In the subscriber section of Tekedia, I wrote how GTBank (Nigeria) plotted one of the finest corporate redesigns in Nigeria’s banking sector and became the category-king. Today, across many indicators, GTBank is the industry leader. Its market capitalization can buy more than 80% of our local banks excluding Zenith Bank. GTBank is winning and continues to open new vistas with enviable cost-to-income ratio of sub-45%. To do this, GTBank made a pivotal decision in mid 2000s. That decision has since paid off, evidently. It was a decade-long business strategy with one mission:  make GTBank the preferred bank for upward mobile (professional) customers in Nigeria. Today, GTBank is the bank for working professionals. It was not automatic: GTBank was like most new generation banks before 2004. Then, it took off and became a king. (It is important to note that GTBank has been having severe technology challenges these days. Last month, services were down for hours.)

As you look at the data and read banks’ annual reports, you can see trajectories of banks on their missions. Most of the plans take years for the impacts to be visible in the financial statements. Briefly, I explain what some banks are doing:

• GTBank: Many years ago, GTBank wanted to become the preferred bank for Nigerian corporate working professionals. It executed that strategy with some enablers which I have noted here. The bank has some of the most profitable customers in the nation. Interestingly, these same customers are also the cheapest to serve because they are well educated, and can do many things by themselves without the bank support. This remains the heart of GTBank strategy.
• Wema Bank: Wema Bank through ALAT has made it clear that it wants to on-board youthful customers. This business model is still ongoing. By having its ALAT business “partly separated” from the main bank, it wants to become a largely clean bank, a digital bank. This is a nice strategy, and I do predict that in five years, if banks do not curtail their fees, the favorability will drop: bank fees in the nation’s banking sector are skyrocketing. The risk is that there will be many ways to do banking without banks, and solutions like ALAT could be in that equation for young people. My local bank now charges me monthly debit card maintenance fee of N40. That fee comes besides the stamp duty on digital transactions. And there is the monthly N302 maintenance fee. Wema’s future will be finding a pan-African strategy where it can pioneer a currency-agnostic solution that will serve most parts of Africa. That ALAT’s future may not involve Wema Bank at its core. And needless to say that it will take time to bear fruits. ALAT is a startup and must go through its growth phase before the push for monetization begins.
• Diamond Bank: Diamond Bank is deepening retail banking at scale. In Lagos, it is easy to see Diamond Bank associates wearing Diamond T-shirts looking for business. I do think that the bank is working to win through agency banking and that means it wants to be the king of retail. Diamond Bank since it pioneered Diamond Bank Integrated Banking System (DIBS) has been loved by traders and retailers. DIBS fixed a major friction: eliminated the need of moving cash in intra-national trading. With DIBS, traders could travel from Aba to Lagos without having to carry cash. Before DIBS, that was not possible as bank branches were not connected. In other words, if you had an account in Union Bank Aba then, you could not collect money from Union Bank Idumota. DIBS changed that and traders loved that. The bank through its agency banking business is planning for another win. The redesign will take years to yield fruits: the bank has to grow the customer base before it can make money serving them.
• United Bank for Africa: UBA is Africa’s global bank with operations in excess of 19 African countries, the largest of any Nigerian bank. UBA believes that its future will be Africa and it has a leg-ahead of other banks. It has invested massively over the years, building these country networks, and the moments of glory may already be here. In the last two years, the stock has moved from N2.73 to above N9. Its growth is working. Its decision to push into Africa is making it a pan-African bank in the age where integration will be the order of the day.

Other banks have also anchored their businesses on strategic core visions. I will discuss those in the subscriber section. The most fascinating is First Bank which wants to add new 16 million customers within three years. We will examine how the bank could do this, and if that is even possible, by pointing its growth strategy which I think will be in excess of five years to be practically visible. Skye Bank which was clipped by the Central Bank of Nigeria when its ratios deteriorated has sold assets in its non-Nigerian businesses, to boost its balance sheet. Today, it has a clear growth plan. Keystone Bank under the new CEO is working on digital strategy for its future. The most fascinating is what Union Bank is doing as it is clearly linked to Atlas Mara team in Dubai which has invested in the bank. I will discuss.

In the startup world, we like growth and always spend time planning how to make it happen. Job titles like VP, Growth; Manager, User Growth; and Team Lead, High Growth are now common. There is nothing wrong with that: growth is the heart of any business. In web business, because of the elements of network effects and the benefits of invertibility construct, the thinking is that growth drives the business. Yes, growth is important; but without  an important margin in business, over time, the business will die. The profit margin is the most important element in any business formation and operation. It is the fuel that gets a business going. It is the enabler, catalyst and the anchor of the corporate long-term vision.

