Repositioning Financial Services for Digital Transactions


The evolution of new technologies has caused a lot of disruptions in the financial ecosystem, a situation that demands a new strategic approach to addressing the new wave of digital transactions, writes Emma Okonji

Digitalisation is driving disruption and re-shaping the future across payments, banking, trade and commerce, consumer and retail industries, healthcare and other industries, leading to convergence and collocation within some sectors.

The increasingly converging and interconnected sectors are rapidly adapting to new market realities and a landscape that is rapidly being redefined and dominated by FinTech disruptors.

Data, for example, is essentially becoming a competitive weapon in the hands of discerning players, and more than ever before, collaboration is increasingly becoming the key to survival.

Based on the increasing rate at which convergence is taking place, occasioned by the increasing rate of financial technology (FinTech) disruptions, Interswitch, a digital payment solution company, has initiated a lofty idea to host a two-day Interswitch Connect Tech/Payment conference in Lagos, from 14th to 15th of September 2017, designed to bring together, the entire digital financial ecosystem to discuss, debate and evaluate the future of digital transactions, amid threats from FinTech disruptors.

Disruptions in the digital space

New technologies emanating from FinTech companies are fast changing the old ways of digital payment, thus causing healthy and unhealthy transactions in the financial ecosystem, which many players see as threat to digital transactions.

FinTech is an industry composed of companies that use new technology and innovation with available resources to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial services.

Over the time, their technology solutions have been embraced and adopted by some players in the financial ecosystem, while some players still see some of the solutions as big threat to digital transaction.
A recent survey report released by PricewaterhouseCoopers (PwC), raised deep concerns over possible disruption of Nigeria’s financial service sector by the 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 and Platform, focused on the FinTech innovation. The report concluded that FinTech solutions 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 that are trying to shake up 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.”

The threat

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 offer 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.

Taming threats with Interswitch Connect

Some experts have suggested that 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, will be ideal to address concerns of those who feel threatened by FinTech solutions.

Many experts are of the view that financial players must 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,” they said.

In the midst of the confusion, the organisers of Interswitch Connect have said the conference will discuss various strategies that will rest the fears of most financial players, as they relate to FinTech disruptions.

According to the organisers, the two days conference would feature keynote presentations, panel discussions, breakout workshops, case study presentations and product demos from the leading innovators and Original Equipment Manufacturers (OEMs) in the financial services industry, culminating in the Interswitch Connect Gala night where people would unwind, network and recognise key partners and clients.

The conference promises to be the first of its kind and will incorporate thought leadership within the ambits of the payments/fintech space with the keynote delivered by futurist and award winning author, Brett King.

The scope of the conference will be extended to include top OEM partners such as Thales, ACI, Stratus & Finastra and other knowledge partners such as PwC, MISYS, Kantar TNS, as well as Ecosystem partners including AfreximBank and TRANSSION Holdings. OEM Partners will also have an opportunity to present their solutions to the target audience.

Budding FinTech ecosystem

Some experts are of the opinion that FinTech should be groomed to provide financial services that will bring about healthy disruptions in the financial ecosystem, in order for it to gain traction and potentially locate Nigeria on the global map

as a FinTech hub. They are equally calling for collaboration between FinTech companies and the financial institutions, that will bring about the right mix of technical skills, capital investments, government incentives, regulatory framework and an entrepreneurial and innovative mind-set, as the catalyst needed to establish FinTech as a key enabler of financial services in Nigeria.

The past three years have been formative for the Nigerian FinTech sector and saw the emergence of numerous FinTech start-ups, incubators and investments.

Building a strong FinTech ecosystem where startup will engage in external partnerships with financial institutions, universities, research institutions, technology experts and government institutions is expected to facilitate growth and innovation in the FinTech sector, according to expert views.
The plan to hold the Interswitch Connect conference, will help address all grey areas and fears envisaged by financial players, as regards the perceived threat to business, posed by FinTech players.