Ask Nigerians how often they use cash these days and they will probably tell you they now do so half of the time.
The cashless policy of the monetary authorities is one reason why. But more important than that is the enthusiasm with which banks have embraced the policy. For one thing, it saves them money: keeping cash is expensive. To discourage huge cash deposits, banks now charge a fee.
Digital banking is certainly not a novelty anymore. Electronic payments have caught on quite rapidly: not only do customers have varied options presented by banks, but non-bank institutions also now provide myriad electronic payment solutions. Street traders providing their customers with the option of paying by debit card are becoming a common sight in markets and elsewhere.
But would these same people place their deposits with a bank that only exists online? Muhammad Jibrin, chief executive of SunTrust Bank, a digital-only bank, thinks so: “Most customers of tomorrow will no longer be interested in going to the banking hall,” he told reporters in early April.
However, banks can only become as digital as the economy and society permits, argues James Agada, chief executive of CWG Plc, a technology provider to Nigerian banks: “If society and the economy continue to digitise, banks, depending on how they position themselves, can parlay themselves to become many things. The issue is therefore not about technology or product. It is more about how is a bankable to harness digitisation to better serve her customers and ensure her own long-term sustainability.”
So how has the digital-only banking model fared? SunTrust Bank is perhaps the ideal case at this time. Licensed by the Central Bank of Nigeria (CBN) in September 2015, it turned a profit after tax of N212.7m ($656,262) in its first full year of operations as a regional commercial bank. But will it be able to sustain this good start?
Another specialist online lending platform to be watched closely for clues about the viability of the digital-only banking model is Lidya. According to the company’s website, a potential customer can open an account in 15 minutes and obtain a loan within 72 hours.
In traditional banks, with all the onerous regulatory know-your-customer (KYC) requirements, the most valuable customers might secure a loan in a week. Most have to wait longer. Even so, the conventional wisdom hitherto was that digital banking was likely to face pushback from conservative customers in a society with a significant trust deficit.
The fear of fraud is a constant refrain, which is why customers still prefer established banks with brick-and-mortar operations that they can see and touch. But even they have enhanced their service offerings with digital technology. Since they are already trusted, the transition is easier for their customers. But SunTrust’s early success points to the potential of the digital-only banking model.
Andrew Nevin, chief economist at PwC, a consultancy, in Nigeria, says: “It is inevitable there will be very successful digital-only banks in Nigeria, either as a unit of an existing bank (but run separately), or by new entrants who challenge the incumbents.” Lower cost structures, urban and youth appeal are part of the attractions, argues Nevin. But such banks are also likely to offer higher savings interest rates, he suggests.
How disruptive are digital-only banks likely to be to a conservative industry? “We anticipated the disruptive nature of technology in our industry and have proactively worked to leverage technology to drive more innovation in our business,” says Adesola Adeduntan, chief executive of First Bank.
Demola Sogunle, chief executive of Stanbic IBTC Bank, another leading and highly regarded Nigerian bank, says: “I think that there is a clear opportunity for digital-only banking to happen in Nigeria as it is already happening globally. Success will depend strongly on the quality and the capacity of the infrastructure that supports any technology platform deployed, [which needs] to be scalable as well as have competent capabilities in terms of human resources to run it.”
So what did Stanbic IBTC Bank do? “We simply did an audit of the major activities that the typical customer conducts in the bank and made them digital,” Sogunle says. “So you have a personal teller machine that receives cash and makes payment, an internet banking suite that empowers customers to open accounts instantly without interacting with bank staff and a complete range of banking suites accessible through touch screens.”
First Bank’s Adeduntan flaunts his bank’s digital-savvy as well. “Today, we have a rich portfolio of digital banking products serving the highest number of clients industry wide – the widest ATM network; the highest number of active cards and we process an unprecedented number of electronic transactions in the industry,” he says.
But on the digital-only banking model, Adeduntan is cautiously sceptical: “There is still the need for some sort of physical presence or services that could solely be used for sales purposes as well as for the late adopters of technology.”
He acknowledges the threats posed by fintech and digital banks but does not necessarily think there should be an adversarial relationship with them: “Banks would do well to actively [engage] with fintechs to further enhance their customer experience and also innovate more efficiently.”