Do we still need the banks?
As part of my job last month, I met a young woman in her thirties who needed my help in resolving a contentious transaction between her account at the financial institution where I work and a system of online savings account. I had heard of these âpiggy banksâ online before, but I had never met someone who had invested so much in the project as the young woman sitting in front of me that day. The lady had about 90% of her wallet share in this online piggy bank and had absolutely no worries about the safety of her funds.
I found this intriguing for two reasons.
First, trust. Absolute trust. Years ago, the idea of ââopening any sort of financial relationship with any institution without first physically visiting the institution’s office seemed highly unlikely. Questions such as, how can I be sure who I am dealing with and what if they run away with my money, would rank at the top of the frequently asked questions in such a scenario. Interestingly though, things have changed. The absolute confidence that a potential client has in the institution they have never visited is totally unmatched.
Today, the conventional way to start a relationship with a bank or other financial institution has gradually shifted from a physical visit to an online visit that inculcates the administration of basic KYC checks and in-depth profiling. of the customer in less than 24 hours. . The ease of doing this is second to none and can be prudently viewed as a game changer in the customer onboarding space. The means of identification and proof of address are downloaded in a few minutes! Bank verification numbers are verified and 2-factor authentications linked to email addresses and phone numbers are instantly put in place to protect customer funds. The result? In less than a day, a freshly onboarded client was verified enough to complete TIER 3 transactions on the app. Barely ten years ago, this would have been deemed impossible. Today the story is different.
The second reason this was intriguing was the age range of customers entering these online financial relationships. As the world’s wealth gradually passes into the hands of millennials, the means of doing business must also change to accommodate this generation of customers. The need for working internet solutions to transact and interact with the bank or fintech, invest in and even close relationships is so important to this customer segment.
Consumer payments for this group of individuals should be interactive without requiring human intervention, except when absolutely necessary. They need to be digital and flexible, be able to do almost anything at any time and possibly cross the functions of the mat in such a way that the customer has full control. Most importantly, they must be able to execute customer desires at the speed of thought. Unfortunately, Nigerian banks have a long way to go in this regard. Each major function of the bank today seems to have been taken over by a supplier and / or a more efficient payment solution.
Money transfers can be made at ATMs, via mobile apps, mobile banking agents and are also offered by many Fintechs. Cash deposits are slowly becoming a thing of the past, but even if they weren’t, banks are also losing ground here. At every street corner, a point of sale agent invites you to come and make your deposits for a small fee. Cash withdrawals can be processed by the same means. Just make sure you have a valid debit card and you can take as much as you need for day-to-day cash functions. A charge of N100 on a cash withdrawal of N10,000 is nothing compared to a fee of N35 at the ATM in addition to transport costs, long queues and the possibility of not meeting an ATM terminal actually having money to distribute.
Loans were a strong selling point for banks, however, recent consumer or retail loans are handled by Fintechs and smaller financial institutions that do not require any form of security except BVN and applicants’ account statements. Yes, the rates are higher than those offered by conventional banks, but it is interesting that customers don’t seem to care as long as they get the requested funds in a few hours, compared to a few days to a week that apply. to some of the bigger ones. banks. In addition, you will not be asked to provide salary domiciliation letters, notary allowances and funds for management fees. This is especially true for public servants who don’t necessarily want their offices to know that they are asking for additional funds from the bank.
What about conventional investments like term and sight deposits? The challenge here is that the rates provided by the banks are not very attractive. In order to contain interest charges and stay in compliance with monetary policy guidelines, banks are forced to keep investment rates low. A rate of 1.25% can currently apply for an investment of around 5 million naira in many Nigerian banks today. It’s extremely low and absolutely unattractive.
So, do we still need the banks?
Maybe, but not in a traditional or conventional way. Banking in Nigeria is quickly leaving conventional and traditional banks behind and they are desperately catching up. Superior payment capacities, improved flexibility and a transfer of wealth to the younger generation give an advantage to disruptors in the financial space. Banks need to change and they need to do it quickly. They need to leverage their agency banking platforms and provide mobile mini-banking services to customers on street corners, in restaurants and bars. They must constantly tweak, adjust and improve their mobile banking applications and make the integration less of a bottleneck for potential customers. Banks must stop being the elephants of the game and start being the foxes! Battles no longer take place on flat terrain like the wars of the 1800s.
The central bank’s drive to improve financial inclusion has given room for so many players who have no problem toppling the giants. Today, the competition is agile and fast. It’s fast and seamless. It’s on the phones and it’s not encumbered by the cost of running many offices in every state across the country. This takes the headache out of high operating costs, insurance payments, cash flow risks, and high staff salaries. I hear these disruptors say to the banks, âYes you might be the size, you might be tall and strong and very reliable, but as a fintech and mobile money agent I can assure you that I am faster. I can assure you that I communicate more quickly with my clients. I can assure that I know what they want and I give them what they want before they even know they want it. My ability to react to the waves of the payment space makes me the benchmark establishment for all those who wish to ensure a transparent service delivery. Although it takes you months to get board approvals to make any changes to existing bouquets and packages or develop appropriate products, I am able to scale and meet audience needs in a short period of time. . Fear me. I am the disruptor!
Again, I ask, do we still need the banks? Yes. However, the banking evolution must begin today, otherwise, in a few years, the answer to this question would be a categorical NO.
Written by Igbinosun Timothy