It is official – the Central Bank of Nigeria has clearly noted that fintech (financial technology) companies are indeed threats to Nigerian banks. The CBN Governor, Mr Godwin Emefiele, made the statement while delivering a goodwill message at the investiture of the Chartered Institute of Bankers of Nigeria (CIPN)’s 20th President and chairman of council in Lagos on Saturday.
The Governor, CBN, Mr. Godwin Emefiele, in his goodwill message at the investiture of the CIBN’s 20th President and chairman of council in Lagos on Saturday, said, “In our industry, we have a common threat. The enterprise management risk, particularly the threat posed by Fintech, is real.”
The message was delivered through the CBN Governor’s representative in the person of Dr. Okwu Nnana, the Deputy Governor in charge of the Economic Policy Directorate.
The participation of fintech is expected in the industry since it is evident that the opportunities are huge: “According to research done by The Fletcher School and Mastercard Center for Inclusive Growth, of the $301 billion of funds flow from consumers to businesses in Nigeria, 98 percent is still based on cash”. Simply, growth is ahead, and this market has not been completely won, at least on the digitization of payment front.
The Industry Redesign
There is no doubt that technology will play a significant role in future banking. Just as OTT solutions like WhatsApp and Skype have decimated revenues for telecom operators, we expect fintechs to affect the operations of banks. But these fintechs will include ICT utilities like Facebook and Google making the scenarios very consequentially.
This is the expected natural trajectory as the ICT utilities take over the lands. Once Facebook perfects the integration with MasterCard on Messenger, it would do same on Instagram and WhatsApp. Then, it would be opened to any financial institution that wants. MasterCard is a natural payment aggregator, agnostic of banking institutions. Facebook would be the platform while MasterCard would act as the “interface institution”[payment processing] and banks the hosts [the accounts]. The implication is that over time few would bother to notice the hosts, focusing more on the platforms [once you have set up an account and put your bank details, there is no need to even remember the bank again as the transactions would happen on Facebook while MasterCard handles the underneath processing with the banks].
The banks are doing what they have to do: with Facebook Corp, there is no other alternative – you either fall in line or you go extinct. This is going to be the future of banking in Nigeria. No one goes to a bank in China; most go to WeChat to do banking. Facebook has a plan for that in Nigeria. The plan is now under execution
The business of banking will remain with us. But the structure will certainly change. With the banks transmuting themselves into fintechs already, Nigerian customers would benefit. Yet, I do not see major competition against the banks over the next few years because they remain more capitalized and they also control most of the banking and financial system nodes. Yes, taking them out would be extremely challenging without direct access to those nodes.
Mr Godwin Emefiele has spoken and we do hope he would continue to allow innovation win without undue over-the-top regulation that would stymie the fintechs. The banks do not need help because they are already the premium fintech striking partnerships with Facebook and Mastercard. And if the indigenous fintechs evolve, the banks would also win as they would help in bringing more Nigerians into the banking sector.
Generally, it is good the CBN Governor has alerted his constituency on the threats; they need to take action because the challenges cannot be localized. The telcos slept into the OTT quagmire; CBN is shouting right now so that banks can see Facebook, Instagram and broad fintechs as threats. We hope they are listening.