This is not to cause panic. But let it be known today that by 2025, Nigeria will have only five decent commercial banks. The problem is not regulation, the issue here is that Nigerian banks have become technology companies offering banking services. In the past, they were banks, using technologies to serve customers. But today, using USSD and ATMs, they have evolved to tech firms.
Interestingly, when you become digital companies, network effects begin to work. The construct of network effects as I explained in Tekedia Mini-MBA 59-page Week 3 document on business models is this: the strongest thrives through a positive continuum of virtuous circles. You can add that the weak will die.
I posited in 2019 that by December 2020, Nigeria will have at least 3 fewer commercial banks. I was not looking at recapitalization. Rather, I was looking at the new positioning in markets, outside the ordinance of banking, but on the nexus of digital companies.
In my model, we’ve hit the inflection point on digitization, within profitable Nigerian customers, and most of our banking entities are now digital species, not via apps but USSD and ATMs. And one challenge in digital domains is that you are both local and global at the same time, exposed to the waters of network effects of big competitors. With category-kings like GTBank, Zenith, UBA, Access, and First Bank rising higher, natural moats are set within the banking castle. As with the flanks unprotected with Flutterwave and Paystack peeling the traditional moats, the harmattan becomes colder.
The non-kings will have real challenges ahead because USSD with ATM has flatted any comparative advantage they had enjoyed at any level. Unfortunately, most have no future in the Nigerian commercial banking sector – and will depart.
Governments or owners may try to pop them, but over time they will give up. It is like giving MySpace $10 million to build better technology to get any life out of Facebook. It is hopeless.
Do not look far: in 2019, GTBank’s N23I.7 billion profit before tax and First Bank’s N73.8bn are indications of the gap. If GTBank decides to use its profits to buy other banks, purely on their current market caps, it would have a state assembly level quorum!
Welcome to new technology companies, offering banking services. It is few per category and Nigerian banking will experience that. First Bank will pick some banks. Zenith will pick some. UBA will add. Access is still digesting. GTBank does not like adulteration but adds from within. People, the web has broken the jars!