Diamond Bank is one of Nigeria’s new generation banks. In the 1990s, it was considered one of the most innovative banks in the local banking scene. It pioneered a new way of banking through the nationally acclaimed Diamond Integrated Banking System (DIBS) which made it possible to deposit cash in one branch, and withdraw the same cash in any other branch of the bank. Before then, customers were required to return to the specific local branch where the account was opened to withdraw that same cash.
But recently, the bank has struggled. Largely, it now belongs to the Tier II class, hugely far behind previous peers like GTBank and Zenith Bank. Over exposure to the oil & gas sector, where it made poorly performing loans, has exacerbated its problems. The bank is expected to raise fresh capital to strengthen its balance sheet.
In this piece, I explain how the bank can grow again, by going back to its root. The key is specialized banking innovation in delivering top grade service to specific sectors of the economy. At its peak, Diamond Bank served traders and importers with excellence and professionalism. It aggressively opened branches near markets where it had domain expertise. It was the importer’s (and trader’s) bank and they liked Diamond.
In Q1 2017, the bank reported pre-tax profit of N5.58 billion against N6.69 billion in 2016; in GTBank, profit before tax stood at N50.39 billion, representing a growth of 64% over N30.68 billion recorded in the corresponding period of March 2016
With Commission on Turnover (COT) effectively curtailed, the promise of flipping transactions, even digitally, is not going to drive the future. What will be critical now is finding how to get new sources of deposit base to do want banking is about – get cheap money, loan that with interest. The sector is very competitive and nothing is a given.
For the realignment of this observation, innovation is very critical. In the early 1990s, Diamond Bank was one of the most innovative banks in Nigeria. Its pioneering Diamond Integrated Banking System (DIBS) which made it possible for a bank customer to put money in one branch and access it from any other Diamond Bank branch, gave it market share, from the old generation banks . That was a golden era in Nigerian banking with so many innovations, including in pricing. The invention of COT (commission on turnover) provided capital that funded growth and transformed the sector as they made good profits, and they invested in modern technology. But ever since, disruption has been muted and innovation is largely incremental. Tier II banks must come up with ideas beyond the needs, expectations to perception of customers just as DIBS provided to Diamond Bank the tools to take market share from the older banks.(Other new generation banks like Zenith, GTBank, STB (now UBA) , etc had their own incarnations of innovations that improved customer experiences)
The New Landscape
Diamond Bank is moving aggressively into digital which is good. But it needs to understand the major limitations of digital in Nigeria. It cannot necessary help any bank in the short term, to grow deposit base. The digital channels are still designed for transactions and moving money, without core technologies to accelerate bringing new classes of customers into the banking sector. The bank has to find ways to focus on how to use technology to bring farmers, artisans, herdsmen and others into the bank.
Apps are great but they add marginal value because the money is still in the physical world. The richest Nigerians are yet to get the memos that business of banking can be done online. This means the best customers, who are the profitable ones to banks, are not going to be found online. Students, while potential customers of the future, are not going to drive the deposit base required for growth, So, Diamond Bank must intensify its efforts to deepen its business development in the physical world because that is the key source of customer acquisition.
The bank’s short-term future is in the meatspace (physical world), though digital offers medium and long-term opportunities. The implication is that solution must come through discovery of new business segments that can bring deposits. These customers are not part of the highly fascinating digital natives wiring daily N2,000 to one another on apps and web apps.
The bank has to look to discover and serve a segment as it did with traders and importers in the 1990s and 2000s. It did that with total quality and absolute service excellence.
What The Bank Can Do
Diamond Bank should work to drive agency banking with new technologies that will simplify the process and eliminate most of the inherent risks. People call them financial inclusion for the un-banked customers, but the reality is that a very innovative bank like Diamond Bank can unlock the value here, just as it used DIBS, to create value in 1990s.
BVN is an opportunity, and NIMC (National Identity Management Commission) provides even a richer source of data. The roadmap is to develop a technology that will help make citizens/shops extension of bank branches so that banks are closer to the people that need them, at better cost model. We do not need full scale branches to reach villages and communities. Technology provides the capabilities to scale this and also make it cost-competitive.
The herdsmen who move tens of cows have more values to a bank than college students who barely have enough for three square meals. But the college students are accessible while the herdsmen are not. Find a way to reach them and provide banking services and boost your revenue.
Agency banking with proprietary technology supported with tokens, phones, BVN and mobile kiosks will deliver the magic. The transactions will be capped to avoid fraud and risk-management tools embedded. As these agency banking systems mature, banks can close and sell off expensive branches which may not be necessary in 5 years as the immersive digital economy evolves.
A technology that provides innovation, at scale, delivering good cost-to-income ratio, even when improving deposit base, is what Diamond needs. They need to pursue this strategy, building specialization and competence, in the niche markets. They need to know what farmers, herdsmen, artisans etc need on the overall constructs of banking in order to deliver value to them. In the past, Diamond Bank opened branches in markets developing capabilities in meeting the needs of traders. Now is the time to go to carpenters, artisans, herdsmen and farmers, because they are latent opportunities which are waiting to be unlocked. A localized version of Spare, redesigned for agency banking, with some new features will be appropriate.
SPARE turns any cash register into an ATM. SPARE is a service that simplifies safe access to your money by employing a mobile phone application and a unique security system to create convenient access to cash, that is less expensive than 3rd party ATM’s. SPARE is a B2C Mobile Cash Access Service that allows any business to leverage cash on-hand like an ATM, making the presence of a payment device unnecessary.
SPARE intends to turn businesses into cash-dispensers, obviating the need for third-party ATM’s, which carry hefty fees & ever increasing risk of fraudulent activity. Consumers are attracted to SPARE for Convenience, Cost-Savings & Security. Merchants recognize the value of an Additional Revenue Stream & Increased Foot Traffic
Diamond Bank has been stellar in discovering and nurturing market segments. It has the tools to build a new market and use that to get itself out of the stasis it is at the moment with its market capitalization severely degraded. It has a great team and can execute a strategy to go back to its roots of serving specific market segments, well.
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