One day, all banks will be digital-only.
Gone will be the days of physical branches, human tellers and long queues. All customer interactions with the bank will be through digital channels. It will happen, it’s only a matter of when.
Already, we’re seeing a steady roll out of digital-only banks all over the world -- in South Africa, the Middle East, Europe and the US. However, the journey to digital-only in Nigeria will be an interesting one.
Right now, according to the Central Bank of Nigeria, we have 23 commercial banks, 1000+ microfinance banks and many other financial institutions like primary mortgage institutions, bureaus de change etc. For years, these institutions have operated a certain type of model involving a lot of person-to-person interfacing and built considerable infrastructure to run the business.
Unless by some extremely weird twist of fate, these institutions, especially commercial banks, would maintain their current business models and delivery channels.
However, several fintechs have entered into the financial services ecosystem, many of which have unbundled the banking experience -- payments and remittances, wallets and savings, credit and lending, and so on. Even though some of these new players have been tagged (or tagged themselves) “fully digital banks”, we’re still some ways off from actualising the potential of a fully digital model.
First it would be helpful if we all got on the same page about the definition of a truly digital bank.
One of the problems of the term "fully digital bank" is, how do you define it? Already, all banks are more or less digitised to some degree. ATMs, POS terminals, online channels, mobile apps, USSD codes etc. These are all digital interfaces banks have deployed in the Nigerian market. So saying, a “truly digital bank” more or less means nothing.
Also, at the moment, Nigerian banks run a hybrid model where the “digital-only” sides complement the brick and mortar branches.
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So far so good.
However, a truly digital bank, is a digital-only bank
Digital-only implies the bank will have no physical, brick and mortar branches. All interactions the customer has with the bank will be through digital channels i.e. in-app, phone calls, the internet and chat channels etc. That’s not to say the bank won’t have offices. In fact, there’s a slew of infrastructure in the background running the banking experience -- software, hardware, engineers, and customer service personnel all working together behind the scenes to deliver a one-of-a-kind experience.
This is one major appeal of the digital-only model. Despite all the intricacies of running a banking system, the customer needs to only press a few buttons or make a phone call and money moves. It’s fast, instant and sweatless. But a lot is going on underneath the buttons to provide that ease and immediacy.
It is a big deviation from the traditional banking system. The digital model consolidates new and existing technologies to create a unique and, hopefully, seamless experience for the customer.
It is difficult to pull off especially in a country like Nigeria with so many inhibitors but it’s doable. One of the inhibitors to the success of a digital-only banking model, is consumer habits.
Habits are tough to break especially when it comes to money. It is why financial literacy is a huge part of driving financial inclusion campaigns. When it comes to money, people have deeply rooted psychological factors which influence their decisions on who, where and how they bank.
Another inhibitor for banks going fully digital is the limited addressable market. Even though there has not been any research to ascertain the figures, smartphone penetration in Nigeria still has some way to go. Meaning that, the primary target for this kind of model is the smartphone wielding customer. To open a bank account, you need to fulfil KYC requirements. Scanning, snapping and uploading pictures of required documents are things that can only be done with a smartphone.
Thus, people without smartphones are excluded from experiencing the digital-only banking system directly. Which dovetails into another problem -- the lack of a cohesive identification framework. The BVN would have worked wonders to tackle this problem but our identity database is still quite fragmented.
The list of inhibitors goes on and on. Which brings me back to the question: are we ready for digital-only banking?
My answer is still a resounding yes.
I’m a firm believer that banking should be faster, smoother, intuitive, especially in the digital age. All banks can and should be delivering seamless banking experiences to customers all over the country.
Nigerian financial service providers have long been viewed as albatrosses -- slow to adapt and innovate. The ecosystem itself is notorious for its sluggish pace of innovation and aversion to experimentation.
Innovation is the catalyst that moves the needle forward in every technological ecosystem. The entry of digital-only banks has the potential to utterly (at the risk of reusing a cliched word) disrupt the financial services sector and introduce a different and better experience for the consumer.
With more players tinkering with established banking business and delivery models, it’s sure to jumpstart another level of innovation in the ecosystem.
With the entry of more digital-only banks with their novel delivery models, things are sure to get interesting real quick.
Edmund Olotu is a serial entrepreneur with companies including Novira Therapeutics, sold to Johnson & Johnson for $600M and TechAdvance: a utility payment company processing more than ₦21b annually.