table of Nigeria’s burgeoning fintech industry. They may well get what they seek. But there’s no guarantee that this will be enough to stave off a disruption that’ll transform the banking sector beyond recognition. It seems that it’s a question not of if, but of when this will happen.