Fintechs Eye Banks’ Deposit, Loan Segments

Obinna Chima

Some fintech firms have started targeting the deposit and loans segments of traditional banks, with a view to taking part of the market share of the financial institutions.

The Financial Derivatives Company Limited (FDC), disclosed in its latest report sub-titled: “Is Fintech a threat to Traditional Banks?”
It cited an example of PiggyBank, which uses recurring card payments to allow its customers create and fund a savings account on their mobile phone.

This, according to the report, has proven popular among working class Nigerian youths as it offers an alternative to a traditional fixed deposit account which requires a number of visits to a physical branch to set up.

“A logical next step for Piggybank would be to start offering loans. In the same vein, technology can prove an advantage, as algorithms have enabled start-ups to assess credit worthiness and deliver loans quicker than traditional banks.

“Even if a fintech firm does not successfully disrupt the banking industry, it has created cost-effective models that also provide quality financial services,” it added.

In the last couple of years, there have been a rise of many fintech platforms; from payment solutions to online lending applications, while the older fintech players like Square, Ant Financial and Sofi continue to hold strong.
Traditional banks have so far, remained resilient to this disruption, mainly due to advantages built up through their branch networks and expertise in providing credit.

The resilience also comes from their consumer base, which have been slow to adopt fintech their financial services partly due to a lack of urgency and a lack of awareness about the strategic benefits of the new tools, and partly due to concerns about privacy and security.

But the report stressed that fintechs present a threat to traditional banks as their platforms tend to broaden the scope of available financing, offer customers bespoke services at a lower cost and reach previously unbanked populations.

“While banks will adapt in the short term, the greater risk is in the long term as the world becomes more automated.
“The future of traditional banking in Nigeria will depend on how banks can quickly utilise technology to their advantage,” it added.

Fintech refers to an evolving range of start-ups and companies leveraging technology to provide financial services. Fintech models provide consumers the convenience that banks cannot yet match. For example, you can request a loan from ‘Paylater’ and receive a credit alert in two hours.

One can also get a new dollar debit card from ‘Get Barter’ and open a fixed deposit account with PiggyBank.
“In short, fintech platforms offer customers a superior service, at a lower cost, through the efficiencies of technology,” it added.

Banks are financial intermediaries: they take money from people looking to save (deposits) and give to people looking to borrow (loans). They generate interest on loans, and they collect fees and commissions on numerous value added services to the depositors, for example: money transfers, foreign exchange transactions, and bill payments.
A significant portion of bank revenues come from net interest income – the difference between interest accrued and interest paid out.

“Nigerian fintech platforms are yet to challenge this income stream. Nonetheless, banks have taken note. Wema Bank recently launched ALAT a digital only bank with a distinct feature – the ability to create and fund a savings account on your mobile phone.

“The greater threat from fintech on the banks’ operations will come in the medium to long term.
“Traditional retail banks are facing structural vulnerability issues like declining deposits due to multiple alternative investment options and the lack of innovation around products and services,” it added.

It, however, pointed out that another way banks can respond to this competitive threat would be by learning from and adopting best practices from the same firms that are challenging their very existence.

“Time is running out for banks to start adapting. The new wave of digital banking is upon us and those that fail to embrace new technology and keep up with the pace of the new digital age will simply go out of business,”it warned.