Information and Communication Technology ( ICT) anchored the competitive evolution of Nigeria’s new generation banks, by unleashing productivity in the sector. Internet, through its unbounded distribution, has provided new business models for most of the banks. Banks today have digital banking unit which is growing, and outpacing other channels like branches. The dawn of digital banking has anchored a new strategic redesign, and the banks are moving more operations to the web. The customers are responding and banks are expanding customer base.

With these changes, banks are retooling how they do business in terms of human capital, and one thing has been consistent: banks are using lesser number of staff per customer. In other words, the man-hours required to serve a bank customer continue to drop. Productivity enabled by technology has made that possible. We now have ATM which has automated many tellers out of jobs. We have debit cards which have reduced the need for manual cheque reconciliations. As banking moves digital, new dislocations will continue to happen. The impact may even be more consequential in African banking because we can leapfrog therein.

There is nothing anyone can do about these redesigns: most jobs will disappear. From the challenging days of manual ledgers where Union Bank recorded transactions in papers, requiring bank customers to spend hours in bank halls, to the modern days of GTBank speed banking, Nigerian banking continues to evolve. They are using lesser number of staff, per customer served. While owing to growth, the staff strength may be bigger, the reality is that productivity has reduced the absolute staff required, when benchmarked with the trajectory few years ago. GTBank through technology leadership, as noted in its half-year report, captures it all:

The Bank has continued to report the best financial ratios for a Financial Institution in the industry with a return on equity (ROE) of 38.8% and a cost to income ratio of 40.2% evidencing the efficient management of the banks’ assets.

In other words, GTBank is using lesser resources to make more money. There is nothing wrong with that. Yet, what we are seeing today is just the tip of the iceberg.

Three Things After Bank Jobs

Robotics, artificial intelligence, and natural language are collectively after Nigerian bank jobs.  ATM is a primitive service of the robotics. The same goes for the present reconciliation engines which run on bank’s general ledger solutions. But in the next 8-10 years, we will see massive adoption of the next level of technologies. I expect the Apple Face ID to be copied by other smartphone companies and that will find itself quickly into banking solutions. With Face ID, you will not have to worry much on agency banking because most components would be built in mobile devices.

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.

These are some of the roles the robots, AI and natural processing will pursue:

• Better customer service. We will see chatbots to drive customer service
• Process automation: from reconciliation to compliance, AI and robots will deliver higher efficiency, productivity, operational improvement and cost savings.

According to Cognizant, the top drivers for automation beyond cost savings include:

• Reduced error rates (21%)
• Better management of repeatable tasks (21%)
• Improved standardization of process workflow (19%)
• Reduce reliance on multiple systems/screens to complete a process (14%)
• Reducing friction (11%)

Beyond Banking Jobs

Sure, banks will cut some jobs but new jobs will be created because of the new services needed to service the post-AI banking. The following bank jobs are at risk.

…on the future of AI in banking, a study released by Oxford Martin School’s Programme on the Impacts of Future Technology evaluated how susceptible are jobs to computerization. Evaluating around 700 jobs, and classifying them based on how likely they are to be computerized, the jobs in the financial services industry that fit the studies criteria include:

• Bank Teller

• Loan Officer

• Mortgage Broker

• Insurance Claims and Policy Processing Clerk

• Insurance Underwriters

• Claims Adjusters, Examiners and Investigators

• Bookkeeping, Accounting and Auditing Clerks

• Tax Preparers

What will happen in the near future is that we will have more software-bankers than tellers, because the jobs will be more algorithmic, meaning that the focus will be making better AI models. That means banks will also hire mathematicians (that do maths), and people that will help to build models and perfect them. While at the moment, banks have used the casualization of staff to compete on cost, in 8-10 years, they will use the deployment of AI, natural language and robotics for competitive edge through cost leadership. The transition will change the structure of the business because anyone that does not make that leap will struggle with severe cost-disadvantages..

All Together

The golden age of banking consulting is coming in Nigeria where startups with solid AI capabilities will rule. Banks will need services, customized and structured for the local Nigerian market. They have skills gaps which tech companies have to fill. The opportunities will be immense.  The customization of Siri, Alexa, Assistant and Cortana to understand Nigerian pidgin speakers to enable banks deploy new solutions via voice opens a new market. The integration of Face ID to detect accurately black skins knowing that companies like Apple might have biased their models for white skins will create a boom.

In short, because of AI, robotics and natural language processing, fintechs will boom, not just in dealing with consumer market, but by offering solutions for banks’ back offices. It will take another level of composition for any bank in Nigeria to deploy any voice system in rural areas considering that our spoken English will confuse what Silicon Valley has built. Nigeria will need local flavors of most of these technologies. That is where the new jobs will be created in the banking sector..

