The Central Bank of Nigeria may have handed Nigerian bank customers a Christmas present with the slashing of most charges and fees for banking services, but it also gave banks a competitive advantage against fintech companies with lower capital base relying on low fees to grow adoption.
With effect from January 1, 2020, charges on electronic funds transfer, for instance, will attract N10 for transactions below N5,000; N25 for those between N5,001 and N50,000, and just N50 for those above N50,000.
The new Guide to Charges by Banks, Other Financial and Non-bank Financial Institutions was contained in a circular issued by the apex bank on Sunday, December 22, 2019.
“In a bid to encourage financial inclusion and to reduce the burden of bank charges on consumers of financial service, CBN has issued a revised Guide to charges by Banks, Other Financial and Non-Bank Financial institutions in response to the evolution in the financial industry over the last few years,” the apex bank said on its twitter handle on Monday.
The new guide also includes a downward review of charges for electronic banking transactions, removal of Card Maintenance Fee (CAMF) on all cards linked to current accounts, reduction in the amount payable for cash withdrawals from other banks’ Automated Teller Machines (Remote-on-us), review of other bank charges to align with market developments, and inclusion of new sections on accountability and responsibility and a sanction regime to directly address instances of excess, unapproved and/or arbitrary charges.
Johnson Ajani, a digital banking expert, noted that a review of the percentage of digital banking income compared to banks’ Profit Before Tax over the last five years shows that digital banking is better rendered as a tool to recruit bigger businesses rather than a money-making machine.
“Banking is financial intermediation, not card maintenance charges and co,” Ajani said. “CBN took the right decision to force banks to actually do the banking business.”
Mobile payment platforms such as OPay, PalmPay and digital banks like Kudabank and Carbon have long tapped into customers’ complaints of arbitrary bank charges to convince them they were a better alternative.
OPay’s promise of N10 transfer fees early in 2019 for all transactions – at a time banks were charging N52 – brought it instant fame and $5 million in daily transaction volume as well as nearly $200 million in two rounds of investing in 2019.
Kudabank, a Nigerian online-only bank, describes itself as ‘Bank of the free’ because of its offer of 25 free interbank transfers every month for all its existing customers and everyone who a Kuda account before January 1, 2020. The digital bank now counts as achievement over N6.5 billion worth of transactions processed through its platform and $1.6 million investment.
With the new Guide to Charges by the CBN, these fintech companies would be scrambling for new strategies to either retain old or attract new customers as banks have every reason to intensify their drive to grow their customer base.
“Looks like the customers and the banks are the winners here,” said Olaoluwa Samuel-Biyi, co-founder of Sure Group, a fintech company. “The fintechs will need to come up with better propositions for customer experience to stay ahead.”
Rahmon Ojukotola, a financial adviser and founder, StartCredit, agrees that the reduction in fees would affect the banks much less than fintech companies.
“The banks are incredibly profitable. GTB’s profit margin was almost 50 percent last year, a partial reduction in fees won’t change that,” he said. “They have endless amounts of ways to charge customers. The issue is with the new digital-only banks with a low capital base competing primarily on low fees. This will make it harder for them to compete with banks as the advantages may not be sufficient for customers to move to them.”
However, the fintech companies may gain the advantage if they were to concentrate on service and user experience.
“In fact, that’s the most likely way for them to be bought out by the big banks,” Ojukotola said.
FRANK ELEANYA
