Nigerian banks face survival of the fittest in the fintech era

These are not the best of times for Nigerian banks. Caught between the attrition of fintech companies eating away at market share and the muscle of the latest entrants to the financial system – mobile phone companies – they are forced to contemplate the omens of a rapidly changing industry.

Steps taken by the Central Bank of Nigeria (CBN) to attract more people into the financial system have spurred the growth of fintech companies offering everything from digital banking to payments, investments and wealth management services.

Popular names such as Cowrywise, Flutterwave, Paystack, Risevest, Renmoney, Bamboo, Fundall, Carbon, Zedvance and Page Financials have joined more established players such as Quickteller, eTranzact and Paga.

With the recent payment services banking licenses issued to MTN Nigeria and Airtel Africa, the country’s two major mobile phone companies, the four active phone networks in Nigeria are now ready to provide some banking services, further disrupting the mobile phone industry. financial services.

MTN already has MoMo payments, while Airtel has its Smartcash. Globacom, the third largest network, operates Money Master, while 9Mobile has 9PSB.

“These are companies that are already well established in the telecommunications sector, each with tens of millions of customers,” says Inatimi Spiff, telecommunications consultant and head of Abuja-based Iniye Communications. “They already have a catchment market as well as the infrastructure to support a large number of digital banking customers.”

Although they are not allowed to make loans, issue credit cards or accept foreign currency deposits, they will be able to collect Naira deposits, issue debit cards, operate e-wallets and prepaid cards , as well as the possibility of investing in certain securities. .

“The Central Bank has already taken steps to protect banks to ensure their key areas are not encroached on,” Spiff says.

Yet the changes in the industry are already being felt. Several of the largest established banks, including Guaranty Trust Bank, Stanbic IBTC and First Bank, reported a significant decline in profits in 2021. Board reports indicate that fintechs are taking significant market share.

Guaranty Trust responded by acquiring a wealth management company to give it a presence in an area where companies such as PiggyVest and Cowrywise have had a big impact by developing apps to mobilize investors to buy local securities and foreigners with as little as the equivalent of $10.

Stanbic IBTC announced in January that it had received a payment service license. This will allow it to play in a segment where companies like Quickteller, Paystack, Flutterwave, Opay and Paga have already made an impact. While Quickteller, which started in 2002 as a unit of Interswitch, has been around longer, Paystack and Flutterwave, both founded after 2015, seem to have made the biggest strides in the shortest time.

Paystack founders Shola Akinlade and Ezra Olubi are computer science graduates from Babcock University, outside the commercial capital of Lagos, who started out writing banking software before getting into the idea of ​​payments . The company saw great success in 2020 when it was acquired by US payments giant Stripe for $200 million as part of its expansion into Africa.

With a valuation of around $3 billion, Flutterwave has become the most famous payment company operating in Nigeria. Founded in 2016 by two Nigerians, Olugbenga Agboola and Iyinoluwa Aboyeji, to provide online payments to Nigerian merchants and businesses, the company now has international investors such as Visa and payment agreements with PayPal. It raised an additional $250 million last year for its expansion in Africa.

The rise of fintech

For many fintechs, 2016 was pivotal. It was the year Nigeria experienced its first year of economic contraction in a quarter of a century, triggered by the collapse in the price of oil, the country’s main export and source of more than 70% of government revenue. era. Many Nigerians have faced ruin as their savings have lost value due to the depreciation of the naira and, simultaneously, the cost of acquiring foreign goods and services has risen.

This is when some fintech companies emerged, offering Nigerians the option of buying dollar-denominated securities to hedge against inflation and future devaluations. They have found favor with the country’s youth, which is significant in a country where half the population is under 19 and an early adopter of the technology.

The same combination of factors has also spurred an increase in cryptocurrency trading in recent years, which has made Nigerians the biggest bitcoin holders outside the United States. Bisi Ademola, a 26-year-old employee of a fashion house in Abuja who manages three bank accounts, illustrates a common trend. Two of the accounts are with traditional banks, while the third is with a fintech.

“I use my Zenith Bank account to receive my monthly salary, while the Access Bank account is mainly used to fund my Visa card for online purchases,” says Ademola. “But my savings and investments are with PiggyVest.”

While Zenith and Access are among the top 10 banks in the country, PiggyVest is a fintech founded in 2016 by Somto Ifezue, Odunayo Eweniyi and Joshua Chibueze, who met while studying at Covenant University near Lagos.

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Designed as a digital alternative to the piggy bank, the company’s app offers users higher interest rates than those offered by traditional banks, with options to invest in securities or participate in small business crowdfunding. . Deposits aggregated by PiggyVest primarily go into government debt instruments.

By the end of 2021, PiggyVest had more than 3.5 million customers and had paid out 242 billion naira ($581 million) to customers during the year, according to CEO Ifezue. This was well above the 90 billion naira he had paid the previous year.

Cowrywise, like PiggyVest, offers higher interest rates for savings. It also allows subscribers to buy into a wide range of mutual funds ranging from equities to fixed income securities, and even Eurobonds, offered by fund and wealth managers such as Meristem, ARM, Afrinvest and UnitedCapital.

Controversial

The fintechs that have proven to be the most controversial are those that have offered brokerage services to invest in international stock markets and buy stocks like those of Apple, Tesla, Amazon, Google and Microsoft.

Fintech companies such as Chaka, Bamboo and Risevest have attracted large numbers of Nigerians keen to retain some foreign currency investments to hedge against inflation and the inevitable devaluation of the naira.

Last year, the CBN blamed them for increasing the pressure on the naira exchange rate. She ordered the freezing of their bank accounts and announced an investigation. The companies challenged the CBN in court and won.

Perhaps sensing the changing rules of the game, Standard Chartered Bank has decided to reduce its physical presence, closing more than 60% of its branches across the country in the past two years, while urging customers to use more their banking application. It also offers its clients offshore investments in equities and fixed income securities to protect against the vagaries of the local currency.

Could this be the future of banking in Nigeria? This may not seem the case given that healthy profits can still be found in the traditional banking sector – Zenith Bank achieved a record performance of N242 billion in after-tax profits while operating from over 400 branches spread across in all the countries. Yet many banks seem to have decided that they can only ignore the impact of technology on the industry at their peril.

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