Strengthening Fintechs through open collaboration
In a highly innovative financial services sector, the cooperation between perceived competitors will continue to be a huge driver of profitability, efficiency and sustainability. It is in this new form of cooperation that forward-looking banks begin to see new crop of disruptors called financial technology companies (Fintechs), as enablers rather than threats to business.
Contrary to popular belief, there may never be a time when fintechs will replace banks. However, they may completely change the way people bank. To achieve this, there has to be a synergy between both banks and fintechs.
In financial services, a lot of factors depend on the consumer’s needs. And with the level of innovation witnessed in the last decade, these needs are being met in less complex and more competitive ways. Consumers require services that are problem-solving, customer-centric, connected and fully integrated into their daily lives.
A millennial who likes shopping online wants to be able to pay for goods even in the middle of the night; a market woman wants to be able to transact at the convenience of her store without worrying about securing her cash; an average salary earner wants to be able to access a loan even without a property as collateral; a lot of people want to manage their finances better at the comfort of their homes; people want cheaper alternatives to bank’s regular services. These services are best offered with the aid of digital technologies currently transforming the industry.
Riding on the ubiquitous nature of mobile telephones and internet data, fintechs are conquering new markets. It may be time for banks that still lag behind in the adoption of Fintech to re-imagine their services or risk irrelevance in coming years.
Today, savings, loans, insurance, investments and other critical needs of individuals and companies are changing globally. In Nigeria, although cooperation between banks and fintechs is still fraught with lot wariness, some banks are leveraging fintechs to their own advantage.
For example, some financial institutions have started offering their customers, quick loans with no collateral, banking on the data referencing power of a leading fintech brand called Remita. Remita, which is a solution locally, developed by SystemSpecs in Nigeria is one of the strongest fintech stories emanating from the country. The software is best known as the technology infrastructure supporting the Nigerian Treasury Single Account (TSA). Its latest cooperation with Access Bank has created a mutually beneficial situation for both companies. For the bank, it has resulted in more demands for loans, operational efficiency and less default rates.
Explaining this role-relationship in a recent interview with the media, Managing Director of SystemSpecs, John Obaro, said: “Fintechs are only firms that have been able to use their resources to reengineer some of the processes in traditional banking. Fintechs cannot go alone, they need banks and that is where the partnership comes in.
“We are able to work with banks and other loan providers to give loan to them while we assist in the repayment process. That way everybody is happy. Our customers are able to get easy access to loans, banks are better assured of repayments and therefore the interest rates can be lower because the default rate would be lower. We are bringing lenders and borrowers together in a secured platform to create a win-win for all parties.
Another fintech brand, Mines, which recently secured a Serie funding round of $13 million is building collaborations and leveraging its own data sets to allow different financial institutions serve loans to customers ignored by available credit systems and open up entirely new revenue opportunities.
“There are more than three billion adults globally without access to credit. Our vision is that every one of them has instant access to credit in the next 10 years. We believe the best way to realize this vision is to partner with banks, retailers and mobile operators and power digital credit products tailored to their markets, so they can create the customers of tomorrow, today,” said Ekechi Nwokah, CEO at Mines.
These two scenarios are good developments and they validate a point made in an Ernst and Young Fintech Adoption Index 2017 report that “Unless banks and fintechs get better at working together, neither will reap the full benefits of innovation”.
There is however, still some hitch in bank and fintech collaborations. In an earlier attempt which also required involvement with banks, SystemSpecs’ Remita App was launched to help people transact with and view all their account balances across different banks in one screen. While some banks fully subscribed to it and their customers have been enjoying the benefits, some perhaps need more time to be convinced and are slowing down the adoption of the innovative idea which SystemSpecs developed years ahead of other fintech firms globally.
Experts all over the world have expressed concerns that banks that do not fully embrace digitalisation will be left behind soon and the existing system they seek to dearly preserve like traditions might no longer serve a purpose. In an age of advanced artificial intelligence and big data, they may lose strength. On the other hand, fintechs may find it hard to scale up without resorting to collaborations with banks.
“Mobile payment is where the world is heading, and Nigeria cannot afford to be left behind. We do not compete with banks since our funds are still saved with them, but there are places where we clearly compete, and there are more places where we can collaborate to do what we are doing,” Co-founder of Paga, a mobile wallet company says.
A foreign analyst, Lou Shipley, opines that if banks address the threats by embracing and investing in the technologies that are enabling the FinTech disruptors to level the playing field, they will continue to thrive. “Big banks have the advantage in this fight — at the moment. These institutions have well-earned reputations for safety and security. They benefit from strong, multi-generational customer relationships, have considerable brand equity, and offer myriad financial products and services. Banks have the capital to invest in technology and to innovate through software, particularly open-source software, which is powering the solutions of game-changing companies worldwide. Forward-looking financial institutions are already upping their tech game.”
Since they were not prepared for the level of disruption the sector has witnessed, some banks believe fintechs are overhyped and may fizzle out in a while. Some are however not taking chances. They are either embracing existing Fintech firms or creating theirs with the help of the best tech heads.
Wema Bank, one of Nigeria oldest financial institution broke barrier by being the first to introduce a fully digital bank called ALAT. ALAT is a fully digitised bank catering for the needs of new age consumers, and through it, Wema has been able to not only consolidate, but also increase its market share.
In a recent interview in August with Africa Outlook Magazine, Dele Adeyinka, the Chief Digital Officer of ALAT revealed that from inception just over a year ago, the market has reacted positively and ALAT has grown its customer base from zero to over 280,000 with a total deposit of over N2 billion and processed over N40 billion in transactions.
Adeyinka added that “there is still a lot of room to increase our reach as we continue to build and upgrade to accommodate solutions tailored to better suit the lifestyle of our existing and potential customers.”
In essence, the focus is generally shifting from the institutions to the customers. Consumers, clients and investors alike are changing preferences. PWC envisages that by 2020 in Nigeria, 40 per cent of the banking and payments industry will be at risk, along with 36 per cent of the insurance, asset and investment sector, due to threats from financial technology companies (Fintechs). These are just the early stages, according to PWC’s Nigeria fintech survey.
Fintechs are also important in driving financial inclusion. They are closing the banking gap by bringing services closer to those who have been previously excluded from mainstream financial institutions. This model of financial inclusion in the long run will not only profit the fintech firms but the banks as well. The potential in this regard is especially huge in Nigeria, where the unbanked population is put at 40 per cent.
The Founder of Zenith Bank, Jim Ovia, in an interview with BBC in April 2018 explained that with an operational fintech system in place, there would be more inclusiveness of all and sundry in the economy; transactions and payments will be done more efficiently and transparently and the strategic partnership with banks will better serve the needs of customers.
To boost efficiency and reduce operational costs, banks must leverage on the improved user experience and cheaper banking alternatives that fintechs offer customers. They must embrace complimentary solutions offered by fintechs to improve their services and strengthen their base. On the other hand, fintechs must also work closely with bank to boost credibility, scale up and explore new ways of improving efficiency along the entire value chain of the financial sector.
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