CBN takes measures to deepen financial inclusion as banks wrestle amongst each other while facing fierce competition from fintech firms   

02 July 2019 : Central Bank of Nigeria ( CBN ) just announced that it plans to take some steps in order to boost the  the utilisation of unstructured supplementary service data (USSD), mobile banking, agency banking, and payment service. This is an excellent step taken in the right direction to increase the penetration of mobile and internet banking, so as to make transactions much easier and faster. 

The downside to this is, that Nigerian Banks will now face fierce rivalry from fintech firms. 

According to a report released by Moody’s which is a global investor service, CBN’s plan will deepen the role of financial technology firms (fintechs) in Nigeria's banking system and a credit negative for reigning banks because it will skyrocket the competition

The investor service adds that , “Nigeria’s plan to deepen the role of FINTECH firms in Nigeria's banking system will result in increased competition for incumbent banks, a credit negative. However, we expect Nigeria's large banks – Access, Zenith Bank, First Bank of Nigeria, United Bank for Africa Plc and Guaranty Trust Bank Plc to be better positioned to defend their market shares due to larger customer bases and large technology budgets.” 

Nigeria's large banks engage in scrimmage

For behemoth Banks like Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria, United Bank for Africa Plc and Guaranty Trust Bank Plc, it will be comparatively easier to defend their market shares, owing to their massive customer bases and their use of advanced technology. On the other hand, small and mid-size banks will incur a brawl  for the SME industries with innovative products.

CBN's long term plan for Nigerian banks

Last week, CBN governor, Godwin Emefiele declared his five-year monetary plan which includes payment systems and infrastructure, access to credit for micro, small and midsize enterprises (MSMEs), consumer lending, financial inclusion, and financial stability among other issues.

The pinnacle bank also revealed that the commercial banks would be required to re- capitalise within the next five years.

The investor service firm’s report also mentioned that “The CBN proposals cover payment systems and infrastructure, access to credit for micro, small and midsize enterprises (MSMEs), consumer lending, financial inclusion and financial stability among other issues. The CBN will also develop a regulatory sandbox that will enable fintechs and banks to test their innovations in a controlled environment, minimising risks of financial instability in the Nigerian banking system.”

“PSBs will challenge incumbent banks because of their ability to develop their own digital platforms, hold deposits and make transfers without partnering with banks. These new entrants will compete with banks, especially on retail banking products, which will negatively pressure banks’ consumer business unit margins.”

“Fintechs may also create alternative distribution and payment channels that risk eroding banks’ payment services' fee income,” Moody's says in its analysis.

Nigeria’s fintech market is fast paced blooming sector which is predominantly controlled by by payment service companies such as Interswitch Limited, e-Tranzact, Emerging Market Payments and Unified Payments; consumer payment apps and digital commerce platforms such as Quickteller, KudiMoney, Jumia and KongaPay; and online microlenders.

Telecos enter the picture

To bring in the virgin population into the financial space, large telecommunication companies will be able to leverage their large customer bases, threatening banks' strategies to mobilise retail deposits via mobile-phone-based platforms, although banks will be able keep deposits where wallets are held in their trust accounts.

Some telcos have applied for payment service banks (PSBs. The Payment Service Bank (PSB) is part of CBN's plans to drive financial inclusion in the country. It is adapted from Kenya's Safaricom.

Reporting for EasyKobo on Tuesday , 02 July 2019 in Lagos, Nigeria

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