Largely, we are in business for profit margin. It may not be obvious because there are many companies which operate for years without profitability, by raising tons of money, in successions. But even with that, over time, the companies will be expected to make money.  Even if the companies are sold, the buyer must still have to find profitability in the operations for the following reasons:

• Running and Growing Companies: It is only by making profit that a business can be sustained over time. Without profit, the mission is stalled. The vision of accelerating prosperity and the welfare of people can only happen when a firm makes money
• Corporate Social Responsibility: Doing good as a business does not happen with free water or air. Money funds great ideas to help communities and societies. To do that, a firm must make profit
• Investors Part: When investors put money in your company, they are really investing in your profitability. It is irrelevant if you are making money today or not. The fact is that they do believe that you will make money in future. It is from that profit that you would pay dividend. If the firm is publicly traded, profitability provides a good metric to the health of business. Generally, it does impact the growth of the stock.

So, as you work on the mission to change the world, it is important to understand that you must make money doing so. Making money, ethically, is the core business you are in, because without making money, you may be unable to help society.  The passion for profit has pushed even typical non-profits to explore ways to make money so that they can serve communities better.

The Kenya Red Cross is a very good example: the charity runs a hotel business in Kenya and invests in education, farming and more. At the end, it generates good profit margin that it does not need any donation to support its mission. With ventures generating profits, executing the mission of Kenya Red Cross has been simplified. I spent a day with the CEO early this year and was thrilled on how they have fused business with helping communities, at scale. They have more functioning ambulances than the Government of Kenya, and they run a top-rate school on hotel management with students coming from far away China, Nigeria and India.

If a charity can see that profit margin is vital, it means that for-profit startups have no hiding place.  Indeed, “No Margin, No Mission”, as Fortune aptly captured it, recently. You must find ways to have good margin because that is the first mission in business. Other missions emanate from it.

Wema Bank is on a great mission: the bank wants you to know about ALAT, its digital (mobile) banking solution, even more than the bank itself. It does seem that the bank has decided on what its future will be, and that future is ALAT. If you drive through 3^rd Mainland Bridge, Lagos, you will see the ALAT advertisements with barely noticeable logo of Wema Bank. They are positioning ALAT as the future, even providing a website for it, the alat.ng. The following notes are evident with regards to Wema Bank’s ALAT:

• Strong Promotion: Wema Bank is promoting ALAT more than the bank itself. I do think over time, the brand ALAT will become bigger than Wema Bank, and Wema Bank will fold into ALAT. Simply, Wema Bank wants the young people to know about ALAT, and not necessarily Wema Bank.
• Unique Domain: The bank is one of the few banks in Africa that created a unique domain for its mobile banking solution. This means that ALAT itself is expected to become a bank, but without the traditional branches.
• Strong Digital Future: Wema Bank is banking on a strong digital future. And ALAT will provide that to it. They have invested massively to create this product and are also doing more to make people know about it. It offers some of the best deals in African banking with 10% interest rate ( I noticed that one on 3^rd Mainland Bridge). This is the future of Wema Bank.

Wema Bank is brilliant on what it is doing with ALAT. I have noted in the past that one of the ways of dealing with the heavy regulations banks face is to create separate fintech companies and run them to support the bank products. In other words, a bank creates a fintech company that markets its products, even when doing other things. The advantage is that the fintech can move fast, without the regulatory challenge. While a fintech can use a press release to be in 54 African countries at once, a bank has to work with the respective central banks before it can operate in the countries. That gives the fintech firms the advantage to move fast and corner the opportunities. But if a bank has its own fintech, sequestered from its operations, and complying with regulations, it can compete more fiercely with the fintechs.

ALAT is the first step for Wema Bank. In the next few years, depending on its progress, ALAT can be divested from Wema Bank, to allow it to compete more aggressively in the African market without being tethered to a bank and the associated regulation. The regulation is important and there is nothing wrong with that: banks like Wema Bank take customer deposits, unlike most fintechs, and should be regulated. So, ALAT can become an operational arm of Wema Bank while the bank remains a dumb pipeline, typical of most traditional banks today (i.e. not much intelligence due to lack of deep insights), to support what that modern banking named ALAT does. Perhaps in 10 years, Wema Bank may even simply change its name to ALAT if this new modern banking solution evolves into its future.

ALAT is a bank, and it can become a truly African banking institution, if it pursues new opportunities in Africa, with growth typical in most highly scalable businesses. I am expecting the management to make ALAT a pan-African “bank”, and use it to redesign the banking experience for young people which it continues to pursue. Wema Bank is working. It is on ALAT now and that is a good thing.

I have written extensively on the implications of Internet on businesses. We are enjoying the tremendous productivity gains which technology has made possible. But in the future, Internet will cause massive economic dislocations in markets and economies. Yes, at maturity level, Internet could enable seamless linkages between sellers and buyers in many industries: the implication is that many companies will disappear. Who needs an accountant when all transactions are powered by blockchain? Many areas we see in fintech (financial technology firms) will go.

