The Rising Threat to Retail Bank Lending


Customers in a banking hall

At a recent workshop on retail banking, participants, notably, banking executives, shared knowledge and identified a growing threat to their operations, reports Olaseni Durojaiye

The inaugural Nigerian Retail Banking Workshop has identified the rise in the market share of unorthodox money lending companies as a challenge to the growth of retail banking in the country even as participants identified opportunities in made in Nigeria goods for the growth of retail banking in the country.

Retail banking, also known as consumer banking, is the typical mass-market banking in which individual customers use local branches of larger commercial banks for their banking needs. Services offered include savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit.

The workshop, which held in Lagos recently, proved to be a successful interactive session as bank executives shared knowledge on retail banking, common problems as well opportunities that are inherent in the huge population of Nigerians. The workshop also identified agent banking as a strategy to further deepen financial inclusion in the country.

However, a major talking point at the session was the gradual incursion into an aspect of retail banking by money lending business concerns. Described as “disruptive financial service providers,” nimble and flexible in their operations, participants identified the preference among banks for a loan seeker’s employer rather than his personality as one of the reasons behind the noticeable rise in their market share.

The breakfast workshop organised by Ciuci Consulting, had in attendance executives of 17 banks, who contributed to the robust discussions that addressed several key challenges in the industry. Many of the attendees were drawn from retail banking sections of the various banks that participated at the session. The banks included First Bank Nigeria Limited, United Bank for Africa, Fidelity Bank, Heritage Bank, Ecobank and Unity Bank Plc. Others are Zenith Bank, Sterling Bank, Access Bank among others.

Discussion Topics

The topics covered at the workshop includes the implication of ‘made in Nigeria’ in retail banking; Digitisation versus Digitalisation; the characteristics of retail lending in Nigeria and the opportunity in the unbanked.

The discussants were chief operations and information officer, Fidelity Bank Plc, Gbolahan Joshua; Head, CASA and Bancassurance, Ecobank, Adeola Dare, who stood in for the bank’s Group Head, Personal banking, Korede Demola-Adeniyi; Group Head, Lagos Island, Retail Banking, First Bank of Nigeria Limited, Funke Smith and Chief Information Officer, Heritage Bank Plc, Ike Williams. Managing Consultant, Ciuci Consulting, Chukwuka Monye, moderated the session.

Funke Smith of Firstbank explained how sole proprietorships can take advantage of the new focus on ‘made in Nigeria’. She stated that they need to be well structured to enable them better position for different forms of funding that are available, while Adeola Dare of Ecobank shared different ways banks could improve on financial inclusion.

Slow Response to Loss of Market Share

A key concern shared by many of the participants is the slow response of banks to market share loss by disruptive financial service providers. Even though there was no data to back the claim, the gathering agreed that the loan merchants may have taken as much as 15 per cent of the market share of the commercial banks and traced their ability to do so to factors that include: lower interest rate and flexibility as they are given to less documentation and the speed. Besides, participants also agreed that they record low default rate even though their low portfolios are far less to that of conventional banks.

Speaking at the workshop, one executive with Unity Bank Plc, who gave his name simply as Funwa, noted that, “As we speak, these companies have control of about 15 per cent of the retail banking lending. We don’t seem to know because of absence of data. Soon they’ll go beyond micro lending into SME financing because they are flexible and innovative.”

Another executive, who wouldn’t give his name, alerted that, “If we are not careful, these firms will eat our cheese. We must be better organised to better meet the requirements of an effective retail operation. The disruptive financial service providers are nimble and have an effective operational structure, that is the reason why even bank employees go to them for short-term loans”, he stated.

However, opinions differ on how to respond to the threat that the disruptive financial service providers pose to retail lending. While some suggested collaboration, others opined that commercial banks could learn one or two things from the way they operate, arguing that many of the promoters of the business were former bankers who know the system and were exploiting it to their advantage.

Regulatory Constraint

Interestingly, another revelation was the need for the review of banking regulations which some participants claimed has become a constraint on industry competitiveness. Many of the participants shared the frustration of regulatory constraint and highlighted the fact that many of the laws that banks must abide by were written in 1991 adding that the banking landscape has changed dramatically since. Accordingly, banks could only implement risk management solutions that are approved by the regulators; therefore it is crucial that the banks and the regulators collaborate to develop an effective framework that guides retail-lending activities.

However, Chief Operations and Information Officer of Fidelity Bank, Gbolahan Joshua, noted that the Central Bank of Nigeria (CBN) was developing some programmes that will make credit risk requirements more flexible and effective.

Besides, he expressed the need for collaboration between telcos and related service providers as critical to deepening retail banking services, sharing insights on some of the successes of mobile credit lending strategies.

Misapplication of Intelligence and Analytics

Meanwhile, an important aspect of the discussion focused on the misapplication of intelligence and analytics amongst bank. These capabilities were expressed as a crucial function and highlighted as an area that needed attention by all the retail banks.

Williams, the chief information officer of Heritage Bank, explained how the lack of intelligence and analytics led to the wrong rationalisation of some banks’ branches. “Banks are re-opening some branches they should not have shut down in the first place, they were misinformed.”

Profitable Consumer Behaviours

In his presentation to round off the session, Monye shared some sample analyses, beneficial to the banks. He focused on how banks could identify profitable customer behaviour, using an illustration that was based on customers’ usage of internet-based banking platforms, which have lower costs to serve customers than branches.

The illustration described Profitable Customer Behaviour as “trends and habits of customers that leads to increasing profits for the organization” adding that, “for retail banking, these are customers’ characteristics that directly relates to banking products and services.

Accordingly, the illustration listed some profitable consumer behaviours for retail banks to monitor to include: positive customer perception of banks, customer loyalty, customer adoption rate of bank product and services, frequency of use of bank products and customer channel preference for engaging banks and financial activities.

Based on this illustration, Diamond Bank, First Bank and Access Bank came first, second and third respectively in the 2015 Most Profitable Customer Behaviour by Internet-based banking platform usage. Sterling Bank, Stanbic IBTC Bank and Skye Bank formed the bottom three in that other.

The illustration tagged an analysis of banks’ profitable Customer Behaviours for Retail Banks in 2015 was also presented during the workshop.