If a company starts earlier, it can gain customers, set standards, and establish itself as the preferred brand to consumers. Investors call this a “moat” or an intrinsic defence that a dominant firm builds in the marketplace that prevents other competition from accessing the marketplace.
Take the American banking sector as an example; JP Morgan Chase is America’s largest bank with about $ 3.4 trillion (with a t) in assets, over 4800 branches, and 15,000 ATMs. Whilst it is possible to open a new bank in a location with JPMorgan and compete for the branch to branch, it is challenging, if not impossible, to start a new bank and grow to match or surpass JP Morgan Chase; I mean, you have to get the staffing for 4800 branches for a start, not impossible but good luck.
Banking is perfect for building financial moats because older banks tend to have more retail branches, allowing them to grow deposits faster than the competition.
With more deposits, older banks can do more deals simply because they are big enough to do them; more deals lead to more profits, allowing the older banks to grow even more significantly.
You will need help finding an economy where the largest bank in that economy had a 100-year start and was then caught and surpassed by a new banking entrant.
But it happened in Nigeria
First Bank commenced operations in 1894; in 1961, First Bank, called Standard Bank, was incorporated in Nigeria. However, as of Q3 2023, according to a report by the Central Bank of Nigeria, FBN has a market capitalization of N1.32t; three banks have surpassed FBN by market capitalization: Zenith, UBA and Access Bank
Tony Elumelu was 34 when he bought a failing bank in Nigeria and renamed it Standard Trust Bank. In 2005, Tony merged STB with one of Nigeria’s largest banks, UBA; as of Q3 2023, UBA’s market capitalization is N1.78T
Fola Adeola was 36 when he and Tayo Aderimokun, aged 34, set up GT Bank. Herbert Wigwe was an Executive Director in GTB at 32! He and Aig Imoukhuede, aged 36, set up Access Bank.
These Nigerians, Jim, Tolu, Tayo, Tony, Herbert, and Aig, demonstrate the spirit of Nigerian entrepreneurship and courage. They breached a well-established moat and showed courage, grit and the art of the deal.
To start a bank, you need equity capital and experience. These young men wrote business plans, accepted capital from local investors and built institutions that created wealth for all stakeholders, including the government, staff and investors. Using Access Bank as an example, as of 2021, Access Bank had 28,000 employees and 28,000 household units earning an income from Access Bank. For FY 2022, Access Bank gave N1.6b in donations to various causes in Nigeria and paid N23b in taxes to the federal and state government, including police and education tax.
Wealth from Banking is not guaranteed; many Nigerian banks have failed and destroyed their investors’ wealth, denying the federation of tax revenues and employment.
These young men who took capital, invested it, and created wealth, employment, and tax revenues are models of what is possible via hard work and focus.
They should be lauded, their success read about in books and case studies and held up as much as possible even in an arguably harsh startup environment.
