The Changing Faces of Banking


With the aggressive drive for digital banking solutions, which reflected in the recently released financial performance of the banks, Obinna Chima ponders whether the era of brick and mortar branch expansion is over

Globally, digital banking has become a powerful tool for building more inclusive, stable, and secure financial sectors. The potential of mobile technology to improve people’s lives has continued to grow exponentially. In fact, experts have stressed that digital banking has the potential to drive financial inclusion by providing efficient transaction options and greater reach. Mobile money is also a tool for economic growth and development, if fully explored. Clearly, Nigerian banks have seen the opportunities as well as the cost-saving benefits of this system of banking and have in recent time been aggressively deploying alternative banking channels.


Digital Banking Revolution

 Usage of alternative banking channels such as ATMs,  credit cards, internet banking services, mobile banking, among others, have risen significantly because of the convenience they offer to customers. A major driver in this banking industry change is the consumer demand to be better connected to their money. This was evident in the recently released 2016 audited financial statements of some commercial banks in Nigeria.

For instance, Fidelity Bank Plc’s 2016 audited results showed that its online banking products grew by over 200 per cent, which led to a 41.3 per cent growth in its e-banking revenue.

The digital banking revolution also led to the recent closure of 74 branches by Ecobank Nigeria Limited, in THE quest to improve its alternative banking channels. Managing Director of Ecobank, Mr. Charles Kie, said the move was part of its drive to create a fundamental shift in its banking activities to digital channels, as well as improve customer experience, while also reducing the cost of serving them. This, Kie said, also supports the bank’s financial inclusion strategy and the cashless policy of the Central Bank of Nigeria.

Similarly, the two newly licenced commercial banks, Providus Bank Limited and SunTrust Bank Limited, have continued deemphasise brick and mortar expansion, with their focus on digital banking strategy for their penetration into the market.

According to the Division President and Head of Financial Inclusion for International Markets at Mastercard, Daniel Monehin, technology has the power to drive real, impactful and inclusive change, particularly, in the provision of financial tools that allow greater numbers of people to be economically active and part of the financial mainstream. Monehin noted that the financial industry was at a tipping point, stressing that advancements in technology and increased uptake of mobile banking have seen the sector increasingly move to a world beyond cash, where the potential to create solutions that make payments faster, simpler and safer than ever before is immense.

The development has heightened debate about the future of brick and mortar branch expansion. While some experts argue that there is no need for further brick and mortar branch expansion in the country and support the aggressive deployment of digital tools to meet customer satisfaction, others say because of the country’s low level of financial literacy and inclusion, banks should continue to deepen their branch network to meet the financial services needs of most Nigerians, especially, in the rural areas.


Digital Disruption 

Research carried out by Deloitte on leveraging digital financial services in Africa showed that Nigeria and the rest of the continent were crying out for digital disruption. The research revealed that the first wave – mobile money – was paving the way for future innovations.

According to the World Bank, mobile money services helped to deepen financial inclusion in sub-Saharan Africa from 24 per cent to 34 per cent between 2011 and 2014. As mobile penetration continues to grow on the continent, the impact of mobile payment solutions on fostering financial inclusion also continues to rise.

Another report, titled, “Financial inclusion insight (FII),” by InterMedia, stressed that digital financial services (DFS) could play a key role in managing expenses and setting up individuals and households to stay out of poverty permanently. According to the report, through digital technology, financial services can reach billions of new customers quickly and efficiently. It noted that digital accounts cut the costs of transactions by as much as 90 per cent.

In addition, it showed that digital accounts give people the ability to save and budget for the first time in their lives, allowing them to withstand financial shocks and direct money toward specific uses, such as education and healthcare. Also, new customers and financial interactions have a domino effect of growth, touching providers, merchants, service providers, among others.

“When cash transactions that once circulated outside the formal economy are channelled within it, merchants and providers have new customers and new revenue, which can inspire more services and innovation. DFS gives people a secure way to save, which allows them to build cushions against financial shocks that would otherwise pull them right back into poverty,” the report added.

