A new report attributed to a rating agency, Moody has argued that commercial banks might soon lose their services to the growing popularity of the Financial Technology (FinTech) firms in the sector.
This forecast has been given a boost by the recent steps taken by the Central Bank of Nigeria to introduce a Payment Service Bank (PSB) initiative which will give more prominence to FinTechs and Mobile Network Operators over commercial banks.
The report portends that commercial banks will lose out in the market due to their lack of infrastructure to rival new web payment solutions that allow customers to hold deposits and carry out transfers with an e-wallet, disregarding the need for on-counter business transactions or even the need to be close to a bank, especially as regards to retail banking which will affect banks negatively.
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A Nairametrics report has lent credence to this claim. The claim was also supported by the recent efforts made by Fidelity Bank to start digitalizing its services by signing a Memorandum of Understanding (MoU) with Open Technology Foundation to develop a programming interface for the bank.
The governor of the Central Bank of Nigeria, Godwin Emefiele has continued to make policies easier for FinTechs to thrive. In his new 5-year tenure, which has already begun, Emefiele promised to leverage on the use of unstructured supplementary services database (USSD) codes, and mobile banking, to drive financial inclusion in the country.
Interested Telcos in this new venture are MTN, Airtel, 9mobile, Ntel and Globacom.
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Stakeholders’ reactions: A Faculty Member of the Lagos Business School (LBS), Dr(Mrs) Olayinka David-West, said that the FinTechs companies would be not be able to displace the banks in their competition for the market share.
“In practice, financial technology is not the exclusive domain of the FinTechs as many traditional banks, microfinance institutions and development organisations make use of financial technology. Banks and other financial services providers are important actors in scaling up FinTech solutions. Scale is important, both financially and digitally, to include the vast amount of people and companies at the bottom of the pyramid.”
Ifie Sekibo, the Managing Director of Heritage Bank Limited, described the PSB as drivers that would usher several people into the financial inclusion target.
“It is important that we have such other organisations that help the lower side of our economy. We have people who put money under their bed; leave money in their stores; fire comes and burn both the store, the money, their investments and they are back to square one. We need to eliminate all that. We need to bring as many people as possible into the formal platform so that we can measure them. Today, we don’t have good measurement for how much money is in circulation in Nigeria because we don’t even know. But if we can get these new institutions join us to expand the financial inclusion space, we believe it is better for everybody and it is better for the economy.”
The Upper Hand: The major argument pushed forward is that FinTechs do not have a know-your-customer (KYC) database.
What this means: Fintechs have to go into partnership with banks to enjoy the benefits of the increased market space. Certain banks have already geared up for this battle via partnership with FinTech in purchasing their tech services.
The rating firm also observed that certain banks had already positioned themselves for this competition by buying robotic and tech services from the fintechs.
While a rivalry might be brewing, Sekibo insisted that Fintechs would never be able to lend money.
“They (FinTech/PSBs) are not lending banks. They are essentially going to assist us. For us, it is an enabler for the financial inclusion that we are all talking about. It is not necessarily a competition. Yes, it is competition to the extent that we would compete with them in the financial inclusion space. Our agency banking product would compete with their payment platform. Now, we have a very good payment platform. Most of us, our payment platforms have developed much more than they could be able to even compete with.”