By Emma Okonji
A survey report released recently by PricewaterhouseCoopers (PwC), has raised a deep concern over possible disruption of Nigeria’s financial service sector by financial technology (FinTech) players.
According to the report, the Nigerian retail banking and payments sectors would be the most disrupted by a group of new companies building financial technology solutions.
The PwC survey, which was conducted around 50 Chief Executive Officers (CEOs), and industry leaders across various segments of Nigeria’s financial services industry with additional insights and proprietary data obtained from DeNovo, PwC’s Strategy & Platform focused on the FinTech innovation, and concluded that FinTech solutions would could cause a great deal of disruption in the country’s financial services market.
According to the report, FinTechs are redrawing the competitive financial services landscape and blurring the lines that define players in the sector. Their offerings range from competing financial services such as alternative lending, to additive solutions atop existing banking services, to enabling technologies for the banks themselves. Capitalising on the latest mobile, cloud and digital technologies, Nigeria is increasingly becoming home to many FinTech firms trying to shake up and be accretive to the banking value chain, the report said.
Findings from the survey by PwC also revealed that Nigerian financial services players see changing customer needs as the top impact FinTechs have on their business, with up to 60 per cent of respondents indicating that up to 40 per cent of financial services business will be at risk of standalone FinTechs by 2020.
Presenting the report in Lagos, Associate Director and Co-FS Advisory Lead at PwC Nigeria, Adedoyin Amosun, said: “From our survey, retail banking and funds transfer have the highest likelihood of disruption at 92 per cent and 85 per cent respectively. Underwriters were of the view that insurance brokerage, Auto and Life insurance stand an equally high likelihood of disruption at 77 per cent. While the threats of disruption is quite appreciated, our respondents also noted the opportunities FinTech adoption will bring especially as seen in the unlocking of opportunities for more revenue sources and reduce operational cost. A sizeable number also believe that Fintech adoption will improve customer retention and product differentiation.”
According to Amosun, majority of respondents from traditional financial industry players believed that part of their business is at risk of being lost to standalone FinTechs, up to 92 per cent in the case of banks. Also Banks ranked loss of market share at the top FinTech related threat, closely followed by increased pressure on margins. One of the ways in which FinTechs are able to do this is by significantly shrinking operating costs. Other FS incumbents ranked information security and privacy concerns as the key FinTech threat to their business.
Analysing the survey report, Advisory Partner and Chief Economist, PwC Nigeria, Dr. Andrew Nevin, said: “FinTechs are empowering customers by providing services that are delivered via technology applications on customer’s mobile devices. This allows consumers conveniently initiate and complete transactions, connect to third party entities and access information without restrictions.”
All over the world, the increasing momentum of FinTechs and their success is challenging financial services players to devise a spectrum of strategic responses. However, not all FinTechs pose the same threats or opportunities. In some cases, FinTechs will be viewed as enablers to traditional innovation and continuous improvement. In others, it presents a series of disruptions and threats as they continue to make inroads into banks’ traditional territory by offering a competitive service or product, Nevin said.
He explained that objective of the survey was to assess the rise of FinTech in Nigeria’s financial services industry, their potential impact on market players and the opportunities that may also exist following their adoption.
Proffering solution to the situation, Nevin calls for the implementation of a customer-centric model focused on offering products and services that truly addresses customer’s needs and supports the completion of transactions through multiple accessible and connected channels. He said incumbents have to proactively approach the FinTech challenge with a clearly articulated strategy rather than the current approach of adopting reactionary measures.
“Incumbents also need to identify the threats and opportunities that are most relevant to their business and explore ways they can build, acquire or partner with FinTechs for the capabilities they lack,” Nevin said.