The world today is confronted by the emergence and necessity of digital banking in financial services. In developed economies, fintechs have posed a threat to established major retail banks as their speed to market and digitisation of banking services draw a large following due to their ability to make everyday banking more accessible.
In Nigeria, however, digital banking plays a much more significant role than a battle between fintechs and retail banks. Digital banking brings a world of opportunity to address pressing issues in access to finance, a young and internet active population, and an increasing focus on customer experience to cater to a growing middle class. Both retail banks and fintechs in Nigeria are using digital innovation in banking to solve issues in an exciting and modern way.
The importance of access to finance cannot be understated; a well-functioning and inclusive financial system has the benefit of poverty reduction through the provision of financial safety-nets. Yet, financial inclusion is still an issue in Nigeria—only 30% of adults have a formal bank account. Digital innovation in banking is one avenue to tackle this problem, and Nigerian banks are successfully venturing into the digital realm of mobile banking to do so.
GTBank has had success on this front with its mobile money bank, Bank 737, where mobile phone customers can make payments without access to the internet by dialing 737 through USSD codes. Similarly, in 2014, Diamond Bank partnered with mobile network MTN to provide mobile bank accounts. Diamond Bank gained 7 million new customers from this venture at a low cost by benefiting from several pre-existing MTN agent locations to act as money agents for Diamond’s Y’ello bank. With the recent merger, Diamond’s success is now Access’s win.
This type of banking tailors to financially excluded demographics in Nigeria who possess low literacy levels and are often under-identified. The Y’ello bank is especially successful in this as it provides products like microloans to customers who are less likely to get loans from formal institutions looking for much bigger deposits.
This digital innovation also caters to the saving needs of the poor by allowing customers to set up virtual group savings accounts with friends through a feature called eSusu—a common way for poorer households to save. Digitising this process will improve efficiency, providing better clarity and accountability between members of the group.
Nigeria's Young and Internet Active Population
Another demographic in need of improved financial services is Nigeria’s young and internet active population. The number of internet users in Nigeria is now above 100 million with internet penetration of 48% of the population. The median age of Nigeria’s population is 18.4 years. This pinpoints the need for banks to anticipate a booming demand for internet banking services amongst young entrepreneurs and professionals seeking to manage their money with ease and speed. McKinsey reports that internet use amongst Africans is mostly done via mobile devices, opening up demand for mobile banking apps; in particular, the report highlights that 59% of Nigerian customers prefer digital methods of banking, with only 15% favouring physical branches.
So far, the evidence suggests Nigerian financial service providers are aware and responding to this opportunity. WEMA Bank produced Nigeria's first totally digital bank through the bank app ALAT. With no physical bank branches, customers submit all their details through the bank app and can create a bank account in minutes with a physical card delivered to them in a matter of days anywhere in Nigeria.
Digital innovation, like WEMA’s ALAT understands the growing appreciation for speed and a seamless banking experience amongst young adults in Nigeria. 79% of ALAT’s customers are between the ages of 18 to 35 years, and only 6% of their customers are above the age of 45.
Banks are continuing to provide alternatives to visiting branches. UBA’s artificial intelligence chatbot, Leo who can check balances and buy airtime is an example, and a soon to be launched KudaBank is creating Nigeria’s second digital bank.
The Growing Middle Class
Fintechs are also disrupting the usual methods of banking and are catering more towards the needs of a growing middle class who make up 23% of the population. This is a group with growing spending power, which comes with the need to easily manage their finances and connect their growing capital to better investment opportunities.
Fintech Piggy-Bank started as a provider of budgeting and savings tools to this exact demographic. The company has now also made investing more accessible to people without a large amount of wealth required by formal private banks through Piggy-Vest. This product has broken the mould of investing being reserved for only the super-wealthy. Carbon (formerly Paylater) is another fintech that now provides a smart investments platform; the company is more known for its provision of personal loans through its app.
While Nigerian banks seem to be responding to the opportunities digital banking brings to the economy, there is room for improvement. Mobile money providers that cater to the poor can be taken further by introducing micro-insurance and increasing penetration to similar levels as MPESA in Kenya. Services tailored to the internet active youthful population can hold virtual forums to connect users and educate customers on financial planning and steps towards building their future—much like Monzo in the UK.
Finally, the true key to unmasking the full potential of digital banking in Nigeria not only lies in digitalising the front end of banking but also back-end systems to create efficiency across the financial system as a whole. Financial service providers seem to be on the right track, and incorporating these further changes can only make the future even brighter.
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