Financial technology companies, popularly known as fintechs, have in recent times been giving traditional banking institutions a run for their money, forcing more banks to adopt digitisation as a measure of cutting cost.
Fintechs had stormed the banking industry, providing lower cost and convenience to customers, thus attracting more customers particularly the younger generation who constitute a larger part of the country’s population.
For example, Kuda one of the fintechs which have made a place for itself on the table of traditional banks have within its first three years of operation pulled over 4.2 million customers who have made over 500 million transactions worth more than N50 billion.
At its inception, the bank offered its service to customers at next to zero cost and had just recently introduced the stipulated N50 stamp duty which it remits to the federal government, a year after traditional banks begun debiting their customers for the statutory charge.
Inspite of this, the bank still appeals to more customers as they see it as much cheaper for them than what traditional banks charge. There is also OPAY which has likewise gained traction in the financial space. The use of innovative technology and lack of the need to have physical presence in all parts of the country where they operate has it more cheaper for them.
Thus the pass on cost to customers when compared to that of traditional banks have been next to nothing. This has challenged traditional banking institutions as they are now pushed to lower cost of transactions.
Speaking in Lagos, the managing director and chief executive of Stanbic IBTC, Wole Adeniyi, noted that traditional banks have now been pushed into the race to zero cost for customers. While this may not be able to be completely achieved in the newr term for commercial banks due to the several challenges that they face, he said they are striving to use digitisation to lower costs.
Adeniyi said with fintechs coming into the financial arena, there has been a lot of competition in the race to zero when it comes to the cost of transactions.
Acknowledging that fintech are instrumental in helping to achieve financial inclusion, the Stanbic IBTC MD said they also helps in democratising credit as well as in improving digitisation.
“We see that as positive but it is also competitive as well and changes the dynamics because the cost to serve for these fintechs, are low. They dont hold any regulatory capital so the cost to serve is almost next to nothing. Some of them ultimately say you can do everything for free, but there is no bank that can do everything for free.
“While we see the positive in terms of improving inclusion and convenience for customers, it does has its own challenges in the area of competition and also we have the PSBs which the CBN has given licence. They have also come to address the challenge of inclusion and if you look at the concept of PSBs it is more of telcos or has a telco background so basically their cost to service will be lower. They already have an advantage.”
Deputy governor, Financial System Stability of the Central Bank, Aisha Ahmad, had said fintech play a major role in enhancing financial inclusion by providing services at low cost to consumers.
“Fintech as a tool and as institutions, would help us meet a number of objectives. Customers would have greater freedom, wider access at favorable prices and even at zero prices.
“We having been trying for many years to lower the cost of deploying services by banks through many services initiatives and some of these disruptions is actually helping us lower these costs. Once more people are included, you would see better economic inclusion and you can have better growth.”
However, fintechs need to ensure that whilst innovating, customers’ funds are kept safe. “The challenge before us shall be to thrive not survive so that the benefit outweighs the risk. We see innovation and it is good but it must be responsible, it must be inclusive and it must be held accountable.
“Innovation must be responsible innovation, I must be inclusive but financial, gender, youth inclusion and it must be accountable because they say to whom much is given, much is expected. When you come into the industry to enable inclusion and drive growth, we want you to add value to what is there already and make it better and forestall any of the challenges,” Ahmad stated.
