Nigeria’s fintech sector is growing. It is experiencing a cambrian moment of entrepreneurial capitalism, redesigning the architecture of the nation’s financial services. But when you look deeper, the foundation of everything the fintech players are doing is tethered to traditional banking. Yes, no fintech in Nigeria has the legal rights to enroll customers into the bank verification number (BVN) database – and that means every (formal) fintech customer to a large extent is already a bank customer! In other words, Nigeria’s fintech 1.0 is built wholly on the current banking ordinance.
That national playbook has both advantages and disadvantages. The main advantage is that we have stability which comes from the established banks. The disadvantage is that fintech users are bound by the growth of the traditional banks since only banks can initiate customers into the core (banking) financial database. If you extrapolate, the digital challenger banks in Nigeria are not going to be the apostles to bring new customers into the banking sector because they are not ordained by law to baptize users into the banking networks.
So, I see all the digital challenger banks to be transitioning until something happens, and when that thing happens, a new age will begin. That new age will be fintech 2.0. The national identity number (NIN) from NIMC must evolve, eliminating the need for BVNs. I am expecting that redesign to happen by 2024 when NIN could become what matters, and no one will need BVN to have a NUBAN bank account in Nigeria.
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With NIN as the identification system, the digital banks will become unleashed to bring the unbanked through innovation, and not just waiting to lure already banked customers into their domains.
Where BVN Does Not Evolve to NIN
But where BVN does not transmute into NIN, I expect a massive change in strategy by the top digital banks: some will buy current traditional banks. Kuda is currently worth more than Wema, Sterling, Fidelity, Jaiz, Unity, and FCMB combined. If it wants to grow, unbounded by the limitation of capturing already banked with BVN, it could pick one of these banks to have the ability to do BVN since today it cannot enroll customers into BVN.
So, on that hypothesis, I expect one traditional bank to be acquired by an ambitious digital challenger bank in Nigeria. Typically, digital companies begin online, winning bytes and bits, and over time move to the physical space to compete on atoms. From Amazon to Google, no one stays forever online because the physical world is where humans live.
Nigeria’s fintech 2.0 will win physically. By 2025, I expect massive redesigns because the digital natives will move from just bytes for atoms. So, expect massive battles in the physical domain.
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Another prophecy!
Sir, show me the way na.
There are many structural obstacles, and Nigeria is not really a place where innovation moves at great pace, because of competing interests and entrenched mindset.
The first thing to look at is origin of BVN, was it CBN led or Banks led? That understanding is critical, because no one relinquishes power or control easily, let alone in Nigeria.
Again, the CBN hierarchy is dominated by traditional bankers, so no matter how impartial they may claim to be, many of the decisions they take are influenced by their primary constituency, courage has never been our greatest virtue as a people, so we need to understand our present limitations.
And if a digital bank acquires a traditional bank, will it be for the licence alone or will still be saddled with running it and maintaining its physical assets? A ecommerce entity can acquire logistics firm and stores/warehouses, because they can help to advance its mission, but the logic cannot apply to digital banks, because the baggage of traditional bank can as well slow it down.
But if we have independent people running the CBN, without banking ties, it becomes easier to use policy to make digital banks grow independently from traditional banks. We are not there yet.
THERE’S ALSO A THIRD WAY AND THAT’S FINTECHS CREATING THEIR OWN ECOSYSTEM INDEPENDENT OF BANKS.