To Stay Competitive, Banks Must Lead Through Innovation

E-Banking

American entrepreneur and inventor, late Steven Paul Jobs was unequivocal when he said “Innovation distinguishes between a leader and a follower”. For financial institutions operating in today’s complex environment, this maxim is merely stating the obvious. Innovation is exceptionally valuable as it offers new and compelling ways to capture new business and grow loyalty from consumers. To this end, Banks must continually deploy ground-breaking initiatives aimed at improving service delivery for customers around the world.

Today, a Deposit Money Bank (DMB) in Brazil which was encumbered by market restrictions has expanded well beyond traditional banking to provide customers concierge-type services, such as hotel booking or restaurant reservations. In Indonesia, 'floating banks' are capturing new customers by traveling to island populations. In Poland, clients can use a smartphone app to request a 'mobile Automated Teller Machine (ATM)' – housed within an electric BMW i3 – to come to them at a specified place and time.

On the other hand, Kenyan Banks are currently partnering with Mobile Network Operators (MNOs) to access credit risks of first-time bank customers. Unencumbered by market restrictions, a lender in Brazil has expanded well beyond traditional banking to provide customers concierge-type services, such as hotel booking or restaurant reservations. For Nigerian Banks to remain competitive, they must utilise technology to evolve into an inclusive lender offering innovative solutions well beyond mundane banking services.

Tackling The Menace Of Open Defecation

Open Defecation

Tope Balogun, an eighteen-year-old with remarkable singing abilities lies critically ill in a General Hospital just outside of Akure, the Ondo State capital. Balogun’s dream of one day touring the globe with his own brand of juju music seems rather unlikely as Doctors race against time to save his life. Balogun, an indigene of Ilara-Mokin, a town located in a central part of Ifedore Local Government Area (LGA) in Ondo State, is a big King Sunny Ade (KSA) admirer.

This aspiring musician was diagnosed with Cholera having contracted the deadly disease from drinking contaminated water. Will Tope live out his dreams? Will he bring joy to the world through music? Tope’s fate now hangs in a balance as he failed to seek medical attention on time. Interestingly, this contamination which now threaten Tope’s life and lives of many innocent Children in his community, is one of the major fallouts of open defecation.

So, what exactly is open defecation? To put it quite succinctly, it is the human practice of defecating outside (in the open environment) rather than into a lavatory. At the moment, Nigeria ranks second among nations with highest prevalence of open defecation. According to the United Nations International Children's Fund (UNICEF), open defecation remains a big challenge as only three of the 774 LGAs are open defecations free.

World Bank figures show that the Federal Government needs to invest about N2.88 trillion to effectively tackle the menace. Meanwhile, global health agencies have stressed that Nigeria, Africa’s most populous needs investment in open defecation to attain Goal 6 of the United Nation’s (UN) Sustainable Development Goals (SDGs) by 2030. In recent times, health practitioners have continued to voice their concern over open defecation.

They also emphasised the need for the government to initiate pragmatic measures to curb the unwholesome practice which could ignite an outbreak of deadly diseases. Ondo State under the leadership of Rotimi Akeredolu has broken the silence on open defecation and currently give sanitation the priority attention it deserves. In keeping with its promise to continually enhance the health and overall wellbeing of communities where it operates, Fidelity Bank recently donated three fully equipped sanitary facilities to the Ondo State Government.

The facilities constructed by the Bank at Aquinas College, Democracy Park and Arakale Motor Park, all in the Akure metropolis, will enable the host communities maintain better sanitary conditions, improve their standard of living which will ultimately lead to better productivity and economic growth. Working in conjunction with the Ondo State Ministry of Environment, the bank also drilled boreholes and provided generators to power the facilities thus, ensuring that the project have a lasting impact on the communities.

Speaking at the commissioning ceremony, the Governor of Ondo State, Rotimi Akeredolu, commended the bank for maintaining strong and healthy community relations, adding that through the project, Fidelity Bank has addressed one of the most pressing challenges in Akure. He pointed out that Ondo State was ranked poorly by international organisations like the UNICEF and the World Health Organisation (WHO) in the area of open defecation.

“It is a malaise that we are facing in Akure. Access to toilet is a major indicator of economic development in any country. Open defecation and lack of sanitation and hygiene are important factors that cause various diseases. This is why we have every reason to thank Fidelity Bank for these facilities,” he explained. The governor, however pledged that his administration would work closely with the bank in the attainment of its developmental objectives.

In his opening remarks, Fidelity Bank’s Managing Director and Chief Executive, Nnamdi Okonkwo, expressed appreciation to the governor and people of Ondo State for affording the bank an opportunity to give back to the society. Represented by the Bank’s executive director, Lagos and south- west, Nneka Onyeali-Ikpe, Okonkwo said the initiative was in fulfilment of the objectives of the Fidelity Corporate Social Responsibility (CSR) philosophy which rests on a tripod: The Environment, Education and Health.

“We donated these projects in support of the good works of His Excellency, Arakunrin Rotimi Akeredolu and we pledge that this will be on an ongoing basis as we believe very strongly that the relationship between ourselves and Ondo State is a perpetual one,” he explained.

