Nigerian banks embrace fintech to compete with digital challengers

By Alexander Chiejina.

The Nigerian banking landscape is undergoing a profound transformation as traditional banks adapt to the rising tide of digital innovation. Faced with increasing competition from nimble digital banks, traditional Nigerian banks are investing heavily in fintech solutions to stay relevant and competitive. This shift is not just about survival, it is about ensuring that Nigerian banks can provide innovative and convenient services to meet the evolving needs of their customers in a rapidly changing financial landscape.

Digital banks, also known as neobanks or challenger banks, are financial institutions that operate solely online. They offer a range of banking services, from savings accounts to loans, without the need for physical branches. 

These banks have gained popularity worldwide for their user-friendly interfaces, lower fees, and faster transactions. They are attracting a younger, tech-savvy customer base that values the convenience of banking from their smartphones.

This shift has traditional banks sitting up and taking notice. A handful of the countless companies that operate as fintechs in Nigeria today include microfinance banks, mobile money providers, payment service banks (PSBs), and financing companies. In addition to more seasoned competitors like Quickteller, eTranzact, and Paga, well-known names like Cowrywise, Flutterwave, Paystack, Risevest, Renmoney, Bamboo, Fundall, Carbon, Zedvance and Page Financials, have joined the fray. 

Since the two largest mobile phone providers in the country, MTN Nigeria and Airtel Africa, received their payment-service banking licences, all four of Nigeria’s operating phone networks now offer some banking services, further agitating the financial services industry. Airtel has its Smartcash, while MTN already offers MoMo payments. Money Master is run by Globacom, the third-largest network, and 9PSB is run by 9Mobile.

Recently, Stanbic IBTC declared that it had been granted a licence for a payments business. In a market where businesses like Quickteller, Paystack, Flutterwave, Opay, and Paga have already had success, this will allow it to compete. Although Quickteller, a division of Interswitch that was created in 2002, has been around longer, Paystack and Flutterwave, both founded after 2015, seem to have made the most progress in the shortest amount of time.

The competitive landscape

To remain competitive, traditional Nigerian banks are not merely observing the rise of digital banks; they are actively participating in the fintech revolution. Below is how traditional banks are embracing fintech solutions to compete effectively:

Digital Banking Platforms

Many traditional banks are launching their digital banking platforms. These platforms mimic the user-friendly interfaces of digital banks, enabling customers to open accounts, make payments, and access loans online. Guaranty Trust Bank’s “Habari” and Access Bank’s “XclusivePlus” are examples of such offerings.

Mobile Banking Apps

Banks are investing in robust mobile apps that provide a wide range of services, from checking balances to investing in stocks. These apps are designed to enhance the customer experience, making it easy for users to manage their finances on the go.

Partnership with Fintech Startups 

Nigerian banks are partnering with fintech startups to offer innovative products and services. For instance, Sterling Bank collaborated with the fintech company Paystack, to improve its payment processing capabilities.

Embracing blockchain and cryptocurrencies 

Some banks are exploring the potential of blockchain technology and cryptocurrencies. These technologies can improve the efficiency and security of financial transactions. Union Bank, for instance, has shown interest in blockchain technology.

Enhanced Customer Service 

Traditional banks are using chatbots and artificial intelligence to provide better customer service. Chatbots can answer customer queries promptly and accurately, improving the overall banking experience.

Digital lending

Banks are offering digital lending services, allowing customers to apply for loans online quickly. Fidelity Bank’s “Fidelity FastLoan” is an example of this trend.

Wealth management apps

Wealth management services are becoming increasingly digitised. Banks are developing apps that help customers invest in stocks, bonds, and other financial instruments with ease. Zenith Bank’s “Zenith Invest” is one such platform.

Experts view

There are benefits to traditional banks as well. FinTech services, on the other hand, are made to fill in certain market shortages; they often cater to a larger audience. Even among Millennials, a sizable portion of consumers are not necessarily enthused about utilising various providers to manage their savings, borrow money, invest, and plan their retirement. The touchpoints that result in the formation of trustworthy relationships are further restricted by the narrow focus that FinTechs normally have. The fact that the majority of FinTech companies seek to restrict their interactions with customers to purely digital channels makes this task in Africa much more difficult.

Foluso Aribisala, managing partner and chief executive officer, Workforce Group, noted that traditional banks currently sit on decades of customer data that, if mined, can provide valuable behavioural and predictive insight capable of levelling the playing field. But this would require that they develop their big-data analytics capabilities and become maths houses like the tech giants.

Many FinTechs also have trouble shifting from a technology-focused to a business- and client-focused mindset. A successful business does not always have excellent technology. In order to compete with banks, fintechs will need to develop an effective strategy and operating model, raise enormous amounts of funding, acquire competent individuals to run their business, adopt creative marketing strategies to gain awareness, and equally engage in customer support and service. On the other hand, banks must place a high priority on hiring the proper tech personnel who can assist with both digitisation and understanding their massive data resources, Aribisala, explained.

Aribisala continued: “In order to compete with other FinTech players and industry peers for customer wallet share, banks would also do well to identify new revenue streams by leveraging their current assets, particularly in less competitive markets that are opening, like agent banking, SME lending, non-Interest banking, and credit at the point of commerce. As an alternative, banks can think about buying or collaborating with FinTech companies. Instead of starting the process from scratch, this would enable them to integrate and drive innovation more quickly.”

In order to compete favourably with fintechs and stay relevant, the Association of Corporate Affairs Managers of Banks (ACAMB) has advised established financial institutions to embrace innovation and adapt to a changing environment.

The recommendation was made by Rasheed Bolarinwa, the ACAMB president, at the association’s recent National Stakeholder Conference in Lagos. Speaking on the topic of “Marketing Financial Services in Dynamic Times,” Bolarinwa asserted that the fintechs are posing a threat to the banks by using technology to revolutionise the financial sector.

He asserts that in order to thrive in the present ecosystem, conventional banks will need to stay up with the most recent technological advancements.

The road ahead

The future of Nigerian banking lies in a harmonious blend of traditional banking expertise and fintech innovation. By combining their extensive customer bases and experience with the agility and innovation of fintech, Nigerian banks can not only compete with digital challengers but also thrive in an increasingly digital world.

As technology continues to advance and customer expectations evolve, the race to embrace fintech solutions will only intensify. Nigerian banks that invest wisely in digital transformation are poised to lead the way in delivering cutting-edge financial services that benefit both their businesses and their customers. The future of Nigerian banking lies in a balanced integration of traditional banking expertise with fintech innovation, ensuring that customers receive convenient, innovative, and secure financial services in a rapidly changing digital landscape.