Furthermore, it showed that more than 90 per cent of the world’s poor are covered by a mobile signal, which allows people to conveniently make payments digitally rather than in person. It pointed out that Africa was living proof that DFS can effectively reach the unbanked, stating that in Cote d’Ivoire, Somalia, Tanzania, Uganda and Zimbabwe, more adults used mobile money account than traditional account at a financial institution.  In Tanzania, ownership of mobile money accounts surged from one per cent of the population in 2009 to 32 per cent in 2014, according to the report. Also, 60 per cent of Africans live in rural areas (according to the United Nations). DFS is the only way to reach them cheaply, affordably, and at scale.

“In total, the worth of Africa’s mobile money market is expected to top US$14 billion in just another five years,” as a result of greater adoption of DFS.

Based on its findings that four out of 10 adult Nigerians do not have access to any form of financial services, it concluded that “life is not only more difficult, but also more expensive” for these set of people.

“These individuals must rely on informal services, which are not always trustworthy, such as: keeping their savings hidden — in pots, under mattresses, in fields where they constantly worry about thieves; sending money to a family member in another village is risky and can take days; obtaining even a small loan for an emergency is often impossible.

“When they do use a formal service—like cashing a check or sending money—they often pay high fees and conduct transactions in person, which can mean giving up valuable time and traveling long distances,” it added. Its findings on trends in mobile money and other digital financial services in Nigeria showed that the potential for increasing financial inclusion is ripe—particularly among young people. The report said, “Those who are unaware of mobile money are largely young (15-34 years, 60 per cent), educated (70 per cent), and employed (60 per cent). This group has the financial skills and equipment required to register and use mobile money, and could potentially use the service to pay school fees.

“More than four in 10 Nigerians experience some form of economic vulnerability, and financial inclusion is needed to create resilience. Most of the vulnerable are numerate and few are literate. Nine in 10 are poor and nearly two-thirds live in rural areas.”


Future of Conventional Bank Branches

 Aligning itself with the wave of digital transformation, Managing Director/Chief Executive Officer, Diamond Bank Plc, Mr. Uzoma Dozie, said the bank had since stopped to expand its physical branch network. He pointed out that the bank had been aggressive in its deployment of digital banking tools.

Dozie stated, “Diamond Bank has stopped building branches. In the last two years, I have built only three branches and that was probably as a result of relocation of the branch or if the market moves, you move that branch out of that location and replace it. But our outlets have increased because we now have sales agents and we have agency banking.

“So, there is no need to build branches. We have enough branches to take care of the needs of those in the metropolis and you cannot use that same model in the new places you are going to. People have been using their phones for transactions for a very long time. If you look at today, Diamond Bank has seven million customers.

“But two million out of that are using mobile apps or mobile channels to do their transactions. That is close to 40 per cent of our customer base. That is quite high for a country where a lot of people don’t know how to use smart phones. Then, when you understand that only 20 per cent of our transactions are done through the branches because everybody has to use their cards, it means that, discoverability is actually happening.”

Similarly, Group Chief Financial Officer (CFO) of the United Bank for Africa Plc, Mr. Ugo Nwaghodoh, said the pan-African bank had also slowed down on its brick and mortar branch expansion.

Nwaghodoh said, “We are investing significantly in electronic banking operations and services to our customers and improving our channels. Channel-penetration is increasing. We try to reach our customers from various touch-points. We are pioneering the move away from brick and mortar banking and focusing on moving with the trend. Today, banking globally is going digital and we have created digital banking suits and we are expanding that by ensuring that our customers have access to UBA every hour of the day, through many of our platforms.

“So, we try to reach our customers through channels such as the ATM, the PoS, mobile banking solutions, internet banking solutions and through the USSD. There are so many products on the pipeline because we have put together several people that are working very hard and their job is to continue to evolve solution on digital banking. In the last few months, we have trained several people at Harvard on digital banking and the kind of disruptions we expect to see in that space.

“So, we are preparing the bank to be able to compete and provide solutions that would enable UBA to win in this space and competition evolves. What this does is that we are seeing significant uptick in transaction volume.”