Friend or Fiend: Why Banks And Fintechs Need Each Other

FinTechs

In the last decade alone, Banks have come through the global financial crisis, the great recession and a radically changed regulatory environment. All this time, disruptive technologies have been challenging the traditional financial service providers like never before.

Financial Technology (FinTech) start-ups are playing an ever-increasing role in shaping the landscape of the financial sector. But should the emergence of FinTech really pose a threat to traditional banking? FinTech is an industry composed of companies that use new technology and innovation to deliver of financial services.

Should Banks Fear Fintechs?

Only recently, the Central Bank of Nigeria (CBN) has identified the rising influence of FinTechs in delivering financial services to consumers as a big threat to banking. CBN Governor Godwin Emefiele stated this in Lagos during the Chartered Institute of Bankers of Nigeria (CIBN) investiture of Uche Olowu as its 20th President/Chairman Council. FinTech, and particularly the global spread of mobile phones, has facilitated access to financial services by hard-to-reach populations and small businesses at low cost and risk.

Emefiele said: “Banking has a common threat. The enterprise risk posed by FinTech is real and there is need to be at the forefront of sensitising the banking sector about the real threats posed by FinTech.” To further buttress this point, a 2015 Goldman Sachs report estimated that $4.7 trillion out of $13.7 trillion in traditional financial services revenue was at risk due to new FinTech entrants in the lending, wealth management and payments space.

Why Banks should be worried about ‘platform companies’?

Contrary to widespread opinion, the biggest threat for the banking sector is not FinTechs, but non-banking companies such as Amazon and Alibaba, a recent report by McKinsey has stated. The study refers to these companies as “platform companies” and calls them the “new heavyweight competitor(s) in town,” for the banking sector.

Based on information gathered from McKinsey’s Panorama FinTech database, which tracks more than 1,000 financial start-ups, the payments area is the fastest growing segment in which these “platform companies” are taking over. One example is Alibaba. The e-commerce giant is essentially a payments company, the report suggests.

Additionally, it provides services in B2B (Business-to-Business), ride-hailing, lending, and asset management. “Such companies are blurring traditional industry boundaries,” the report says. “With their superior customer experience, they can sell an ever-wider range of products to their loyal customers.

Partners or Competitors?

Against this backdrop, many banks strongly believe that Fintechs are competitors that will ultimately take a large slice of the financial services ‘cake’. According to a new report by Oracle entitled, ‘Digital Transformation: The Challenges and Opportunities Facing Banks’, many lenders are of the view that customers might prefer the solutions provided by Fintechs because they are able to move more rapidly than financial institutions can at the moment.

As a result, Banks could lose the customer relationship on the Internet to the Fintechs. However, customers, in the medium term, will want to keep their accounts with a Bank because trust is a very important issue to them.

Although Fintechs have competition in their DNA and always in search of gaps in the banking system to exploit, there is no rule that says they cannot be collaborators with mainstream banks. The fintech companies have the advantage in terms of speed, agility, and the capacity to understand and quickly build a very good user experience.

 However, they don’t have the legacies that banks have and they have a completely different mindset – and with the lack of scale and trust, it’s not as easy as it might seem for Fintechs to move forward without banks. Fintechs, it should be noted arose as a result of huge gaps in the banking ecosystem.

In Nigeria for instance, in March 2017, the Central Bank of Nigeria (CBN) stated that it has only linked 30 million Bank Verification Numbers to several bank accounts. The Nigerian Inter-Bank Settlement System (NIBSS) reported 66.6 million active accounts. Going by CBN data, only 30 million bank accounts exist presently in a country of about 180 million people.

Competition

Banks may be too big to pay particular attention to individual customers but that is an area FinTechs are thriving. FinTechs can help banks regain the trust. Some banks are looking at a future where 90 percent of its services would be outsourced to customers’ mobile phones.

Much of that is likely to be achieved by its in-house FinTech team in collaboration with other FinTech startups. “Mainstream financial institutions are rapidly embracing the disruptive nature of FinTech and forging partnerships in efforts to sharpen operational efficiency and respond to customer demands for more innovative services,” said PwC in its latest Global FinTech.

Nigerian Banks are making significant efforts to bank the unbanked, using technology solutions that are flexible and customer friendly. Some Banks have introduced a Quick Response Code (QR Code). It is a machine-readable code, consisting of features used for storing readable information that could be captured and interpreted by the camera on a smartphone device. With this technology, customers can make digital payment across all channels, relatively easy. 

Conclusion

Undoubtedly, there is an urgent need for Banks to explore areas of partnership with disruptive financial innovators like FinTech companies. Industry analysts are of the view that FinTech startups will disrupt 25 - 30 percent of the banking system’s value chain. However, instead of sending the whole banking reality into utter chaos, banks and FinTech companies must find real ground for cooperation.

Therefore, the question is not if these new disruptions will transform banking as they have already started doing so, but rather how to partner more successfully within the new financial ecosystem. To this end, Nigerian Banks should build their strategy around partnership rather than competition.

Allen Onyema: Patriot, Pacifist, Progressive

Allen Onyema