The Illusion of Nigeria’s Banking Disruption by Fintech

The Illusion of Nigeria’s Banking Disruption by Fintech

If you count the number of times you find the word “disruption” within a sentence containing “fintech in Africa”, you will think that disruption is a lottery number, to join the elusive African middle class. The conversation centers on mPesa, the Kenya’s mobile money transfer ecosystem, and how it has redesigned Kenya’s economic architecture. Quickly, just like that, everyone is extrapolating that Africa will experience the same.

This is an illusion: It will take a really long time for fintech to disrupt most African economies. However, fintech can provide sustaining innovation in Africa.

A Disruptive innovation is one that changes the basis of competition in an industry – for example in watches, Swatch change the basis of competition from accuracy to fashion. A sustaining innovation is one that perpetuates the current dimensions of performance – for example, Intel developing faster and faster chip speed.

In Africa, the fintechs are innovating, but they are not disruptive, across most of the markets. That you make it easier to send money in 24 hours, instead of 48 hours, does not mean you are disruptive. That you can make it easier to receive payments via better websites over what the banks offer is not disruptive; you are simply improving the process.

The Kenya mPesa Case

Kenya is unique because mPesa was actually a disruptive product. It drastically offered a new way of moving money, not improving how it was done hitherto. mPesa did not work to reduce the time to move money from one bank in Kenya to another; it offered an entirely new concept, through mobile devices. It changed the basis of competition. It worked, because the banks did not anticipate that. I call mPesa a perception product which offered value beyond needs and expectations of Kenyan citizens.


But what happened was as soon as mPesa changed Kenya, most African banks redesigned their business processes. They were ready to chip out most of the values mPesa offered to Kenyan citizens which the banks, then, did not anticipate. So, if you try mPesa in South Africa, it would be a wasteful endeavor because South African banks had already advanced beyond the perceived values of mPesa. Or better, the economic structure of South Africa was well advanced for mPesa to add much value. Simply, mPesa failed in South Africa.

Mobile phone usage is high – nine in 10 South Africans own a mobile phone – and a third of these are smartphones, according to figures from the Pew Research Center. Yet South Africa has the most technologically advanced, financially liquid and accessible banking system on the continent.

Why Mobile Money Failed in Nigeria

Besides trust, which is a huge challenge in Digital Nigeria, the Nigerian banking sector, for those that have money, works. There is nothing mPesa offers that you cannot do on mobile apps and web apps. You can move money instantly in bank branches and send money to people via ATM instantly. As you chip out these benefits, the construct of mobile money does not make much sense to many people. People are fearful of Yahoo boys and lumping phones and money may not appeal to most of the citizens, irrespective of the promises you can make on your technology. Most of the pioneers of money money have seen pivoted, because the market did not welcome them.

CBN Governor Godwin Emefiele


Sure – mobile money could have worked. The problem was that mobile money came when banks had already provided substitutes for most of the values, it could have offered. Mobile money will surely benefit the poor and under-banked, but in Nigeria, those people are the least to trust that their bank accounts will be in the phones. The pillow with a loaded dane gun is a better option despite promises by the Central Bank and partners.

Sustaining Nigeria’s Financial Order

There is no firm that will kick the banks out of business soon – not even close. Sure – they will chip out some revenues, which must concern the banks. But at the end, the banks will be fine. The problem is that anything anyone introduces now can be quickly replicated by the banks, because you are “innovating” within the economic structures which enable present banking institution to function. They own the game and can define the future. That is why you cannot be disruptive.

But you can get your sustaining innovation by improving speed, efficiency and many other things to win some customers from them, but the system in Nigeria is one you cannot destabilize them.

The fintech startups are not working to extend service beyond those within the banking sector already. This means, they are fitting into the banking order. The under-banked and poorly served are not part of the equations. mPesa solved that problem, in Kenya, but the Nigerian fintechs are not thinking about that. Simply, they cannot disrupt GTBank, UBA, and all these great institutions by “plugging into their systems”. It will not happen.

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.

Disrupting Banking in Nigeria

You will notice that I have equated financial sector with banking sector. That is by purpose because we do not really have an insurance sector. So there is no need wasting space including insurance. For any fintech to disrupt the banking sector, that fintech has to build an entirely new architecture that is totally different from what we have today: a new basis of competition is a requirement.

The trade by barter was disruptive because cash offered an entirely  different system where you do not need to “find” or know a person to exchange goods and services. You can have a stranger pay with cash unlike looking for a neighbor interested in your goods to exchange by barter. That was disruptive, a new path was created.

In Nigerian banking, someone can create a system where the under-banked citizens may not have to do anything with banks to do banking. Once that is done, you can systematically chip out the people in the banking system. Over time, the banks will know what has fallen them. But right now, what is happening is that fintechs are starting with what the banks are doing and that cannot disrupt them.

Rounding Up

Disruption requires the change of the basis of competition. It is like digital cameras to film cameras (think Kodak). The digital cameras did not even care if there was anything like film in the world: it pioneered a new path. Google disrupted the physical directory business by creating an alternative path without making better papers. When Amazon took down the bookshops, it did not build better bookshops, it changed the basis of competition – digital purchase. For the fintech to take down and disrupt Nigerian banks, they must change the basis of competition. At the moment, they are sustaining innovators which are fortunate the incumbents are not doing what they are doing.


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17 thoughts on “The Illusion of Nigeria’s Banking Disruption by Fintech

  1. Well said. Fintech is a fad these days and like other fads before it, would fade into obscurity. Furthermore, it seems these wannabe pop stars throw around disruption just for the sake of doing so – are they offering value?

    Banks shouldn’t sit pretty though. While I may not be sure of who and what would upend their games, it’s likely that it would happen. I mean, businesses run for centuries and just a decade, it’s game over.

    1. The issue here is that in Nigeria, the best fintechs today are banks. That is the lesson. I am not sure anyone is doing finteching better than GTBank, UBA, Diamond, Access and others. These firms are redesigning themselves. Yet, as you noted, they cannot sleep.

  2. Mobile money is here actually…the USSD codes we use to transfer are just like mpesa. What is needed now is for businesses to display their accounts on receipts/invoices and allow their cashiers access to view the credit alert to ease payments. This helps when the POS fails and the MD is not around to confirm he has received alert. Imagine paying for stuff via *737# in a mall or at the amala joint. We still have a long way to go and I will posit that we are ripe for disruption.

    1. Nice one Mahdi. USSD is our mPesa but we need to have a kind of industry-level convergence so that it can be popular. Again, banks are leading this and not really fintechs as the author noted …/Bode

  3. Followed this article from LinkedIn.

    You have written the truth beautifully well. Forwarding this link to some of my Fintech friends; this should help them re-think/re-strategise.

    There seems to be multiplicity of function/platform in the name of ‘disruption’ and like you said, the Nigerian Banks understand the Fintech approach very well, and will never allow them succeed, at least not in the near future or until they begin to innovate outside of the economic structures that enable present banking institutions.
    Another factor that’s going well for the Nigerian Banks is availability funds and ability to immediately adopt (read buy off) any attempt to take them out of the market by startup fintechs.

  4. I read your post carefully but I really don’t agree totally with your position but all the same I appreciate your comments as they are making me to deep dive more into Fintechs’ disruptions in Nigeria to validate my convictions.

  5. Sure – but where do our insights diverge? I mean what is your position and how it differs from mine? The core of my argument is that the banks are fintechs themselves. So they will probably disrupt themselves.


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