The Academic Staff Union of Universities (ASUU), a Nigerian union of university academic staff, is still on strike. They want more funding in the nation’s universities. There is nothing wrong with that. But the very fact remains that government has expanded the university system beyond its possible capacity to fund. What ASUU wants, even if met by government, may not last long, before new strikes evolve.

Nigeria has to find ways for private sector to become partners in our university system financing. Private financing in the public schools will help our schools. Today, that is not happening because there is no practical benefit for companies to do so. The schools are not centers of excellence and companies cannot see them as partners in the creation and dissemination of knowledge.

The very few donations coming from individuals are also small. Most donate to get recognition and titles like Honorary Doctoral Degrees. They might have done better if there is a way government can create financial incentives for companies and individuals to open their bank accounts and donate to our public schools. When you provide incentives, which help citizens and companies to do well and also save money, great things happen..

The U.S. Model

In U.S., alumni make great donations to their alma maters. Michael Bloomberg might have given nearly $1 billion to my alma mater, the Johns Hopkins University. Across the U.S., many U.S. business schools are named after business leaders. Those people opened their wallets and made donations. Sure, they love the institutions to have made donations. But many would not have done so if the tax system has not stimulated the giving through financial incentives. Making those donations help balance many elements in their personal and company finances. Nigeria does not have that at the moment.

Right now Apple is working with 30 community colleges in U.S. as it pushes the adoption of the SWIFT language. Community colleges are like Nigeria’s OND education in our polytechnics. What Apple does is to support those schools to deepen their capabilities and help the students learn new skills which will help them in their careers. It is a great win-win, and any school chosen will be better off..

Community college students may have a lot more Apple-related course work during the new school year.

The technology giant said Friday that its education curriculum related to its Swift programming language would be offered at 30 community colleges throughout the U.S.

Apple CEO Tim Cook announced the curriculum rollout at a press conference in Austin, Tex. with the city’s mayor, Steve Adler. Several community colleges in Austin will begin teaching the Apple-sanctioned curriculum, which Apple said would reach 74,000 students this fall

What Nigeria Can Do

The Nigerian tax system is not designed to support philanthropy. That is why we do not have a vibrant one. It does not mean that a nation must be rich first before its tax system can be engineered to stimulate philanthropy. ASUU can lead on that, through Tax Reform, and make it possible for individuals and companies to put money in the schools and get tax benefits. Sure, ASUU members may be busy, but that should not stop them from helping the government to revamp our tax codes to drive innovation.

The 501(c)3 tax structure in U.S. has unlocked a lot of private sector capital into the “doing good” business. Nigeria must find its own model.  I explain why this will be appealing in the educational system.

If Company A wants to start a factory in Owerri Nigeria and needs to train 1000 people in the areas it does business. It can ask Federal University of Technology Owerri to do that training, providing the manuals and documents required. It will fund it say with $3 million for three years. FUTO may integrate the program in its curricula (NUC may need to approve). FUTO has received funding, expanded its program and at the same time graduating students that will likely have jobs when they finish. Brilliant!

For Company A, it has moved the non-core training out to focus on its business, knowing that whenever it wants talent, FUTO is preparing them. Then on that $3 million, Nigerian government allows it to deduct it, non taxable. Simply, the revenue where that money has come will not be taxed because it has been used to do good to the society. Just like that, the company has saved money and at the same time assisted FUTO to deepen its programs. That is an incentive which does not exist right now, and Nigeria needs to update our tax system to make it possible.

Today, what is possible is to deduct that $3 million as an expense, meaning that it is recognized in the tax book as pure business. That is not enough as the resulting balance will be taxed accordingly. In U.S. that $3 million is treated differently, offsetting not just its expense but other areas the company might have experienced losses. So magically, you use donation to make-up. That is why giving is financially good, under some circumstances, for both the recipients and the givers.

Here is how they do it in U.S, according to Fidelity, the best in the world.

• Capital gains taxes are eliminated when you contribute long-term appreciated assets directly to a charity…
• In those select situations, you may choose to supplement a charitable gift of securities with a charitable contribution of cash so that the maximum charitable contribution deduction limit of 50% of your AGI may be claimed. This strategic combination of giving is an opportunity to reduce your taxable income.
• One simple offsetting measure is aligning your charitable giving with the rebalancing process. Instead of writing a check to a favorite charity this year, consider donating your most highly appreciated security, which you have held for over a year. Capital gains taxes typically will not apply to you or the charity receiving the donation, and because you didn’t write a check, you may have cash available to purchase more stocks as part of your rebalancing exercise

Fidelity has nine strategies, I have noted only three above. In short, if you are rich and not giving in U.S., you may be losing money!

Now, over to ASUU and those that love education! If you want local Microsoft, Google, Oracle and more to give and support our schools, you may need to update the tax laws in Nigeria. They will respond if you make it easy to do good to the society, and save money via donations; I guarantee that.