The CEO of Fidelity Bank Plc, Mr. Nnamdi Okonkwo, said the bank realised about N800 million by introducing electronic banking products in 2016. “This year alone, we should be able to double that and we would continue to introduce innovation along that line,” he added.

The move was part of the financial institution’s drive towards digital transformation.

In the same vein, Managing Director/Chief Executive Officer, Wema Bank, Mr. Segun Oloketuyi, pointed out that the difficult economic environment was part of the reasons for the closure of physical branches in the country.

According to Oloketuyi, “The pace at which things are changing in the digital world is rapid. Therefore, every forward-thinking brand is always looking to improve on their digital offerings. With ALAT, a digital banking platform, Wema Bank has offered Nigerians everywhere in the world a bank that is designed to meet their needs.

“For Wema, 2020 would be phenomenal and what we are seeing is over three million customers on the ALAT platform and over $200 million in revenue and best in class in cost to income ratio.”



But Director General of the West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Ekpo, cautioned banks to be careful with the deployment of digital banking services. While Ekpo pointed out that electronic banking channels were not bad, he held the view that a large fraction of the country’s population resided in the rural areas and lack basic infrastructure required to access digital banking.

“Electronic banking is not bad. But we must be concerned about those in the rural areas. Most bank customers live in the rural areas where the basic infrastructure is lacking and we must understand that we have just a small segment of urban dwellers. Even the cashless policy is not effective in a lot of areas. There is also the concern of cybercrime, which is also a threat to digital banking,“ Ekpo stated.

National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said Nigeria was not ripe for the digital banking revolution. He urged banks to continue to increase their brick and mortar branches, arguing that the cashless policy has not been successful. According to Okezie, the country must first address its major infrastructure issues before delving into the technology innovation.


Threat of Cybercrime


Despite the attraction of digital banking, the threat of cybercrime remains a concern to banks and their customers. On daily basis, bank customers are inundated with scam mails by fraudsters, in their attempt to hack into the customers e-banking details. The Nigeria Electronic Fraud Forum (NeFF) estimated that about N33 billion was lost to e-fraud in 2016 and beyond. NeFF therefore warned bankers and the banking public against responding to messages that fly into their phones and e-mails on daily basis claiming falsely to originate from banks.

The forum also said it was looking critically at measures that will protect the industry as a whole from the menace of social engineering attacks.

Chairman of NeFF, Dipo Fatokun said, “Social engineering has become rife in cybercrime attacks in Nigeria. Almost on a daily basis, a plethora of messages are sent by these criminals with the express intent to con the unsuspecting recipient using techniques that appeal to vanity and greed. It is therefore important that we look critically at measures that will protect the industry as a whole from the menace of social engineering attacks.”

But the ICT Secretary at Kenya’s Ministry of Information Communication and Technology, Dr. Kate Getao, noted that with the growing patronage of digital platforms, cyber security must become a priority for banks and other businesses.

The CEO of SMSAM Systems, Mr. Sunday Samuel, also urged organisations to strive to match technology with intelligence. “The place of intelligence cannot be over-emphasised. Every organisation that wants to build a resilient cyber security system must have the concept of PDR (Prevention, Detection and Response). This makes it very difficult for the bad guys to come in,” he said.

On his part, Network information Security Engineer at Vodafone Ghana, Senyo Hadzor, advised organisations to have offline back up for their data, to avoid paying ransom for cyber-attacks. “You need to understand your traffic flow and pattern, so that you can easily detect these attacks,” he said, adding, “big data and analytics should be key to your strategies.”


Increased Revenue


The foregoing clearly shows that despite the challenges of infrastructure and cybercrime, by leveraging digital payments, banks can potentially double their payments-related revenue, beating new entrants at their own game. This new thinking about the core value proposition of banking will, however, require an entirely new approach to operations and solutions innovation.

Nevertheless, in order to be competitive in the digital space, banks must design hands-on education campaigns to expose their customers—from cash users to cheque writers—to the advantages of digital banking. This means changing the way consumers shop, pay their bills, and manage their finances. Banks will need to undertake an aggressive drive to bring occasional users into the circle of loyal digital customers.