Fear of financial technology (fintech) firms dominating activities in financial services sector may not be as imminent as earlier thought but Nigerian banks appear not to be taking it lightly as they increase investment, review their digital banking strategies and unleash new technology driven products and services in the market. With slowing interest from big tech companies, experts have predicted that banks could be the biggest fintech investors, acquiring two to three fintech companies come 2019.
Fintech funding has exceeded $250 million in 2018 alone making it the most of any period. Some startups that raise big ticket funding include Branch which raised $70 million in Series B; Cellulant secured $47.5 million in Series C to expand into more countries; Mines got $13 million Series A investment to hire talent, expand into Africa and beyond; Paga raised $10 million in Series B2 to expand into Africa and other markets; Paystack raised $8 million in Series A to expand into other markets; SureRemit raised $7 million in an ICO to develop its non-cash remittance platform; and Lydia secured $6.9 million in Series A to hire skill, expand its loan book.
Armed with increased investment, some of these startups have launched ambitious products and services targeted at both existing banking customers and the millions of unbanked Nigerians. Paga for instance, recently added a feature on its mobile application which allows users send money to anyone using their mobile phone numbers for free. One Finance, the parent company of Paylater also bagged a BB credit rating from Global Credit Rating signifying that fintech companies are going mainstream.
Traditional banks have come to accept that the future of financial services is in fintech hence the urgency to shift focus from traditional banking practices. Experts believe they (banks) are more ready for the big investments in 2019 than are big tech companies. Reed Smith and Mergermarket recently released a report that showed that over 90 per cent of financial institutions say they expect to acquire two or more fintech companies in the next 24 months.
“Big tech will get into finance, but it will happen slower than people think,” Kyle Lui, principal at DCM Ventures told Bloomberg, “Financial services are both slow-moving and highly regulated. It will take time for major tech companies to understand the landscape. Their initial focus will be providing key products for their customer or user base.”
Google, Opera, Ant Financial, Facebook, and telecommunication companies like MTN Group and Airtel have all been reported to be positioning for the payment space in Nigeria. MTN and Airtel are already providing mobile money services in different African countries and hoping to secure a license from the Central Bank of Nigeria to enable them provide such services in Nigeria.
However, banks appear to be making frantic efforts to consolidate their positions in order not to lose ground to these big tech companies with massive revenue support. Access Bank of Nigeria, a tier-1 recently merged with Diamond Bank with the objective to create the biggest retail banking platform in Africa.
Increasingly, the banking industry is beginning to incorporate the traits and practices that were once the domain of fintech startups. Banks and credit unions have become more comfortable with a faster pace of innovation, using data and analytics more extensively and digitizing processes as opposed to simply turning paper into PDFs.
“The large banks want to reclaim the payments and do not want Amazon, Apple, Google and others to displace them,” Peter Gordon, chief executive officer of consultancy Payment Relationship Management told Bloomberg. “The banks understand that the current payment system infrastructure is broken. They’ll work to create new rails that are more efficient.”
