Sometime in May, the Central Bank of Nigeria (CBN) labeled fintechs as threats to the banking sector. And I’ve been pondering on what this could possibly mean. I sincerely would like to think that the CBN used the wrong word. Threat is a rather wild claim.
First of all, let me clarify that I can appreciate the CBN’s hesitance at the thought of embracing disruptive players and welcoming them into the ecosystem.
A regulator’s job is to ensure stability within the ecosystem, that customer’s funds are safe, and the industry is enabling for all players. However, regulators also have to foster a healthy environment for innovation to thrive. And innovation in the digital age is usually disruptive.
In fact, I dare say, disruption is the only way industries make progress.
Look at the Nigerian telephone industry for example. Had the country not embraced mobile technology in 2001, imagine how far behind we’d be right now. So it’s a good thing we embraced it when we did. I wager that, had we adopted it earlier; we would have more growth and productivity in most of our sectors than we have at the moment.
It’s a race and countries are vying to stay competitive. Is it a surprise that the thriving startup hubs and ecosystems around the world are in developed and forward-thinking cities?
Technology is not just the future; it’s the present. It’s here and it’s here to kick ass and take names. Heck, it’s already making a difference in different sectors across the country — in entertainment, in advertising, in communication, in business.
Even in financial services.
The surge in numbers of payment processing companies in the tech startup space has enabled many entrepreneurs to go digital with their business, boosting their profits and exposing them to a larger base of customers.
Back in the day, owning your own e-commerce business was impossible, at least, without having a fat bank account. But today, there are enough providers to ensure receiving payments as a merchant is reasonably affordable.
The banking industry, and by extension, the entire financial service sector, needs more of such shakeups. It’s the only way we can see any real progress in the industry.
For years, the banking sector has been in a rut of sorts. There’s not much happening within the ecosystem, in terms of innovation. Heck, the sector is losing customers according to the World Bank. The sector has also struggled to serve its large population base (of over 90 million adults).
So Nigeria’s banking sector = little to no innovation, a large underserved population, and a growing number of people leaving the banking system.
Well, that sounds like the perfect template for disruption if you ask me. I think the CBN would be doing everyone, including themselves a favor by embracing fintechs. However, they also need to do their due diligence (aka their job) in studying fintechs and their impact on an ecosystem, so they can draw up enabling regulatory frameworks which will ensure stakeholders are able to do their business, and customers get served sustainably and conveniently.
Fintech is here, and its ideal role is as an enabler within the industry while traditional banks ought to move to become majorly infrastructure players.
The truth is banks need the fintechs especially in the area of last mile delivery of their banking services. This, more than any other area, is where our banks have struggled. Nigeria is about 55 percent rural, and there are challenges with running a financial service business sustainably in these remote regions based on the traditional bank branch model. Bank branch and ATM growth has stalled across the country.
So we have a problem — bankers want to gain more customers while keeping their current customers happy. Nigeria has a large number of people unbanked and also a considerable number of unhappy customers (otherwise, why are they leaving the banking system?). However, bankers can’t reach unbanked customers because their business model is not suited for where these people are. They also seem to be out of sync with their present customers as people keep complaining about crazy bank fees, sluggish response times and inappropriate products.
And this is where fintechs thrive.
Just take a peep at m-Pesa to have an idea of how well fintechs can perform if given the right enabling environment.
If the sector can fully embrace fintechs, and the banks and also the CBN can see fintechs for what they are — enablers — it would enable the banks go where they have not been able to and do things they have been unable to.
Fintech would indeed disrupt the banking sector. And that is a good thing if everybody including the banks benefit.