Should Banks Fear Fintech?


 Contrary to the perceived threat of technology disruption to the banking sector, experts have allayed those fears, insisting that Fintech can and will revolutionise banking. Emma Okonji reports

Financial technology (FinTech) experts who assembled in Lagos for a two-day  disruptive innovation conference held recently at the instance of Interswitch, a major player in the FinTech space, identified collaboration as the way  forward, with transaction banks and fintechs leveraging their respective strengths  and minimising their weaknesses.

They were of the view that technology disruption, especially in the financial space, which is changing the traditional and expensive ways of financial transactions, will assume a new dimension in the near further, in such a way that banks will begin to lose customers to Fintech operators if they refuse to collaborate.

FinTechs are technology solution providers, whose solutions are currently disrupting the traditional ways of carrying out financial transactions, thus threatening the continued monopoly of banks as custodians of customers’ bank accounts.

Given the evolution of disruptive technology across all sectors of the economy, the financial technology experts were of the view that banks would lose greater percentage of their customers to FinTechs, should banks down-play the essence of collaboration.

Brainstorming of FinTech 

Giving reason why he had to assemble financial technology experts to discuss the future of banking, the CEO, Interswitch, Mitchel Elebge, said Interswitch, through the Interswitch Connect, had been involved in engaging technology financial experts in the past years, geared towards proffering solutions to the challenges around financial transactions. According to him, in the past, the focus had been on open interaction on the perceived challenges in the banking sector. He, however, explained that this year, they decided to bring together, fintech experts from within and outside the country, to discuss disruptive technology innovation in the banking sector, with focus on FinTech disruptions.

“We are gathered not to sell Interswitch products but to discuss the latest trends of technology disruptions, especially as it affects the banking industry, with a view to reposition the banks for effective service delivery. The gathering is designed to benefit all players, including the FinTechs, banks and partners.

We chose disruptive innovation as the focus this year because so much has been disrupted with technology and there is need for synergy among various players that have similar goals,” Elegbe said.

He explained that one of the experts, Brett King, an Australian entrepreneur and author who co-founded a New York mobile banking company called Moven and published several books, has repository knowledge in disruptive innovation, hence he was nicknamed the ‘King of Disruptions.”

Elegbe was optimistic that knowledge gained from the event would help in key management decisions in the daily operations of the banks and FinTechs.

“Interswitch had always been a technology provider to banks for the past 15 years, having pioneered several firsts in the banking industry like Automated Teller Machines (ATMs), Point of Sales (PoS) machines among others and we will continue to support the banks to enhance customer experience,” Elegbe said.

Traditional banking

The Nigerian banking system dates back to the colonial period, occasioned by the activities of the extra territorial merchants in the former West African colonies and the establishment of settle territorial government created needs.

During the period, the bank for British West African was established in Lagos mainly to facilitate commerce between Nigerians and their British counterparts in business.

Thereafter, the Barclays Bank, the National Bank of Nigeria Ltd, and the African Continental Bank, were established.

The technologies driving the banking system then were crude, as customers needed to obtain tally numbers and queue for hours before they were attended to by few cashiers. The traditional system of banking as introduced by the western world later changed as technologies evolved. The use of cheque books and slips for deposits and withdrawal were introduced to ease baking translation, and this later metamorphosed into the use of Automated Teller Machines and Point of Sale (PoS) machines to facilitate cashless economy and ease of banking.

New trends in banking 

As technologies evolve, customer taste and lifestyles also changed, prompting the development of technology solutions that will meet customers’ needs and lifestyles, as they relate to financial transactions.

The emergence of FinTechs changed the whole narrative in the banking sector as the FInTechs continue to come up with disruptive technology solutions that have changed the face of baking globally.

The new trend is that customers are gradually shifting from the physical banks, to operate outside the banks, using their mobile devices, enabled by apps designed and develop by FinTechs.

Some of the apps allow people to store money electronically, and also have access to the money through their mobile devices, without opening bank account, thus breaking  the monopoly of banks who hitherto were the only custodians of customers money, through deducted bank accounts.

The experts who spoke at the conference, insisted that the current trend of opportunities for banks was not about building physical bank branches, but by creating banking apps that would bring about ease and comfort to financial transactions and that the best way to achieve it is by aligning with FinTech to develop new technology apps.

