By Olatunde Vincent Adeyemi MBA, ACIB
A few years ago, the Nigerian advertising space was captivated by series of creative TV Commercials from New Generation Banks (NGBs). This was necessitated by stiff competition due to the fact that the industry was just emerging from the Consolidation Era which culminated in a series of mergers & acquisitions, especially among the NGBs. Of the lot, two particular adverts probably made the most impression on the minds of the viewers. First, there was an advert in which a fully-kitted astronaut landed in Space and realized he needed to draw money from the ATM (sincerely, one is curious to know what he wanted to buy) while the second advert had cars predicted to run on water instead of gasoline!
The sheer guts of these adverts underscore the depth of thinking and innovations that the banking system has gone through and will continue to go through. The aim of this article is to contribute to the predictions on what the future of banking (particularly in Nigeria) will look like. To do this, and in tandem with the tenets of scientific forecasting, a review of the history and current developments in the Nigerian Banking industry will be necessary.
BRIEF HISTORY OF NIGERIAN BANKING SYSTEM
Formal banking started in Nigeria during the Colonial Era largely due to the commercial needs of the colonial masters arising from increasing trade activities with Nigerian merchants. In 1892, the African Bank Corporation was established. However, the Bank’s name was changed to British Bank of West Africa (now First Bank of Nigeria) in 1894. Barclays Bank DCO also came into Nigeria in 1917 (but later nationalized by the government to Union Bank in 1979), followed by the British & French Bank (now United Bank for Africa) in 1949. These were among the earliest major foreign banking institutions in the country.
Industrial & Commercial Bank, the nation’s first indigenous bank, was established in 1929 but went under in 1930 due to under-capitalization. The same fate befell the Nigerian-Mercantile Bank which was liquidated in 1936 after five years of being in operation. In 1945, Agbonmagbe Bank was established but taken over by the Western States and renamed WEMA Bank in 1969. This cycle of establishment and failure of banks continued in the country so much that by the year 2004, there were a total of 89 Banks in Nigeria. The financial weakness however precipitated the Consolidation Era (2004 – 2005) which reduced the number to 25 through a series of merger & acquisitions.
Another major landmark in the nation’s banking history is the revocation of the Universal Banking Model by the Central Bank of Nigeria in 2010. By this, banks were made to focus on their core-banking operations while other ancillary services (brokerage, trusteeship e.t.c) were given up. These moves have contributed to laying the foundation upon which the country’s banking system, as we know it today, stands.
CURRENT TRENDS IN NIGERIAN BANKING SYSTEM
In this section of the article, we highlight major initiatives and practices of today’s banks while bearing in mind that these improvements are not “stand-alones” but a culmination of efforts made over time.
- E-banking: ATMs, Online & Mobile banking platforms are now common-place among Nigerian banks that one would have thought we started banking with them! In fact, these products (regardless of the names given) are no more unique selling points as they no longer serve as differentiating factors among banks. Customers have come to see them as minimum non-negotiables they expect from their banks. While the issue of stability of these platforms is still debatable among the banks, these platforms have, in no small measure, moved our banking system out of the days of “tally numbers” and un-ending customer queues by providing self-help cash withdrawal/deposits, funds transfer, bills payment and even account maintenance services to banks customers
- Quick Code Banking: Most of the e-banking platforms depend on internet access to function. This has limited both their appeal and reach especially in our clime where adult literacy rate is only about 59.6% and where the infrastructural deficit is still huge. In response to these and to deepen financial inclusion, Unstructured Supplementary Service Data (USSD) is now being explored for banking transactions. In today’s Nigerian banks, customers can make payments, pay bills and also open new accounts by dialing their banks’ unique Quick Codes on any type of phone. This service is particularly interesting among our rural population.
- Social Media Banking: With over 2billion active social media users worldwide, it will be suicidal for any organization (particularly banks) not to be deliberate about its online presence. This is because a bank can practically be run down online via negative publicity. Also, banks have adopted social media as a customer engagement platform helping them to offer a faster customer service experience to their clients. In fact, customers now take more to the social media to express a service dissatisfaction than usual conventional ways. This behavior has been encouraged as they have noticed faster response rates to social media complaints than other traditional platforms. According to a research by Econsultancy in September 2014, the quickest social media complaints’ response time for UK banks was 3minutes while the longest was 1hour 24minutes. In addition, social media is helping Nigerian banks to greatly reduce marketing costs while also offering them a shorter time to market for new products. While some banks in Nigeria today allow customers to open accounts using Facebook, banks in India (ICICI) allow customers to login to their accounts using their Facebook credentials. All these means that banks are finding it increasingly comfortable to use social media credentials to verify customers’ identity!
- Agency Banking: In order to reduce cost-to-serve, improve on their nearness to market, and deepen financial inclusion, agency banking is already gaining grounds among Nigerian banks. By this, banks are partnering with already established businesses under an agency arrangement which now enables these independent businesses (called Agents) to render certain banking services to customers on behalf of their Principals. The agents are compensated by earning a fraction of the fees paid by the customers while the banks succeed in serving their teeming customers at lesser costs. Although this service is still gaining momentum, it is projected to be the dominant banking model in rural communities in no distant future.
