…as DMBs consolidate hold on corporate banking
By AYOOLA OLAOLUWA
An intense and firce battle is currently going on between Deposits Money Banks (DMBs) and payment firms for the control of the nation’s retail banking market, Business Hallmark findings can reveal.
According to Investopedia, the world’s leading source of financial content on the web, retail banking, also known as consumer or personal banking, is banking that provides financial services to individual consumers rather than businesses.
Through retail banking, individual consumers manage their money, have access to credit, and deposit their money in a secure manner. Services offered by retail banks include checking and savings accounts, mortgages, personal loans, bills payment, credit cards, and certificates of deposit, among many others.
And for over 100 years, DMBs had dominated the nation’s retail banking space until the incursions of payment firms starting from the early 20s.
With advancement in digital technologies, many fintech companies started providing all the services as retail banks through internet platforms and smartphone apps.
In just over ten years, the fintech/payments firms, BH findings revealed, have largely displaced traditional banks as the major players in the retail banking sector. While traditional banks still hold tightly to corporate banking services provided only to small or large companies and corporate bodies.
“They (payments firms) are not contended with stealing a chunk of the retail market from commercials banks, but are daily displacing the banks and installing themselves as the new retail kings”, lamented an investment banker in one of the nation’s first generation banks.
Some of the payments firms giving traditiomal banks a run for their money include Flutterwave, Opay, Remitta, Kuda, Konga, Paga, Carbon, Paystack, Interswitch, MoMo, Unified Payment and many others.
According to available information, the likes of Opay, Flutterwave, Paga, MoMo and others had accounted for over 60 per cent of the nation’s retail transactions in the last two years.
For instance, in the first quarter of 2020, payments firms accounted for 60% (N102.4 billion) of the total value of mobile transactions of N172.1 billion, with traditional banks accounting for the remaining 40%.
In contrast, the most successful traditional bank in mobile banking, GTBank, was only able to rake in N5.6 billion in revenue for by the first half of 2020.
The uncrowned but undisputed leader, Opay, BH findings revealed, currently processes about 80 percent of bank transfers among mobile money operators in Nigeria and 20 percent of non-merchant point of sales transactions.
Another payments firm, Paga, has been able to corner a major share of the mobile payment business through the deployment of multiple kiosks accross the country, particularly in neighbourhoods where banks or Automated Teller Machines (ATMs) are not available.
While a sizeable number of Paga customers who are computer literate use the firm’s mobile app to transact business, thousands of others who are uneducated visit its kiosks to pay bills (including energy and Cable TV) and transfer money by handing over cash to agents. The firm currently has over 15 million users on its platform.
Paga has managed a near-nationwide coverage by partnering with Nigeria’s Postal Service (NIPOST). This partnership affords them an outlet in each of the 774 local government areas in Nigeria.
According to Paga, another reason for Nigeria’s cash dependency is that banks and telecoms providers don’t want technology start-ups moving in on their turf.
“Operators, particularly mobile operators, were blocking us from having access to their networks because they wanted to be the ones to offer mobile money.
“In fact, regulations were so tight that you couldn’t transfer amounts over $10 without submitting a paper document.
“The breakthrough, however, came in 2017 when we finally got access, and I think the story of mobile money has changed and is going to pick up over the next few years,,” noted Tayo Oviosu, Paga’s founder and chief executive officer.
Kongapay is another payments platform that has taken the nation by storm. The firm was set up to help merchants and buyers transact more fluidly. The platform had integrations with major Nigerian banks like GTB and Zenith.
With Konga platform, a buyer could draw money from multiple bank accounts to fund their KongaPay account. Buyers could also pay-out into many bank accounts.
KongaPay has expanded even further by becoming a platform to pay bills. It’s about the earliest second-generation merchant payment-processor after the likes of Interswitch.
Apart from taking retail banking like making deposits and withdrawals to the doors of many Nigerians, particularly the unbanked, another factor that is driving the expasion of payment firms into the nation’s retail banking space, is the difficulty experienced by individuals and small businesses in obtaining retail loans from traditional banks, a void the newcomers are filling.
According to a report by Proshare, big banks like UBA, Zenith Bank and Union Bank, First Bank, have provided less than 51% of their deposits as loans in the last two years.
While it is quite difficult for individuals and small businesses to get loans from traditional banks, fintechs have simplified the lending process, allowing applicants to obtain loans within minutes.