Experts’ views

In his keynote address at the Interswitch Disruptive Africa conference, one of the speakers, Brett King, gave analogy of new technology trends that are shaping the entire globe. He said technology would rule the world and would develop more robots that would take the jobs of humans. He focused more on artificial intelligence (AI) in technology evolution, and explained that given the rate of technology growth, Africa and the entire globe would soon be ruled by AI technology applications. He advised all sectors, especially the banking sector, to be prepared to embrace the disruptive innovation that would come with artificial intelligence.

King said banking transactions have moved from Bank 1.0, 2.0, 3.0, to 4.0, and advised banks to adapt to the changes through collaboration with FinTech, or lose their bank customers to FinTech players that are already creating apps that enhance banking transactions.

Founder, CWG Plc, Austin Okere, an Entrepreneur in Residence at the Columbia Business School, New York, who spoke on regulation as an aftermath of the emergence of FinTech, said: “The world is tilting towards digital currency, a situation where banks will no longer be custodian of physical cash, and this calls for a new regulatory framework that will enable FinTech thrive in the financial sector.”

The Chief Executive of Officer of Diamond Bank, Uzoma Dozie was of the opinion that the traditional method of banking acquired from the western world, are becoming too expensive to the banks, owing to the increased size of bank customers, and that the new wave of banking is digital. He therefore, admitted that banks must coexist with FinTech to provide more efficient and cost-saving services to bank customers.

The Future of FinTechs

The future of FinTech is bright, according to Accenture’s report, which found that investment in FinTech around the world has increased dramatically from $930 million in 2008 to more than $12 billion by early 2015.

The FinTechs employ Artificial Intelligence, Big Data and Machine Learning to glean the credit habits of customers from their mobile usage, and bank customers are gradually tilting towards the services of FinTechs.

According to Okere, the operators of FinTechs were becoming more innovative and at the same time, disruptive in their service offerings that seek to fill important niches in the credit markets.

“They enable people who have historically been shunned by banks to get loans in order to expand their businesses or to pay off credit card debt at low rates. International money transfers, which have long been a thorny issue for entrepreneurs, are getting easier as well. For smaller transactions, services like PayPal automatically convert currencies, so it’s easy for a customer to purchase goods from anywhere in the world,” Okere said.


Call for collaboration 

The financial experts advised Nigerian banks never to feel threatened by the emergence of FinTech operators in the financial space, but to rather see them as technical partners in business and make haste to collaborate with them.

The financial experts were of the view that banks would lose greater percentage of their customers to FinTech, if they ignore collaboration.

They explained that customers taste and lifestyles were fast changing with technology evolution in such a manner that customers are seeking better technology solutions that will enable them carry out financial transactions from their mobile devices without going to the banking hall and without even opening a bank account. They said such solutions were currently being offered by FinTechs, and that the way forward is collaboration that will drive efficiency and sustainability.

Okere who spoke extensively during a panel session at the conference, said Fintech companies in emerging markets had shown that with the right technology, it is possible to leapfrog to new forms of banking.

“Truth be told, banks are best placed to continue to influence the future of financial services because of their huge branch network, solid reputations, and risk controls, as well as years of customer cultivation and loyalty, and they seem to have come to appreciate their own strengths. For instance JPMorgan’s $9.5 billion budget on technology, with $3 billion spent just on innovation according to their 2016 annual report is quite a significant pile. Banks however, have to radically change the ‘we win when you lose’ mindset,” Okere said.

FinTech regulation 

Addressing the issue of regulation, Elegbe said technology should not be regulated for the sake of regulation. He, however, said that since people were involved in the use of technology to achieve certain goals, then those involved should get some forms of protection, and that is where regulation comes in.

 “Regulation is not meant to stifle growth but there is need for regulation,” Okere insisted.

One of the Directors at the Central Bank of Nigeria (CBN), Musa Itopa, who represented the Director, Banking and Payments System Department at CBN, Dipo Fatokun, said: “The banking operation is gradually shifting from physical bank to banking services, driven by FinTech and the regulation has to change from what it used to be.”  The essence of regulation, he said, was to maintain financial stability and ensure fair play between the banks and the FinTechs.