Fintechs: Friend or Foe?

With the recent statement made by the CBN governor, what role do fintechs play within the Nigerian ecosystem?

“Fintech is a threat to the nation’s banking industry”

The preceding statement, made by the CBN Governor at the investiture ceremony of the Chartered Institute of Bankers, literally threw the financial services ecosystem into a frenzy.

This is a puzzling statement coming from the highest ranking official of the governing bank especially in light of Nigeria’s brief history with financial technology (fintech) firms.

The global financial crises as well as the increasing number of redundant city workers can be attributed to the evolution of fintech firms. Adopting digital technologies and business models, these new businesses led financial services innovation, developing new products and services.

Likewise in Nigeria, since the entry of fintech into the financial services sector, the ecosystem has recorded significant progress in the areas of payments and the underlying infrastructure. Organisations like Interswitch and recent entrants such as Paystack and Flutterwave have complemented the industry, and in the process empowered thousands of Nigerians with the tools they need to drive the economy. In addition, their ability to attract capital has contributed to the quota of foreign direct investments in the country. Only last week, Lidya, the MSME lending platform, raised $6.9 million in Series A funding.

Hence, it is safe to say that the entry of fintechs into the Nigerian banking sector was the dose of adrenaline the sector needed and has resulted in a win-win scenario for the ecosystem.

So, how then can fintechs be regarded as threats or should they not be perceived as friends? In this piece we share opinions on some contrary arguments.

In a bid not to be outdone on their own turf, traditional financial institutions (especially the banks) have also upped their game, adopting digital technology on most fronts of their service delivery. The positive side of this intrusion into the ecosystem has served as a wakeup call to the banks and the need to focus on innovation. ALAT, the digital bank powered by Wema Bank is a roaring example of such innovation. This realisation is spreading to other banks and resulted in the establishment of innovation spaces like the Access Bank Fintech Foundry.

Let’s talk about financial inclusion.

Fintechs have already proved their usefulness with the opportunities they bring in financial services, especially with their ability to reach the last mile and address financial inclusion. Looking at other emerging markets, fintechs have been central to the progress and success of attaining financial inclusion targets. Fintech firms provide traditional financial services (savings, loans, payments, fund transfer, insurance and investment) using innovative, low-cost technologies and business models. This is important because high cost of financial services has been a deterrent to financial inclusion and the industry is looking to lower the cost of delivering financial services to previously unbanked populations.

There have been several calls for forward thinking within the financial services industry, an industry that is notorious for its conservative approach to innovation and service delivery. The entry of fintechs into the banking sector, unbundled banking as a service. Most of the fintechs we see today focus on payments. This has led to a a lot of activity and innovation happening within and around that segment. Looking at the other aspects of banking as well as other financial services, we need more fintechs in areas like insurance, investment management and, financial advisory and so on; not less. The increased fintech penetration can unbundle those financial services and perhaps move the needle in terms of adoption and penetration.

What should be clear by now is that any nation that is determined to improve not only its banking sector but its entire financial services ecosystem, needs to embrace the fintech value proposition and create an enabling environment for them.

If the Central Bank is going to take a hostile stance towards fintechs, just how far does this stance extend? The line between technology companies, fintechs and run of the mill organisations blurs every day. This phenomenon is not unique to financial services, but is integral to the fourth industrial revolution and digital transformation. Telcos, who powered the penetration and adoption of mobile phones across the country and are today, one of Nigeria’s success stories, can also be considered fintechs since they have the capacity to lead the delivery of financial services, as they have in other countries like Ghana and Kenya. Google, Facebook, WeChat and co all provide financial services of some kind in other parts of the world. Paycom, creators of Opera Mini, one of the more popular web browsers in Nigeria, is rumored to be acquiring a Nigerian mobile money operator (MMO) in the coming weeks which will enable it also provide digital financial services.

In short, the fintechs are here, whether we want them or not.

Impact of statement

While the CBN cannot stop or let alone even control or tame the digital transformation wave, their statements and regulations can kill the mojo. Our fear with statements such as these is that it has the potential to influence investor confidence in the industry negatively. With fintechs being viewed as public enemy number one within the ecosystem, investors would be left dreading how this would influence future frameworks and guideline amendments the apex bank may be releasing in the coming weeks. Alternatively, could we flip the interpretation as a warning to the banks or their need to further up their ante?

The reality remains that fintechs continue to evolve in the financial service sector largely as a result of unmet customer needs, especially needs relating to financial access, convenience, remoteness, timeliness, low cost-to-use and the ease of use.

There’s a school of thought that says banking will change through collaboration and not the perceived disruption or threat posed by fintechs. Hence, rather than turf wars, what the ecosystem needs is collaboration.

The evolution of Nigerian financial services rests on how fast or how soon the ecosystem fosters collaborative relationships. Rather than build moats, what we need is for both parties to build bridges, come to the table bearing gifts, ready to dialog and figure out ways to leverage each other’s strengths.

“If you want to go far, go together.” — African Proverb

What are your thoughts on the CBN governor’s statement? And what’s your view on the role and future of fintechs in Nigeria?