In the course of my work last month, I met a young lady in her mid-thirties who required my assistance in resolving a disputed transaction between her account at the financial institution where I work and an online savings account scheme. I had heard of these online “piggy banks” before but had never actually met anyone who had put in quite as much into the scheme as the young lady seated in front of me that day. The lady had about 90% of her entire wallet share sitting in this online piggy bank and showed absolutely no concern as regards the safety of her funds.
I found this intriguing for two reasons.
Firstly, trust. Absolute trust. Years ago, the thought of opening any sort of financial relationship with any institution without first physically visiting the office of the institution seemed highly unlikely. Questions like, how can I be sure of who it is I am dealing with and what if they run away with my money, would rank topmost amongst the frequently asked questions in such a scenario. Interestingly though, things have changed. The absolute trust a prospective customer has in the institution which they have never visited is totally unrivalled.
Today, the conventional means of commencing a relationship with a bank or any other financial institution has gradually shifted from a physical visit to an online one that inculcates the administration of basic know-your-customer checks and extensive customer profiling in less than 24 hours.
The ease of doing is second to none and can conservatively be referred to as a game-changer in the customer onboarding space. Means of identification and proof of address are uploaded within minutes! Bank verification numbers are verified and 2-factor authentications tied to email addresses and phone numbers are instantly set in place to safeguard customers’ funds. The result? In less than a day, a freshly on-boarded client has been verified enough to carry out TIER 3 transactions on the application. Just ten years ago, this would have been deemed impossible. Today, the story is different.
The second reason why this was intriguing was the age bracket of the customers keying into these online financial relationships. As the wealth of the world gradually moves into the hands of millennials, the means of doing business must also change to fit this generation of clientele. The need to have working internet-based solutions to transacting, and interacting with the bank or Fintech, investing in and even closing relationships is so important to this customer segment.
Consumer payments for this group of individuals must be interactive yet not requiring human intervention unless when absolutely necessary. They must be digital and flexible, being able to do almost anything at anytime and possibly cross carpet functions in such a way that the customer has total control. Most importantly, they must be able to execute the customers’ desires at the speed of thought. Unfortunately, Nigerian banks have a lot of ground to cover in this regard. Every major function of the bank today appears to have been taken over by a more efficient payment provider and or solution.
Funds transfers can be done at the ATMs, via mobile applications and mobile banking is also offered by a lot of the Fintechs. Cash deposits are slowly becoming a thing of the past but even if they weren’t, the banks are also losing ground here. At every street corner there is a POS agent calling on you to come and make your deposits for a minimal fee. Cash withdrawals can be handled by the same means. Just ensure you have a valid debit card and you can take as much as you would need for day-to-day cash related functions. A charge of N100 on a cash withdrawal of N10,000 is nothing compared to a charge of N35 at the ATM in addition to the transportation fees, long queues and the possibility of not meeting an ATM terminal actually having cash to dispense.
Loans were a strong selling point for the banks, however, of recent, consumer or retail loans are being processed by Fintechs and smaller financial institutions who do not require any form of security except the applicants’ BVNs and account statements. Yes, the rates are higher than what the conventional banks offer but interestingly, the customers do not seem to mind so long as they get availed the requested funds in a matter of hours as against the few days to one week applicable to some of the bigger banks. In addition, you will not be requested to provide letters of salary domiciliation, indemnities from notaries and funds for management fees. This is especially true for civil servants who do not necessarily want their offices to know that they are applying for additional funds from the bank.
How about conventional investments like fixed and call deposits? The challenge here is that the rates provided by the banks are not much to write home about. In a bid to contain interest expense and stay in line with monetary policy guidelines, the banks are compelled to keep investment rates low. A rate of 1.25% may currently apply for an investment of about 5 million naira in many Nigerian banks today. This is extremely low and absolutely unattractive.
So, do we still need the banks?
Perhaps, but not in the traditional or conventional way. Banking in Nigeria is fast leaving the conventional and traditional banks behind and they are desperately playing catch up. Superior payment capabilities, improved flexibility and a shift of wealth to the younger generation are giving an edge to the disruptors in the financial space. The banks have to evolve and they have to do so quickly. They have to take advantage of their agency banking platforms and deliver mobile mini-banking services to customers at street corners, in restaurants, and bars. They have to constantly tweak, adjust and improve on their mobile banking applications and make onboarding less of a bottleneck for prospective clients. The banks have to stop being the elephants in the game and start being the foxes! The battles are no longer being fought on level grounds like the wars of the 1800s.
The Central Bank’s desire to improve financial inclusion has given room to so many players who have no issues with overthrowing the giants. Today, the competition is nimble and quick. It’s fast and seamless. It’s on phones and it is not encumbered by the cost of running numerous offices in every single state of the country. It is saved the headache of high operational cost, insurance payments, cash movement risks and heavy staff payrolls. I can hear these disruptors saying to the banks, “Yes, you may have the size, you may be big and strong and very reliable but as a Fintech and mobile money agent, I can assure you that I am faster. I can assure you that I relate with my customers quicker. I can assure that I know what they want and I give them what they want even before they know that they want it. My ability to react to the waves of the payment space makes me the go-to establishment for anyone who wants to ensure seamless service delivery. While it takes you months to get board approvals to make the slightest of changes to existing bouquets and packages or develop appropriate products, I am able to evolve and meet the needs of the yearning public in little or no time. Fear me. I am the disruptor!”
Once again, I ask, do we still need the banks? Yes, we do. However, the banking evolution must start today, else, in a few years’ time, the answer to that question would be a resounding NO.
Written by Igbinosun Timothy