Fintechs’ growing market share threatens banks’ dominance

By Tumininu Ojelabi Hassan

The growth of the Financial technology, Fintechs, with over 200 startups, is revolutionising the financial services industry. The sector raised about $440 million in investments in 2020 and more than $600 million in 2021, amounting to nearly a quarter of the total funds attracted by African tech startups.

According to the Nigerian Startup Ecosystem Report 2022 published by Disrupt Africa, Nigerian startups have raised a combined $2,068,709,445 between January 2015 and August 2022, a total amount higher than any other African country. This figure was culled from the raises of 383 tech startups. Fintech was the leading sector with more than one third (38%) tech-startups innovation.

The growth of fintechs in the past one year has been tremendous, which is evident in their significant customer base.

Interactions with some fintech users revealed that these Fintech platforms have given them no reason to be anxious about network issues as their apps function 24/7. Most especially, Opay and Palmpay have been acclaimed for relieving Nigerians of a prolonged period of unforeseen transaction failures.

In the report compiled by Similar Web, a web analytics company, both apps became the principal alternatives to mobile bank apps for money transfers and bill payments during the cash crisis. These apps were mostly used by merchants and agents to send and receive money due to the seamless transaction they offer to users.

Recently, Opay expressed its gratitude to millions of users for increased patronage in the last three months. The payment and financial service company disclosed that its customer base crossed over 30 million registered app users, as well as 500,000 agents and 100,000 merchants.

Recent developments in the banking sector over the naira redesign policy implemented by the CBN, which led to a cash crisis in the country, prompted a large percentage of Nigerians to resort to the use of electronic channels for financial transactions. Unfortunately, the increased dependence on mobile banking apps and USSD wrenched banks’ performance and put a strain on the already weakened Digital and IT infrastructure of banks.

Transactions took longer than usual and failed transactions were not resolved until after five working days or more, leaving many customers in distress. These events instigated the transition of a large number of bank customers, who were already frustrated due to the shortage of cash l, to Fintechs like Opay, Palmpay, Interswitch, Flutterwave, Kuda, Carbon, PocketApp, Moniepoint, Vbank, to mention but a few, which they revealed were more reliable and faster than traditional banks.

Indisputably, the transaction hitch experienced by bank customers was advantageous to fintechs, as the recent cash crunch skyrocketed their customer base, which they had struggled to build before the cash crunch.

Tajudeen Ishaq, a ride-hailing app driver while discussing with our correspondent, said his reason for switching to Opay was ascribed to the transaction glitch with his bank.

“I switched to Opay when I was experiencing failed transactions with my bank. Customers would send money to my account and I won’t get credited until after 48 hours. I never got some at all, on several occasions the customers claimed their accounts were debited without a reversal.

“When I couldn’t endure this anymore, I downloaded the Opay application and I haven’t had any payment issue since then. Transactions are super fast on the application with little charges. I receive money after few minutes of transaction and I do not have to worry about failed transaction anymore,” he stated.

Temitope Adenekan, a textile merchant at Tejuosho market, disclosed that her reason for choosing Palmpay over her bank was due to the fintech’s reliability and efficient services.

“Before naira scarcity, I was contemplating opening another bank account because I was tired of my bank’s constant network issue. The naira scarcity worsened the network issue, I could barely make financial transactions for weeks. Since I downloaded Palmpay, transaction on the app has been so fast and efficient. Palmpay is a life saver and it is reliable.

“I can sleep with my two eyes closed knowing that my money isn’t stuck somewhere due to network issues,” she explained.

Aside offering huge relief to Nigerians during the cash crunch, Fintechs are instrumental to promoting financial inclusion, as Nigerians can now open an account with ease using their smartphones unlike the traditional banks, where proper documentation is required to open an account.

Peter Eze, a trader at the Tejuosho market, who is a user of Opay and Carbon apps became a big fan of these apps after he opened accounts without going to the bank and requesting for Valid ID card, Utility bill. Eze disclosed that Opay and Carbon had helped his business grow, as he could receive transfers from customers without delays coupled with his access to loans facilities

A report compiled by PwC titled “Growing the Nigerian Technology Ecosystem through the Capital Markets,” reveals that the number of tech start-ups securing funding in Africa has grown by 1087% from 55 in 2015 to 653 in 2022, while total equity funding raised annually increased by 1673% from $277 million to $4.9 billion in the same period.

According to this report, Nigeria is one of Africa’s established startup ecosystems. Interestingly, The fintech sub-sector has the biggest share of the number of Nigerian tech start-ups at 36% with payments and consumer lending being the focus of almost half of the sub-sector.

The report further reveals that insufficient banking services (particularly in rural areas), a young population, increasing smartphone usage and regulatory efforts to increase financial inclusion have created advantageous openings for fintechs. These Fintechs have jumped at the chance to provide improved propositions across the value chain to address problems with affordable payments, quick loans and flexible savings and investments, among others.

In addition, a report by PwC titled “Changing competitive landscape: Fintech and the Banking Sector in Nigeria” reveals that over the past eight years (2011-2018), fintech investments in Nigeria recorded more than $200 million.

“In Nigeria, Africa’s second largest technology hub, investors are taking positions or stakes in the country’s growing tech ecosystem fueled by attractive fundamentals like the country’s youthful and tech-savvy population, increasing smartphone and internet penetration, large unbanked population, among other factors. Over the past eight years (2011-2018), fintech investments in Nigeria recorded more than US$200 million,” the report stated.

Traditional banks are seeking adaptive measures to catch up with the recent development, as fintechs have launched intrinsic innovations in the financial sector. One of the traditional banks, Wema bank, was the first to launch a digital bank- ALAT in 2017..

Wema bank’s 2022 audited financial statement revealed that the bank’s digital platform generated N6.1 billion in 2022, a 79% increase when compared with the N3.4 billion the bank generated from electronic channels in 2021. Also, ALAT recorded a 131% increase in the number of customers onboarded in 2022.

GTCO’s Habari Pay performs its operations through Squad. Squad, which began operations in June 2022 crossed N200 billion in monthly transactions in January 2023. Squad recorded a profit before tax of N926 million in the first six months of its operations, while its revenue stood at N1.52 billion.

Between June and December 2022, GTCO said Squad generated a total of N139.3 billion through its Gateway and switching system, while international payments transactions within the period stood at $175,927. Squad’s first-quarter 2023 report shows it has made even more money from when it was founded till date.

The company said its gateway and switching business generated N1.15 trillion, averaging 965% growth since inception. International payment revenue has now grown to $699,535 in the same period.

Speaking recently at the bank’s AGM, the Group Managing Director, GTCO, Mr. Segun Agbaje, dismissed the fear that Fintechs constitute any major threat to banks, insisting that such fear is unfounded and unsupported by statistics of performance by both organisations.

Nonetheless, as the fintech sub-sector is evolving and gaining momentum, traditional financial institutions must step up their game to remain at the forefront of financial services and seize this window of opportunity to position themselves as the top choice in this race. Banks must bridge the gap between traditional and digital banking, by either initiating an innovative, digitalized and more accessible approach to meet the expectations of the 21st century customers, partner with fintechs or face being sidelined, as superannuated banks.