The banking world has gone through exciting transitions—from the days of taking tallies and manual filings to modest computerizations, automation, and now, fully digital banking services on miniature devices such as mobile phones.
Digital banking emerged with convenience and heightened consumer demand for more efficient ways to complete financial transactions outside of traditional branches.
Although digital banks have been around for quite some time, the pandemic accelerated their adoption. Fintech companies emerged with technology to provide easier ways for customers and clients to manage their finances, forcing a massive digital disruption in the banking industry. Now, banks have full-fledged digital products available to their customers. As they became widespread, even less tech-savvy people adopted this modern trend.
What are digital banks?
Digital banks allow users to make account deposits and transfers remotely. They also provide them with the opportunity to easily apply for loans and access personalized money management services. Digital banks are powered via digital platforms and do not necessarily require having an established physical location. They appeal to the millennial and Gen Z populations.
Clement, a customer of one of the digital banks, said, “Before digital banks came, I used to visit the bank at least once a week and had to join long and frustrating queues in banking halls just to access value-added banking services or lay complaints. I also hated the fact that ‘influential or connected people’ could easily boycott those queues and get attended to quickly. But now things are different. Most people don’t remember the last time they walked into a banking hall.”
Nkem, another user of digital banking apps, said that even ATMs, which were supposed to make things easier, came with queues and sometimes no money. “At least something good came out of the pandemic,” she said, referring to digital banks.
The coronavirus pushed more Nigerians to adopt digital banking as people were forced to stay indoors. In 2020, e-transactions in Nigeria (mobile & USSD) surged by 82.6% to stand at N1.69 billion compared to N928.86 million recorded in the previous year.
Digital banking is no longer just a series of transactions, but a lifestyle adopted mostly by millennials and Gen Zs – most of whom grew up using the internet, computers, and mobile phones. They make up 60% of the Nigerian population and set the tone for the adoption of modern technology.
From a report by NIBBS, in 2020, customers between the ages of 25 and 34 years carried out 36% of all interbank instant payments. This indicates that the younger demographics boosted the adoption of instant payment.
Apart from the ease of sending and receiving money, digital payments and e-wallets actually offer more security in some cases than a physical card, giving some users even more reason to use digital banking tools. They also offer quick loans, budgeting features, and excellent customer service.
What is driving the adoption of digital banks among Nigerian Millenials and GenZ?
A survey done by Nairametrics showed that most users in the Millennial and GenZ group prefer using digital banks because of the ease of carrying out transactions, the swift customer service response when they encounter any challenge, and the interest rates they offer. One user noted that frequent use of these apps will qualify you for loans.
Despite all the benefits offered by digital banks, some users do not like leaving their money in them. They still use their normal bank apps alongside, because, as one user put it, “My money is safer in the bank because Government can restrict these platforms at any time just like they did to Rubies digital bank.”
Earlier this year, Rubies, alongside 12 other financial institutions, were reportedly kicked off the Central Switch by the Central Bank of Nigeria. Rubies was offline for a while, but they were able to refund their customers because they had funds domiciled at a commercial bank.
In spite of this setback, digital banks like Kuda and Opay are still attracting many users. They have over 1 million and 5 million downloads respectively on playstore. OPay’s mobile users have more than 2 million wallets with active balances.
Moses Sule, VP Online Acquiring for Opay said, “The ever-increasing demand for financial services in underserved communities has necessitated the need to fully harness and leverage technology to provide these financial services without physical presence.
At the core of OPay are the provision of payment infrastructure and services to Fintechs, merchants, and consumers.
We have built an expansive distribution network within the last 24 months, and we continually seek ways to collaborate with partners within the ecosystem to leverage our rails to serve their customers.”
Digitization is radically changing the traditional banking system. Customers are now demanding a more convenient and improved banking experience. The most innovative banks are already taking advantage of this technology by adopting more digital services and offerings to keep up with the fintech industry.