There are growing concerns over the effectiveness of the Central Bank of Nigeria’s ‘Shared Services’ project for deposit money banks in view of the banks’ rising spend on Information Technology (IT).
Records show that banks spent an estimated $900 million on IT infrastructure in 2013 in their quest for customer satisfaction, cost-effectiveness and market dominance.
This figure, in stark contrast to the objective of the CBN’s ‘Shared Services’ initiative – a project that was expected to enable banks pool resources to acquire IT infrastructure for better operational efficiency and cost saving – shows that the project has not lived up to its billing.
The CBN had started the project in collaboration with deposit money banks with the specific aim of cen
back offices and industrialising common processes. In 2010, the apex bank had declared that the ‘Shared Services’ project would see the overhead costs of banks fall by 30 percent in the next three years.
“In other economies where ‘Shared Services’ has been implemented, there’s huge cost saving and better operational efficiency. Our environment is very unique and different. There are challenges with the implementation because the desired results are yet to be seen,” said Victor Alaofin, chief executive officer, Ryte Internet Technologies.
According to him, the initiative was expected to increase efficiency by aligning IT standards across the industry, while driving data integrity and enabling information exchange.
Experts also say that if the shared services initiative was properly implemented, banks would have seen significant cost reduction in operation/maintenance of IT infrastructure. The bulk of banks’ IT spend is gulped by data management, bandwidth purchase, networking, power and infrastructure upgrades to meet the demands of the changing business environment.
Industry insiders are of the view that Nigeria’s cashless initiative, which seeks to limit cash-based transactions, is also driving banks’ investment in technology acquisition and implementation. This follows on the quest of financial institutions to expand and strengthen their portfolio of electronic channels in a market that is becoming increasingly competitive and sophisticated.
Recent reports, however, indicate that banks, discount houses and other financial institutions in Nigeria, Africa’s largest economy, have gone on a massive borrowing spree, increasing their borrowing from the apex bank by some 210 percent in one month, in order to manage the liquidity crisis.
Martins Ndigwe, chief executive officer, Mayakorp Nigeria Limited,
an indigenous IT company which specialises in risk management, security and compliance solutions, said the cost of deploying IT infrastructure could be lower if banks were embracing the shared services model, which involves the CBN building a data warehouse for all banks.
“The IT spend last year for all of the banks was close to $900 million. There was a time we started a shared service initiative that would have been an opportunity for a quick databank in Nigeria,” said Ndigwe in an interview.
According to analysts, rising suspicion amongst banks in the country as they jostle for market share has contributed immensely to the low effectiveness of the shared service project, especially in the area of IT.
“There is unnecessary competition amongst banks in the country,” said Alaofin of Ryte Internet Technologies, in an interview with BusinessDay.
“It is the same thing that happened with the ATM consortiums. The big banks had declared support for the joint initiative and even put down money as a sign of good faith. But they still continued rolling out individual machines across the country and before you knew it, the consortiums faded away,” Alaofin said.
Forecast on the global financial services industry by IDC indicates that the sectors’ IT spend will top $430 billion in 2014. The report predicts that banks will account for half of the worldwide total in 2014 with IT spend to the tune of $215 billion.
Ben Uzor Jr
