Expanding Financial Services through Digital Payments

Expanding digital financial services in the country can spur inclusive growth and help drive financial inclusion, writes Obinna Chima

Digital financial services (DFS) can expand the delivery of basic financial services to the poor through innovative technologies such as mobile-phone-enabled solutions, electronic money models and digital payment platforms. Also, digital channels can drastically drive down costs for customers and service providers, opening the door to remote and underserved populations. That is why financial regulators around the world have realised the tremendous role(s) DFS can play for financial inclusion and seek to unlock this potential by creating enabling environments for digital financial services.

According to the Consultative Group to Assist the Poor (CGAP), the high cost of building and operating brick-and-mortar bank branches has been a major obstacle for extending financial services to the poor. Physical bank branches are expensive to maintain in far-flung communities, while traveling to urban areas remains costly for many rural customers. However, unbanked individuals are increasingly gaining access to financial services through digital channels. Banks, microfinance institutions, mobile operators, and third party providers are leveraging mobile phones, point-of-sale devices, along with networks of small-scale agents, to offer basic financial services at greater convenience, scale and lower cost than traditional banking allows.

According to estimates, more than 400 million people are linked globally through basic mobile payments services, allowing them to send money, pay bills, or purchase prepaid electricity with greater ease, affordability and access, a 2015 GSMA Global Adoption Survey had revealed.

That is why banks in Nigeria have been advised to adopt strategies to enable them increase investments in innovative payment solutions as well as to collaborate with the increasing number of financial technology companies in order to sustain customer loyalty and remain profitable in the new global payment order.

These were part of the recommendations made by banking and electronic payment experts who spoke at the annual retreat of the Committee of E-Banking Industry Heads (CeBIH) held in Abuja recently.

Among other things, they highlighted the inevitability of the emergence of fintech companies and the challenge they posed to banks and the traditional payment methods, stressing that banks have to become equally innovative to compete with the new entrants.

The two day retreat focused on “Disruptive Technology and the Future of Payments, with emphasis on how banks and other stakeholders in the e-payment system can position themselves to take advantage of the tide of financial technological innovations.

Fintechs and Enablers

Fintechs, according to the Director, Non Traditional Channels West Africa, Mastercard, Uwa Uzebu, are one of the forces driving the exponential growth in digital payment.

He noted: “In 2015, digital payments accounted for eight percent of total global retail payment of $16 trillion adding that this is projected to grow to 24 percent in 2020 when global retail payments would have increased to $21 trillion. The number of FinTech Start-Ups has tripled and funding has grown seven times over the last decade”

In his contribution, quoting a study by Accenture, the Managing Director/Chief Executive, SystemSpecs, owners of Remita, Mr. John Obaro said: “A total of $5.4 billion was invested in fintech companies globally in the first quarter of 2016 alone. While global investment in fintechs in 2015 stood at $22.3 billion.

“Fintech inventions have the potential of altering existing financial systems, and revising the known roles and significance of banks.”

On his part, the CeBIH Chairman, Mr. Dele Adeyinka said it became evident that the key to success in the digital world was to evolve continuously in order to remain competitive and relevant to consumers. The way in which individuals and businesses accept payment is quickly becoming the next battleground of innovation, Adeyinka said, adding that consumers are now surrounded by a wealth of technologies.

“The payment industry has recently witnessed the entry of diverse nonbank digital players - both technology giants and start-ups who are presenting increased competition for banks.

“While these categories of entrants have generally not been major threats to the banking and payments industry in the past, the aggressive nature of the digital players, the prominence of smartphones as a channel and rapidly evolving customer expectations have all made a difference in recent past.

“To maintain the customer relationships and stay relevant, there is a need for all stakeholders to respond to these changes with new strategies, capabilities, and operating models,” he added.

Digital Disruption

In her keynote address, the Chairman, Board of Directors, First Bank of Nigeria Limited, Mrs. Ibukun Awosika advised that banks must embrace the change represented by fintechs.

“Change is here and disruption is real”, she noted, adding that, “No institution will survive without making the change to embrace digital innovations.”

She said that one of the ways banks can do this is to create specialised funds to finance young minds to create innovative payment solutions.

Also emphasising the need for investment in digital innovations, Technology and Digital Leader, West Africa, Akintola Williams Deloitte, Oluwole Oyeniran said “Payments technology is evolving at an unprecedented speed. Contactless cards, online payments, mobile payments, are all becoming more prevalent. Keeping pace with those technologies will require major investment from banks, and they have to contend with the fact that their new competitors-for example Paypal and Apple already have an edge in digital technology. Banks will need to ramp up their investment to be able to make most of the opportunities that exist in payment technology.”

On his part, the Chief Executive Officer, Interswitch Group, Mitchell Elegbe stressed that while it was necessary for banks and other payment service providers to adopt disruptive technologies, it was not a sufficient condition. He said adoption of technologies must be complemented by focusing on glamour and growth, adding that disruptions around technologies that are cool will continue to grow for years. “You will also have to create your own monopoly, remain flexible and ready to adopt, after all you should expect to be disrupted. And beware of activity trap. Do not work so hard climbing a ladder only to discover it is resting on the wrong wall”.

But the Managing Director/Chief Executive, E-Transact, Valetino Obi, urged e-payment providers not be perturbed by the emergence of disruptive technologies, but should focus on how to use them to add value to their services and to the financial ecosystem.

Such technological disruption, he noted had become the global norm adding: “There’s a major global shift in consumer behaviour. People across many diverse countries and cultures are evolving a digital lifestyle.

“Across the business landscape, a war is going on, and the battles are being fought on multiple fronts including business models, channels, brands, customers, technologies, and more. When it comes to business models, structural barriers are coming down, empowering everyone to disrupt each other’s businesses. And in banking, banking has left the building; It’s no longer in the banking halls.

“In the near future, consumers will need banking services, but they may not turn to a bank to get them. Blockchain is emerging as a potentially disruptive force capable of transforming the financial services industry by making transactions faster, cheaper, more secure and transparent.”

To leverage on these developments, banks, he said must follow the three step model for disruption namely exploration, discovery and innovation. “Exploration produces discoveries and these discoveries promote and produce innovation,” he said.

Furthermore, Obaro noted that while most banks consider Fintechs as a threat, they can both collaborate to make a fortune. He said: “Banks are also worried that fintech firms would end up dealing directly with customers. Fintech firms are innovative and not risk-averse, while banks are highly regulated and have to abide by strict security requirements. Many fintech solutions are ‘greenfield’ and so are perceived as risky.

“Hence banks would only allow trustworthy solutions into their system, so they are skeptical about many fintech inventions. However, Fintech has the capacity to once-and-for-all address many of the challenges banks’ customers encounter and thereby increase easy and safe access to money; and improve banking experience; as well as reduce transaction fees.

“Banks are the custodians; technology is the enabler. Banks will achieve further cost efficiency. Banking services would be dispensed at a greater speed. And financial inclusion would be entrenched in Nigeria, extending banking services to Nigeria’s unbanked population.”

Similarly, the Digital Director of Etisalat, Adia Sowho, emphasised the need for collaboration. However, Sowho pointed out that telcos face similar challenge from new technologies, adding that Etisalat responded by developing quick wins for partnerships and structured itself for it. Banks, she said can do the same.