While ICT provided unprecedented productivity in the Nigerian banking sector, Internet is seriously “destroying” value. This is a “problem”. ICT made them, Internet could destroy some of them. Internet is bringing the construct of creative destruction in the Nigerian banking sector where values are destroyed and new opportunities unlocked. But those new opportunities are not going to be, exclusively, within the controls of the banks.

What Internet is doing today is expanding distribution of banking services thereby putting pressure on banks to control pricing on their own terms. Before Internet, they could charge huge fees to transfer money for clients to foreign accounts via their treasury departments, but today, with internet, there are options. The customers could simply use their debit and credit cards to settle the bills without first spending money on bank fees.

That future is not going to be very far: IBM has started building the infrastructure, at scale, of the 21^st century banking: the blockchain banking. Yes, IBM and its partners have started making a business on what most thought was just an idea. It is now making it possible to move money across borders, seamlessly and efficiently.

In a breakthrough for payments technology, IBM and a network of banks have begun using digital currency and blockchain software to move money across borders throughout the South Pacific.

The significance of the news, which IBM announced on Monday, is that merchants and consumers will be able to send money to another country in near real-time, accelerating a payments process that typically takes days.

The banking network includes “12 currency corridors” that encompass Australia and New Zealand, as well as smaller countries like Fiji and Tonga. It will reportedly process up to 60 percent of all cross-border payments in the South Pacific’s retail foreign exchange corridors by early next year.

The news also comes as an important validation of blockchain technology, which has long promised enormous efficiencies for the financial sector, but has been slow to move from the concept stage to the real world.

Blockchain, which relies on a disparate network of computers to create an indelible, tamper-proof record of transactions, is most famously associated with the digital currency bitcoin. But it can be used in many other applications such as tracking shipments or, as in this case, to record a series of cross-border transactions.

If IBM gets this right, every bank in the network will be paying IBM tax to use its solution. This also means that the remittance business will likely collapse for most African banks. The very product which no fintech or bank in Africa has been able to build will now be made possible. I have discussed of the need to build a truly pan-African digital remittance/transfer banking product which is agnostic of location or currency in Africa. None of the products we have today meets that standard. Largely, I envisage a situation where all you need to buy and sell across Africa is one bank account in just one African Union country. With that, you do not have to even think about the specific currency of that account as technology will seamlessly make it possible to access other African markets for payments, transfer etc. The banks or fintech companies must still comply with all regulations related to inter-national transfers, forex etc. The only difference is that customers will not see them as they will be hidden with technology. What IBM is doing could potentially fix that friction and that means it will take major revenue base from African banks.

 The IBM Banking

IBM has moved into banking without necessarily being a bank. That is a very good position to be. If it can pipe transactions across its systems, the real banks will pay taxes to use its networks. IBM will become the 21^st century SWIFT (society of worldwide interbank financial telecommunications), a global payment network, assuming that the international payment network and enabler does not evolve.  Many have written on the power of Amazon on consumer commerce, and the implications to markets.

But Amazon’s unprecedented logistics and delivery infrastructure, paired with access to personal data about Americans’ purchasing habits, means it is unique in the history of global commerce. No company has ever wielded this combination of consumer insight and infrastructure, say historians and legal analysts, which means the company grows stronger and less assailable with every purchase.

But what Amazon is doing will be small if IBM can make itself the category-king for blockchain banking. In other words, if IBM can build a system that essentially makes SWIFT irrelevant, IBM will have the highest impact in modern banking and commerce. The influence of Amazon in America cannot even come close because the implication is that IBM can just provide the infrastructure and over time move into other areas like insurance, legal contracts and more. The key thing is becoming #1 to enjoy the network effects and the benefits of invertibility construct.

All Together

This is a total redesign in the structure of digital commerce. Blockchain will have consequential impacts. There is nothing that it cannot power including making it possible for Finnair, an airline, to weigh its customers in Helsinki airport to ascertain that its estimated total weight, fuel, and safety are accurate. Of course, banking is going to be the first area that will be affected because that is where the money is. I do think African banks should work hard to form their own consortium with local technology leaders for intra-African remittance, at least, and get the African Union to charter that blockchain network. We need the regulation that makes transactions on blockchain to be legally enforceable and binding and that means governments may need to make that clear to avoid any uncertainty. This becomes necessary because at the onset of the web, most banks were not accepting email documents as legally binding. But over time, nations upgraded their laws to make it clear that emails and digital documents are valid in courts. We need same for blockchain and I hope Africa Union leads there. If they do, local banks will have the opportunity to build the capacity before the foreign ones define the markets.