The battle is expected to intensify with the recent approval granted to three new Payment Service Banks (PSBs) by the Central Bank of Nigeria (CBN).
The three new PSBs given licenses on August 27, 2020. are Hope PSB, a subsidiary of Unified Payments, one of Nigeria’s oldest fintech firms; Moneymaster PSB, a subsidiary of Glo, Nigeria’s second-largest telecom company; and 9PSB, a subsidiary of 9mobile, a telecom company.
Nigeria’s largest telco, MTN, currently operates a mobile money service, while waiting for its PSB licence from CBN.
With the requirement that the licensees must have at least 25% physical access points in rural areas where they must maintain ATMs and point of sale devices, traditional banks are expected to lose more ground.
Payment firms are also riding on the upsurge in e-commerce adoption by Nigerians who make payment through digital platforms. For instance, some of the 27 percent of payments in online retail in the country in 2021 were by cards, with cash and bank transfers the second most common payment methods.
The nation’s e-commerce has become a major battlefield for payment companies with the players pushing the adoption of online commerce to the limit.
According to Statista, revenue in the e-commerce market which peaked at $6.128 billion in 2021, is expected to show an annual growth rate of 11.8 percent, resulting in a projected market volume of $9.567 billion by 2025.
Meanwhile, traditional banks are not just surrendering to the onslaught but fighting back to regain control of the growing payment market currently in the clutches of fintech firms.
For instance, some banks, including Access Bank, Sterling and GTBank have developed their own digital lending platforms. The leader, GTBank unveiled QuickCredit, a platform that offers instant loans with an interest rate of 1.75% monthly (21% annually) in 2018, while Sterling Bank had also in February 2018, launched its own digital lending platform called Specta.
GTBank also owns a couple of payment offerings in the likes of QuickCredit like GTPay, a payment gateway, GTCollections, a payment aggregator, and Habari, its e-commerce super-app waiting to be repackaged and unleashed on the market. It is also building its own payment infrastructure.
The bank has also been dominant in payment channels such as Unstructured Supplementary System Data (USSD). Its *737# code brought the technology into the limelight as a payment channel.
According to the bank, its USSD segment reached 356.4 million in volume in the first half of 2020.
However, the total revenue from USSD service declined by 32.2 percent following the reduction in transfer fees to N10 for transactions below N5,000, by the CBN. In spite of this, GTBank welcomed 600,000 new USSD customers and has seen 356 million unique USSD transactions carried out by 5.4 million active users as of June 2020.
On the other hand, Sterling Bank’s Specta, which is very popular among Nigerians, employs it own credit scoring engine to calculate the creditworthiness of borrowers and issues loans and accompanying interests based on that engine.
Tailored loans ranging from payday loans to rent, wedding loans are available through Specta. Meanwhile, its loans come with interest of between 22% and 28%.
The icing on the cake is thst loans on the Specta platform is not restricted to Sterling Bank customers, but available to all banks customers.
Checks revealed that Specta has provided over N40 billion ($100 million) loans to customers across the country since it was launched over four years ago.
Also, traditional banks have expanded their mobile/digital banking platforms. For instance, FirstMonie owned by First Bank presently has over 40,000 banking agents spread across the country.
Speaking on the development, the Managing Director of Sterling Bank Plc., Abubakar Suleiman, blamed the inability of banks to compete favourably with payments firms in the retail banking sector on the technological gap between them.
“First of all, if you (banks) have not digitized the lending process, it is very expensive to lend manually to individuals because the workforce you need would have to be sizeable.
“Meanwhile, with manual, the same workforce could be used to do large corporate lending at a cheaper cost per unit.
“Another reason is absence of real data. We (banks) just did not have authentic data, we just did not have identity system – and all of these are critical to lending.
“So if somebody were to take a loan and not pay, the process of trying to recover the loan is so tedious,” Suleiman noted.
Also speaking, the Managing Director/Chief Executive Officer, Coronation Merchant Bank, Banjo Adegbohungbe, see payment firms as very fierce competitors and possible threat if banks do not respond appropriately respond to the realities of the times.
“The business model of banking has evolved very rapidly even before the ascension of the licensed payment firms and that evolution is ongoing.
“The question is whether the pace at which the banks are transforming is strong enough to address the fierce competition brought on by licensed payment firms.
“This battle is currently being fought particularly in the retail space. I expect that this competition will extend over time into the corporate space as well.
“The business model of the future is one that can deliver customer satisfaction at the lowest cost to serve and that is the race that both the banks and the licensed payment firms are striving to win.

 

 

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