By Uche Nworah, Ph.D
One does not need to be a soothsayer to conclude that the new digital banks are eating the breakfast of the big banks in Nigeria, especially in retail banking. The big banks continue to hold the ace in corporate and investment banking, but for how long?
The apps and payment systems of the new digital banks seem to work better. We noticed this during the 2023 Naira currency crunch when the online portals of most of the big banks collapsed, and people couldn’t do transactions timely. During this time, the portals of the new digital banks worked almost seamlessly.
Many argue that the traditional banks have suffered massive human capital losses from ‘japaing’ (migrating) staff, but then one wonders, where are the digital banks getting their own staff from? It has also been observed that the big traditional banks have challenges attracting and retaining staff. The Gen Zs find today’s traditional banking work boring and ‘suffocating’, and the compensation very poor. The ‘boiler room’ work environment, dress code etc are also not appealing to them.
There is a bigger threat to the business of the big banks. Nigeria’s thriving informal business sector appear to patronize the new digital banks more. Most small and medium enterprises (SMEs), artisans, students and others now have digital bank accounts. One wonders if the big banks are worried about this development, and what they are doing about it it.
The preference for the digital banks could be because of the ease of opening accounts, low charges (sometimes zero cost of transactions – COTs), easy access to loans and convenience (24-7 banking). Their operational costs are lower unlike the big banks who have offices all over the country, and also have huge cost profiles. The digital banks are able to pass on the savings from not running bricks and mortars offices (diesel, rent, staff related costs etc) to customers, by way of improved customer service and investment in technology etc.
Technology has opened up the retail banking space for Micro-Finance banks to play in, and compete with the big banks. Not many know that Kuda is a Microfinance bank. The Managing Director of Primera Microfinance Bank, Unwana Esang, had recently, through his Facebook page, announced that the bank had received full approval to begin digital lending. Their entry into the digital lending space, likewise the entry of others in the pipeline will increase the competitive pressure on the big traditional banks.
As confidence soars for digital banks, the older banks need to go back to the drawing board, maybe consider acquiring already established digital banks, or set up subsidiaries if their existing structure continues to hinder them from competing effectively in the digital banking space.
The regulators should also ensure that regulatory controls for the digital banks are monitored regularly, to prevent any from going burst, and eroding the confidence already building in the sector.
What’s the outlook? There will always be traditional banks but not in the scale we have them today on high streets and street corners. There will be massive bank closures, as a result of the need to save costs as technology will increasingly play a bigger role. Already in the United Kingdom, Banks and building societies have closed, or have scheduled to close, a total of 5,579 branches since January 2015. Australian banks have also announced that cash withdrawals from ATMs will soon be a thing of the past. The future is cashless and digital, Nigerian banks should brace up for the future.
Nworah, a former banker can be contacted via uchenworah@yahoo.com