Nigeria’s Fintech Wave Rocks the Big Banks
By Dulue Mbachu
Some of Nigeria’s top banks known for declaring fat yearly profits fell short in the last year. Guaranty Trust Bank, Stanbic IBTC and First Bank Plc had a difficult 2021.
For Stanbic IBTC, revenue fell more than 12 percent during the year, with profits making a steeper plunge of 31.5 percent, largely due to rising costs.
Though Guaranty Trust is yet to release its full-year result, the ninth-month numbers already indicate where things are headed. Interest income fell 19 percent while profit after tax declined by 9 percent.
Similarly First Bank’s nine-month results show that net-interest income fell 15.5 percent and profit after tax plumetted 40 percent.
Across boardrooms as executives scramble to know what’s going on, one word keeps cropping up: fintech.
New financial technology companies offering various services formerly the reserve of traditional banks, from savings through loans to investing, are nibbling away margins. Popular with Nigeria’s young population, they’re are beginning to take market share from the older financial institutions.
Often lean and mean, largely reliant on technology, they eschew many of the costs usually associated with brick and mortar banks, luring customers with better yields.
The situation has got many of the big banks scrambling in response. Stanbic recently announced it was setting up a payments subsidiary to compete in a field where companies such as Flutterwave, Paystack and Opay have already made their mark.
Flutterwave’s valuation was recently put at 3 billion dollars after its latest fundraising that scooped up 250 million dollars. Its rival, Paystack, which was bought for 200 million dollars last year by U.S. online payments company, Stripe, is valued at more than 1 billion dollars.
PiggyVest, which enables subscribers to save and invest, paid out 245 billion naira in 2021 in matured investments, more than double the 90 billion naira it paid out in 2020, according to its Chief Executive Somto Ifezue. It’s a performance that compares well with what mainstream banks are doing.
Guaranty Trust Bank recently announced the acquisition of wealth management firm Investment One as it seeks a foothold in an area where the likes of Cowrywise and PiggyVest are making hay.
In response to the changing banking environment, Standard Chartered Bank has closed more than 60 percent of its Nigerian branches in the past year, going digital on most of its services and allowing agent banks to do the old job of branches.
“That’s the new direction of the banking industry in Nigeria,” said Uche Maduka, a Lagos-based financial analyst. “Banks will be forced to rethink how many physical offices they need, if at all, in the face of the ongoing tech disruptions.”
Usually targeted by the fintech companies is the bureaucracy and inefficiencies of the traditional banks. Apps and digital solutions that prey on delays and annoyances associated with traditional banks remain the mainstay of the newcomers.
They’ve been helped by the coming of age of the the Nigerian Inter-Bank Settlement System and the sheer numbers of without bank accounts in the country now getting enrolled.
With Nigeria’s overly young population (half of the country’s people are under 19 years), many of whom are tech enthusiasts, the big, older banks have no option but to adapt or face a bleak future.
Dulue Mbachu, a veteran journalist, is on the editorial team of Nairaweb.ng.