Are Most Large Nigerian Commercial Banks Building Their Own FinTechs?
In October 2022, the Central Bank of Nigeria (CBN) announced a nationwide denomination change and imposed stringent weekly cash withdrawal limits to promote the adoption of digital currencies. The decision was made due to the alarmingly low percentage of local currency held in Nigerian banks, with only 20% held by commercial banks. This has revived concerns about the safety and stability of the country’s financial system. The new policy allows individuals to withdraw only 100,000 nairas weekly, causing widespread outrage and discussions about the country’s financial future.
The CBN’s recent measures have impacted the overall dynamics of digital banking in Nigeria as the push for digital payments has intensified. With the reduction in cash withdrawal limits and the renewed focus on digital currencies, commercial banks in Nigeria have been forced to ramp up their efforts to build their own fintech platforms. The move towards a cashless society has accelerated, and traditional banks are now investing in digital banking technologies and partnerships to remain competitive.
The Changing Dynamics of Banking in Nigeria
Standard banks in Nigeria have been striving to adapt to the aftermath of the CBN’s recent measures. To stay relevant in the increasingly digitalized market, many traditional banks have invested in their own fintech platforms or formed strategic partnerships with existing fintech companies. For example, Guaranty Trust Bank (GTB) has launched its digital banking platform, Habari, to provide customers with a seamless and comprehensive digital banking experience.
Large commercial brick-and-mortar banks in Nigeria recognize the importance of creating new strategies to address new lines of customers, especially the unbanked. With a significant portion of the Nigerian population still excluded from the formal financial system, there is a vast untapped market for financial institutions that can provide accessible and affordable financial services.
To address this gap, many commercial banks are launching digital platforms that are more affordable and convenient than traditional banking services. Some banks are leveraging technology to expand their reach to remote and underserved areas, using mobile banking agents and digital banking solutions that require little to no infrastructure. They aim to unlock new growth opportunities while promoting financial inclusion and driving economic growth.
Despite these efforts, the sudden reduction in cash withdrawal limits has impacted many standard banks’ operations, leading to longer queues and customer dissatisfaction. Nevertheless, it remains clear that the shift towards digital banking is irreversible, and standard banks must continue to adapt and innovate to meet the changing needs of Nigerian consumers.
What is the Way Forward for Standard Banks?
Some standard commercial banks in Nigeria have already created or established their own subsidiaries of fintech to provide more digital-driven approaches to their customers. To achieve this, some banks have acquired Payment Service Bank (PSB) licenses or Microfinance Bank (MFB) licenses, allowing them to create nimble and autonomous organizations that can operate independently from the main bank. By doing so, these banks can leverage the latest technologies to provide faster, more innovative, and more personalized financial services to their customers, including those currently excluded from the formal financial system.
Technologies such as artificial intelligence (AI), blockchain, and the Internet of Things (IoT) are becoming a crucial part of these efforts, enabling banks to create more efficient and secure financial services that can better meet the needs of their customers. AI-powered chatbots, for example, can provide 24/7 customer support and personalized financial advice, while blockchain can enable faster and more secure cross-border payments. The IoT can also create innovative financial products and services, such as insurance policies, based on real-time data from connected devices.
In short, establishing fintech subsidiaries represents a significant shift in the country’s financial landscape. As the digital transformation of the financial industry continues to accelerate, more banks in Nigeria will likely follow this path, driving greater innovation and competition in the financial sector.
Fintech Subsidiaries: A Trend or a Passing Wave?
The establishment of fintech subsidiaries by Nigerian commercial banks is gaining momentum as banks adopt digital-driven approaches to provide better customer financial services. Several major Nigerian commercial banks, including UBA, GT Bank, and Stanbic, have already started this pursuit. While this trend is still in its early stages, it raises the question of whether other major banks in Nigeria will follow suit.
The pressure to compete and keep up with the financial industry’s digital transformation may push other banks to consider similar strategies. However, there are also concerns about the potential risks and challenges, including regulatory compliance, cybersecurity, and the need for significant investments in technology and talent. Some banks may also prefer to partner with existing fintech startups rather than create their own subsidiaries. Whatever the outcome, establishing fintech subsidiaries by Nigerian commercial banks is a trend worth watching as it could potentially reshape the financial industry in the country.
Here’s How VeriCash Offers a Helping Hand
With the need for innovative and agile digital-driven approaches, it is essential to have the right technology tools and solutions to enable these new organizations to go to market quickly and efficiently. With our fintech enablement platform, Vericash provides an all-in-one solution that enables these new establishments to quickly go to market and design their financial services and features with full control and flexibility. Our platform empowers these organizations with cutting-edge technology tools to address different customer segments and provide superior customer experiences.
With Vericash’s fintech enablement platform, Nigerian commercial banks can confidently establish their fintech subsidiaries, knowing they have a partner that provides the necessary technology tools and support to succeed. We believe that by enabling versatility in the financial industry, we can empower more Nigerians to access financial services and contribute to the growth of the country’s economy.
The Takeaway
Based on the current trend and the success stories of early adopters such as UBA, GT Bank, and Stanbic, it seems likely that more large commercial banks in Nigeria will explore establishing fintech subsidiaries as a strategic direction to expand their customer base and stay competitive in the digital age.
While there are potential risks and challenges associated with this approach, the benefits of innovation, agility, and better customer experiences may outweigh the costs. As the fintech industry in Nigeria continues to evolve, it will be interesting to see how banks adapt to new opportunities and challenges and whether they embrace digital transformation to drive growth and customer satisfaction.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.