I have noted in the past that one way to handle excessive tax engineering by ICT utilities like Google, Facebook, Amazon and Apple will be to tax revenue and not profit. And you tax that revenue at the locality where it is earned. Though that is bad as it takes away the concept of intellectual property (IP), but that seems to be the only fair way, to balance excessive tax engineering and public pockets. Globalization, consolidation and unconstrained growth of these companies demand a radical new thinking to ensure societies have funds to deal with public needs. They cannot take all the revenue and yet not return money to the public as tax.

In Nigeria, for example, Uber Nigeria pays tax on profit to Nigeria only after Uber Nigeria has paid licensing fees on IP it has used to Uber X that holds the intellectual property. That Uber X is probably located somewhere in one tax haven.

Let us assume that Uber makes $100 in Nigeria. It can consider “$70” to be fees the Nigerian unit must pay the Uber Netherlands or Uber Ireland (usually the place they run the double dip, like double Irish before it was phased out). So, at the end, Uber could be making a profit of $1 in Nigeria. Then, the Nigerian government will get the tax based on that $1 profit. Doing that saves the company money as it has moved profit it could have paid Nigeria to a tax haven where no one will tax it.

Nigeria has an agency that manages this complicated IP and revenue issue. The agency is National Office for Technology Acquisition and Promotion (NOTAP). NOTAP has to approve many things before companies can repatriate funds back to their home countries or outside subsidiaries.

It has been the normal: move profits to tax haven. Digital companies have abused the tax flexibility. You have a situation where a company opens a post office address in one country to hold intellectual property used to operate in another country (the real or operating country) just to deprive the real country tax benefits. It hurts the real country and makes public finance unmanageable. The facilities have been used for the services, but the corporations are not bringing tax funds to support their maintenance. All the money saved via tax engineering goes to the companies, making already rich billionaires richer. That is not a roadmap for the future of the world, and that is why what EU is planning will be important.

From Reuters, France is attempting to persuade the EU to hike Google’s taxes. It will not be only Google. They will expand this to every digital business.  The French finance minister Bruno Le Maire will work to get other colleagues to  tax tech firms based on revenue, not profit. Historically, EU has taxed on profit, not revenue. This meeting will hold on  Saturday in Tallinn, Estonia.

Germany, Italy and Spain have already signed onto a French proposal that digital multinationals such as those two leading companies should be taxed in Europe based on their revenues, rather than only profits as at present.

Currently such companies are often taxed on profits booked by subsidiaries in low-tax countries like Ireland, even though the bulk of their sales comes from other EU countries….

Technical discussions would have to focus on defining how much revenue comes from a given country and what rate to use, a second ministry source said, suggesting that the rate would be of the order of several percentage points.

What This Will Mean

If this deal goes through, the following will happen:

• Revenue will be recognized in the “real or operating country”  where it happens. For example, in the case above, Uber will have gotten a revenue of $100 from Nigeria. The tax will be levied on that revenue, assuming that Nigeria implements the same tax structure
• The concept of licensing intellectual property (IP) will be muted. That means Google Nigeria will not have to pay license to Alphabet (yes. Google) to make money through Alphabet IPs which are used in Nigeria. The country will tax Google based on the revenue and Alphabet will be deprived of the IP licensing fees from its subsidiary in Nigeria
• Many countries will cut-off local subsidiaries and country operations. To avoid being local, Google may decide to close Google Nigeria, serving Nigeria from U.S. to avoid being classified as local. That way it does not have to pay for revenue which is generated from Nigeria. That means, many technology firms will have many countries served from their headquarters to avoid classifying revenue as being earned locally. This decision could be catastrophic for local jobs.
• Tax payment will be simplified but pursuit of revenue clouded. This is obvious when you tax revenue. For the profit-based taxation, you do not care how much your company spends to get that revenue, because it will deduct it pre-tax. (Sure, you do care because you need to keep expenses low. But I hope you get the argument.) But if you tax revenue, many things will change. The implication is that every digital company will fear revenue. Why? If you know that having extra 10 marketing staff will get you extra revenue and you cannot deduct the expenses from those extra manpower, you may think again as you pursue that growth.

All Together

It will be a very huge dislocation in global commerce to tax revenue and not profit. Taxing revenue will make companies afraid to pursue revenue by all means. It can hurt the world because innovation will be stifled. Also, the model of taxing revenue will also destroy the fundamental element of capitalism which is that IP has to be paid for. If you tax revenue without allowing the company to take money home to fund new ideas, very soon, it will lack motivation and resources to innovate.

Yet, global technology companies have not been fair. They need to understand that the world has changed. You cannot allow a post office box to make more profit than you make from a whole country. The fact that you do it is the very reason why this change is coming. Whether France/EU does it this year or not, the future is one that will tax revenue because innovation and AI (artificial intelligence) will keep many people out of work. Government needs more money to settle them to avoid a breakdown of the global order. As EU takes a look, I expect the African Union to also consider its options.