- Same-day Clearing: Nigeria Inter-bank Settlement System (NIBSS), in partnership with Deposit Money Banks (DMBs), has just successfully concluded an 11-week pilot of the i-Teller, a product which allows same day value for clearing cheques. During the pilot, about N5trillion value of cheques were processed in 10million transactions. By the time this feature is fully deployed, not only will the current clearing cycle of T+1 be abrogated, the need for customers to open multiple bank accounts will also be totally eliminated.
- Open Banking: Although this is not yet fully operational in Nigeria, the term Open Banking, refers to a regime where customers can choose to easily allow their banks to share their details with other financially regulated companies. The general understanding for this concept is that customers’ financial data, such as debt profile, income & expenditure patterns, credit card details e.t.c, ultimately belong to the customers and not the banks. With this ownership, customers can authorize their banks to share their details with any organization which may be of interest to them. The immediate impact of this is, banks will be mandated to share customers’ details with institutions that offer competitive products to the banks’ very own customers. This move, to which nine of UK’s major banks must comply by 13th January 2018, has changed the game for traditional banks since it has opened the gates for non-banking institutions to offer bespoke financial services to banks customers. For example, should it choose to, Amazon and other tech giants can begin to offer overdrafts & micro-credit facilities to their clients through insights obtained from analysis of financial details gotten from the clients’ banks! Even here in Nigeria, we are already seeing non-traditional players (such as Renmoney, Paga, PocketMoni e.t.c) render financial services previously considered exclusive preserve of banks.
THE BANKS OF TOMORROW
With a keen review of the past and current trends in banking, it is the author’s view that banks that will be relevant, viable & profitable tomorrow must possess the following competencies and capabilities:
- BOLD SAFE TECHNOLOGY (BST): The tide of technology will never flow backwards. Banks of Tomorrow (BoT) must possess the technological capabilities to continue to push the frontiers of innovation. With the emerging strength of Financial Technology (FinTech) companies, the spate of innovation in the financial services industry will accelerate. However, BoT must ensure that these innovations do not override the duty of care banks have to their customers. According to recent industry data, e-payment frauds increased by 1,317% in 2years, from a mere 1,461 cases in 2014 to 19,244 in 2016! This made e-frauds account for 98.3% of total frauds in the Nigerian banking system in 2016. Although banks are already making efforts to stem this trend, this clearly portrays the vulnerability banks will remain exposed to with technology. BST must therefore be a guiding mantra to test any new initiative; if it cannot be done with reasonable care, it should not be done at all.
- ENHANCED LEARNING ABILITIES: Organizations that will survive tomorrow must have the ability not only to learn at a very fast pace but also to unlearn at the same pace. This is because the rate at which knowledge becomes obsolete will continue to increase. Banks, in particular, will need to have an enhanced learning ability to be able to cope with the myriads of pressures they will face. Knowledgeable employees that are able to keep pace with the rate of changes in the marketplace will determine which banks survive or die. To this end, BoT will have an institutionalized learning culture with deep libraries and archives that are not mere museums but laboratories to simulate new ideas.
- EFFECTIVE MICRO-PRESENCE: As mentioned earlier, Open Banking will shake the foundation of traditional banking as lending (especially micro-lending), which is at the core of banks’ functions, will be performed by non-traditional players. Banks that will survive this onslaught will need to possess an effective micro-presence that makes micro-lending accessible to their customers in a less formal and complex manner. Indeed, discerning banks should be reviewing their processes now in order to ensure that while they remain big enough to serve their customers, they are also small enough to know them. To an extent, while agency banking could help achieve this, the solution to this particular problem will need to be broader than the current scope of agency banking. The need for BoT to play actively in the micro-segment of the economy should be obvious as this segment will continue to offer the highest margins.
- DATA COLLECTION & INTERPRETATION ABILITIES: The world is currently a data super- highway with so much information flowing both online and offline. Corporations that will hold sway tomorrow will be those that command the most customers’ data at their fingertips. This explains why organizations like Google seem to be buying everything in sight. Banks, by virtue of their central economic position, are sitting on a vast “data mine”. Indeed, in some cases, banks have details governments and even spouses do not have. By available projections, in the nearest future, companies’ net-worth will be measured in terms of the amount of customers’ data they possess. BoT will of necessity be banks that have strong capabilities in data collection, analysis and interpretation in such a way that they are able to use them to effectively serve their customers in a profitable manner.
Finally, unlike the astronaut’s advert referred to at the beginning of this article, there will be little or no room for cash in tomorrow’s banking as FinTechs continue to push the boundaries of innovation in the financial services industry. However, and just like the cars-running-on-water advert, banks who over- innovate without observing the tenets of Bold Safe Technology may be innovating themselves out of existence. Banking business is a business of trust, care and integrity; we do not see this changing even tomorrow!
About The Author:
Tunde Adeyemi is a versatile Nigerian banker with over a decade experience in the industry. He is an Associate of the Chartered Institute of Bankers of Nigeria (CIBN) and also a certified PRINCE2 Practitioner. He wrote in from Lagos, Nigeria.