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Banks face nightmare as customers move to Fintechs

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By Elizabeth Adegbesan

Despite the inherent risks, banks appear to be losing more customers to financial technology companies, Fintechs, as the later diversify into areas hitherto considered exclusive to the former.

Already the Nigerian Interbank Settlement System (NIBSS) latest reports have indicated that the declining trend in the number of current account persisted in January 2020 as bank customers closed 10,000 accounts during the month.

Analysis of the NIBSS Industry Statistics Data showed that the number of current accounts fell  to 25.27 million in January representing, 0.04 percent, month-month (MoM) decline when compared with 25.28 million recorded at the end of December 2019.

Earlier report by NIBSS had shown that the number of current accounts fell, MoM by 4.5 million or 15 percent   to 25.28 million in December 2019 from 29.8 million in November 2019.

Consequently, the banking industry has lost 4.51 million current accounts in two months.

Vanguard Money Digest investigations show that Fintechs are now going deeper into traditional commercial banking including taking deposits, giving loans in addition to their traditional area of payment services.

This is coming even as industry experts say while the risks are not covered by any insurance service or regulatory framework, the society is not yet ready for digital evolution.

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Last year the Enhancing Financial Innovation and Access (Efina) Fintech released a report which showed that the Nigeria is home to about 250 Fintech companies and 60 percent address payments and lending clusters.

In its Financial Outlook for 2020, Guarantee Trust Bank Plc, GTB, a leading commercial bank in Nigeria stated: “As regulation hinders robust earnings, non-bank competitors have continued to further deplete the already challenged earnings of commercial banks using asset-light technology to offer customers a bouquet of financial services across payment, lending and investment options.

“Put differently, the earnings of banks have come under pressure in the wake of licensed payment service banks (PSBs) and super-agents.

“In addition, the increase in fintechs and digital banks has also seen banks’ earnings take a blow.

“While we expect banks to respond appropriately to the threat posed by these fintechs, it is also important that banks make efforts to understand their business model with a view to adopting some of it to improve product offerings and enhance service delivery.”

Consequently, some banks including GTB have been responding to the new competition by opening access to their services at lower costs.

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Recently GTB sent email to its customers saying; “We are pleased to inform you that the interest rate on QuickCredit is now 1.33 percent monthly. This means that the effective interest rate on QuickCredit is now 16 percent per annum.”

Even the Microfinance banks, Mfbs, are not left out as they now offer quick loans with interest rates as low as 4.0 percent per month especially to salary earners within 24 hours but with the submission of relevant documents.

A Customer Service Manager of a Tier-1 bank, speaking to Vanguard Money Digest on condition of anonymity said: “People access loans from FinTechs  but I also tell them they should be careful with technology.

“Even those that gave it to us, it is not fool-proof in their environment despite the fact that their environment is more tech savvy than ours. Nigerians are just going into it blindly. This is a country that we are not ready for digital evolution. We don’t have any cyber unit in any law enforcement agency. We don’t. ”

Our rates and services are superior to those of the Fintechs.”

On his part, Oyedeji Oluwatimilehin, Corporate Innovation Strategist, InfoWARE Limited said: “This is inevitable as “Financial Companies” are beginning to leverage technology which is close to the heart of the working populace in Nigeria as at today.

“Whilst some banks offer a more comfortable interest because of the strict regulations by the regulating bodies, people prefer to take loans from FinTechs because of the perceived convenience.

“Most banks would readily keep their older customers. However, the younger generation might continue to remain comfortable with their FinTechs regardless of the Terms & Conditions which they never read anyway, as far as they have access to the internet.

“Should banks refuse to leverage on technology and collaboration, banks would lose customers to Fintechs as they come up with disruptive ideas.”

Also speaking to Vanguard Money Digest, Mr Okechukwu Uzorchukwu, a bank customer, however, said he prefer using his bank’s online  platform.

“I prefer using my bank’s online platform to access products and services because it is more convenient and safer. If there is any problem I can walk into a branch of my bank to resolve it.”

Mr. Eke Emmanuel, a bank customer, said he prefers using Fintechs for all his transactions except accessing loans.

“I use Fintechs to pay my bills, transfer money and buy airtime. When I tried using it to get loans it came out bad. I applied for N20, 000 loan and my account was credited with N1, 500. I couldn’t access the N20, 000 and don’t know why.”

Commenting on the development, Chief Executive Officer, Motion Yield Limited, Abiodun Oyelaja, said: “In the past, quite a number of people did not have access to loans from the conventional banks and other lending institutions. The commercial banks had rigorous security and documentation requirements, which imposed unnecessary delays and prevented access to credit facilities.

“Fintechs adopted procedures that made lending easy, fast and flexible to borrowers, such that a prospective borrower does not have to open any bank account before accessing loan. ‘‘They don’t just provide loans; they also provide solutions like bill payments, collections, delivery services, online shopping and data/airtime top up.

“In order to beat the fintech, the banks resorted to increasing their loan portfolio by giving out non-collateralized and soft loans.

“If the banks sustain the tempo, there will be an increase in their customer base, as the hitherto unbanked people will be brought onto their network and loans will also be provided to them. Reduced documentation and zero or minimal security or collateral will also increase the patronage of the banks.’’


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