Digital Disruption of Banking: How Much Farther Is Nigeria’s Tipping Point?
The huge influx of venture capital investments in FinTech globally, particularly in China and even here in Nigeria seems to be pointing to a possible disruption of the traditional models of banking as we know it. In China, Internet giants have moved into financial services and gained considerable market share in e-commerce and third-party payments.
What is their USP? Fast, cost-efficient alternatives to traditional banking. Not only are these FinTech companies acquiring as many, if not more, clients than the top banks they are acquiring them in a much shorter space of time! The likes of Amazon, Facebook and Google have also began to make inroads into financial service.
Let’s come home to Nigeria. A few short years ago, you had to jump through hoops and rings of fire to integrate a payment gateway into your web service. Today, the likes of Paystack are enabling that as easily as the snap of a finger. Should traditional financial institutions be worried?
Globally, challenger banks and fintech startups are targeting areas that were the exclusive preserve of traditional banks: personal finance, SME finance, peer to peer lending and so on. A report by Citigroup puts it this way: “Investment in Fintech has targeted the most profitable areas of banking.” Do the investors know something we don’t?
One thing I know from working with startups is that VCs don’t throw money around anyhow, they’re not charity organisations. If money is flowing into a particular vertical, vested interests in that industry better pay close attention!
Disruption is coming for sure. CBN policies will evolve…the more the government courts foreign direct investments, the greater the need for evolving regulatory frameworks that do not stifle innovation. How it would play out remains to be seen. Nigerian banks may have the financial muscle to acquire or set up their own fintech operations but take a look at the size of VC funding in that space:
Oh and let’s not forget the Telcos…they are coming for the pie too!
