I spent the early part of yesterday exploring Lagos. I had arrived from Owerri, after a speech in Federal University of Technology Owerri. Early yesterday, I paid a cab to drive me from Ajao Estate through Anthony to Jibowo. Then, from Jibowo to Idi Araba (LUTH area) and back to Ajao Estate via Oshodi. Later in the day, I had a meeting in Ogba (near Ikeja) and from there to Island. All through these trips, I was noting changes in our country, especially how infrastructures were emerging. Two weeks ago, when I visited Lekki, I saw a new city. That gave me perspectives on how Nigeria is rising. This is part of making sure one understands the city.
In Abuja, early in the week, I noticed something: most banks are closing their branches. Due to the nature of my business, I have awareness whenever I travel. If you walk from the Central Bank of Nigeria Abuja headquarters all the way to the Cadastral zone (at the back of the Nigerian Defence College, yes War College), you will notice that most banks have closed their branches on that road.
Skye Bank had closed. Sterling Bank has gone. And at the extreme of that road which used to have one of the largest Union Bank branches, that branch is no more. Increasingly, the number of branches is dropping in Abuja, just as ATM locations are increasing.
In Wuse 2, along Adetokumbo Ademola, you will see many ATMs. But bank branches are now scarce commodities. Do not expect this to change due to the following:
- Abuja is the most educated city in Nigeria with practically anyone living there possessing at least a primary school education. It means they can do digital and mobile banking without the physical elements of banking. The banks are taking advantages of this solid educated citizen base to streamline their operations, and save cost
- Banks do not need branches in Abuja – they just need few for some special customer needs. The customers can use their digital platforms and ecosystems to do banking. However, that is not possible in some locations in Nigeria due to literacy issues. In Lagos, that business model may backfire since Lagos has the educated and nearly uneducated all living together. What is happening in Abuja will happen in Port Harcourt where we also have a high pool of educated citizens. Owerri and Ibadan will not be far: banks will close most branches, moving operations to their digital platforms.
Emerging Asset-Light Sector
As the era of digital banking evolves, this trajectory will be evident in the banking sector. The model will help them improve cost-to-income ratio because customers will do the banking by themselves. When customers do their banking services on the digital platforms, it means banks will not need to hire many people. Also, they become asset-light as they do not need to invest in branches with the associated expenses needed to run them. The key implication is that over the next five years, many Nigerians will lose their jobs in the banking sector. Those branches many banks closed along the CBN road to Cadastral Zone exited with most of their workers and staff providing auxiliary services. Those services include security companies and guards. Those Nigerians are now in job markets.
Change is in the land. This calls for entrepreneurs to understand that markets are evolving. Nigerian banks are already adapting and very soon, most will close more branches, sell their real estate holdings and become pure-play asset-light institutions. SunTrust Bank, a new bank, is banking on that model, with its digital-only strategy.
My observation is that some of the banks are now becoming fintech companies. GTBank’s USSD banking would have been a huge fintech if not that it is under GTBank. Wema Bank’s ALAT is a top-grade fintech. Diamond Bank App with its millions of users would be discussed in the range of emerging Afro-unicorn if it is an entity with no bank affiliation. That these products are run by banks should not diminish them. I truly like the pace most of the banks are redesigning their businesses: they will hold their grounds against most fintech companies.
Fintech Connectivity Fee
I predict that in coming years, the CBN will approve connectivity fees on fintechs (non-banking institutions), forcing companies like Paystack, Flutterwave and Paga to pay banks to connect into their ecosystems. So every transaction processed by fintechs will require a percentage of the earned revenues reserved for the banks. In a country where government takes N50 stamp duty for digital transactions, I do think fintech connectivity fee is just around the corner.
The same argument from Telcos on WhatsApp will be made, but banks are well ahead because they control their ecosystems far better than telcos. Unlike telcos which charge customers fees to have access to the web, and then turn around to complain that customers are using their services to deprive them more revenue, banks will not be dealing with customers. Rather, banks will take the fees to fintechs telling them that they would be required to pay a percentage of any fee the customers pay, for them to have the ability to connect to their platforms, automatically. So, if Paga charges say 1.99%, the bank may ask for 20% of that revenue. I call this Bank Tax imposed on fintech and this will begin in 2022, in my model.
Note that this Bank Tax is already in Nigeria. Remita pays it to commercial banks for them to work with it.
In a letter reportedly written to President Muhammadu Buhari by John Obaro, Founder and Managing Director of SystemSpecs, developers of the Remita application, the allegation that SystemSpecs pocketed 25 billion Naira was refuted. Obaro explained that the one per cent commission was negotiated prior to the signing of the contract; and the one per cent commission was shared by SystemSpecs, participating commercial banks and the Central Bank of Nigeria in the ratio of 50:40:10 respectively. According to findings by PremiumTimes,’Remita’ is not “an agency” but an application/software for executing payment instructions and collection of government revenue
It will be institutionalized with clear CBN support very soon. This will change most of the elements in fintech today, in Nigeria, unless the fintechs can lobby for such fees to be aborted, even before they are introduced.