FinTechs boom unsettles Nigerian banks to approach regulators for support: Report

*Nigerian banks are only beginning to ‘counter’ the emerging financial technology firms riding the online wave spurred by outbreak of the Coronavirus (COVID-19) pandemic

*Experts state the Central Bank of Nigeria has been ‘lethargic’ when it comes to allowing telecom firms to become ‘very important players’ in the country’s payment ecosystem

Gbenga Kayode | ConsumerConnect

Prior to the advent of and subsequent boom in Financial Technology (FinTech) services in the financial markets in the country, the Nigerian banks’ dominance of their home turf is said to be virtually unparalleled.

Largely protected by the banking and finance industry regulators from foreign competition, Nigerian lenders control 94 percent of their domestic market, by assets, the world’s largest share of local ownership after Israel, according to a report published before COVID-19 hit in 2020 by Chris Ogbechie and Lilac Nachum, scholars at Lagos Business School (LBS).

Bloomberg report indicates that the threat to the hitherto conventional and dominant market players in the banking and financial services ecosystem is now homegrown.

The Nigerian banks are only now starting to counter the emerging financial-technology firms riding the online wave spurred by the pandemic, report said.

As they set out their mobile-money ambitions, they’re deploying their political muscle with regulators to bolster the moat around their franchises.

Abubakar Idris, analyst at Stears Business, a Lagos-based consultancy for financial and technology companies, said: “Some might claim there is pushback from traditional banks and their regulatory ally to restrict financial innovation by FinTechs.”

“If the largest Telcos get a banking licence, they could undercut the banks.”

It was learnt that the simmering conflict broke into the open April 2021 when lenders kicked MTN Nigeria Communications Plc, Africa’s largest mobile telecom firm, off of their shared (USSD) platform.

They had maintained they protested against a cut by the telecom service provider on commissions charged on banking channels by almost half to 2.5 percent.

Regulators, however, intervened to reconnect MTN subscribers and consumers, while reinstating the 4.5 percent commission for the purchase of airtime bought via the banks.

As many Nigerians are yet excluded from financial services, the report noted that the sparring means the 60 million people in Africa’s largest economy who lack access to any banking services risk missing out on all the benefits of the emerging financial technology boom that has put much of Africa at the cutting edge of the revolution in mobile money services.

While anticipating the underserved entering the market, foreign investors have jumped in, according to report.

Flutterwave, based in Lagos, Nigeria, and San Francisco, United States (US), raised $170 million this year.

It was gathered the development made the firm Nigeria’s second FinTech startup with a valuation above $1 billion, after Interswitch.

Jumia Technologies AD, a Berlin-based e-commerce platform that started in Lagos, has almost tripled since it sold shares in New York in 2019, giving it a market value of $3.4 billion.

The investment in Flutterwave by US hedge fund Tiger Global Management LLC and New York private-equity firm Avenir is more than double the N26 billion ($64 million) spending on information technology by Nigeria’s two biggest banks in 2020. The two lenders spent N13.7 billion in the previous year.

According to report, that helps to explain why lenders, including Guaranty Trust Bank Plc and Access Bank Plc, the country’s two biggest, could use some help from regulators.

The two leading financial institutions are planning to start payments units this year, more than a decade after their counterparts in Kenya and South Africa, report stated.

In a big leap, the value of mobile money payments is reported to have risen with FinTechs and banks’ penetration in the country.

Whereas the government has opened up the industry to telecom companies to increase access to banking services, the Central Bank of Nigeria (CBN) has yet to approve payment-service licences to MTN Nigeria Communications Plc and Airtel Africa Plc.

It’s been about two years since the two companies applied for the permits to activate payment services, which allow them to provide most banking functions except lending and taking foreign-currency deposits.

Yele Okeremi, Chief Executive Officer of Precise Financial System (PFS), a Lagos FinTech, told the source by phone, that the CBN has been “lethargic” when it comes to allowing Telcos to become “very important players” in the payment system.

However, an MTN spokesman said it is still in talks with the Nigerian regulators and the banks to resolve the commission dispute.

Meanwhile, in the payments market, ‘legacy banks’ are said to be losing their grip on the market for electronic payments, which rose by a half last year to N158 trillion, report noted.

Bank apps accounted for just 43 percent of such transactions in 2020, whereas non-banks, led by MTN Nigeria Communications, recorded 35 percent, according to the Nigerian Interbank Settlement System (NIBSS).

Again, regulators have also had to mediate a conflict between the banks and FinTechs over the pricing of USSD transactions ─ the type made over phones ─ fixing a flat fee of N6.98 per transaction, with banks collecting the charges.

Banks are pressing regulators to require FinTechs to charge consumers separately through end-user billing, a move they have resisted as of now.

Mr. Segun Agbaje, Managing Director, Guaranty Trust Bank Plc, reportedly predicted at an investor call March 2021 that “ultimately, we are going to go with end-user billing.

“You are going to see more of a migration from USSD to mobile banking because USSD will become an expensive channel.”

ConsumerConnect gathered the GTBank Chief is in the final stage of obtaining regulatory approval for a FinTech unit of the leading financial institution, which he plans to start in the second half of 2021.

Agbaje is pushing to create a separate payments business with a mobile wallet in Nigeria and three African countries, including Ghana and Cote d’Ivoire, report said.

It is also noted that with their core lending businesses relatively stagnant, and investment flooding into FinTech startups, the need for Nigerian banks to move is increasingly urgent.

“Banking generally is shrinking rapidly that every traditional bank out there is thinking about how it can keep up,” FinTech consultant Idris said.

Herbert Wigwe, Chief Executive Officer (CEO) of Access Bank Plc, said on an investor call, that the bank is emphasising payments, “which is in line with our corporate strategic plan.

Wigwe stated: “Payments and remittances are critical, and making sure you have full control over the infrastructure.”

But in all of this, Flutterwave reportedly does not see itself as a threat to the conventional banks as legacy lenders.

Olugbenga Agboola, CEO of Flutterwave, was quoted to have said: “Fintechs build bank-level features like loan, savings or investment apps off collaborations with banks.

“We started Flutterwave because we realised that there were lots of efficient niche payment methods that we needed to connect into one reliable infrastructure.”

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