The past few weeks have been quite challenging for traditional banks in Nigeria. The core banking migrations have halted their services, and some users have been unable to access banking services.
Many of these users have turned to fintech platforms that will allow them to perform financial transactions, exemplifying the importance of these platforms, especially at times like this.
While many customers are displeased with these traditional banks, the migrations are essential for enhancing security and efficiency. Core banking migrations refer to the process where a bank upgrades or replaces its core banking system — the central software that manages its most critical operations like account management, transactions, loans, and payments.
This system is the backbone of a bank's services, and upgrading it increases security, efficiency, and an institution's ability to handle new technologies. As banks try to stay competitive and meet customer demands for faster, more reliable digital services, these migrations become necessary.
Fintechs, however, already have these upgrades. Unlike traditional banks that rely on legacy systems, some of which date back decades, fintechs use flexible, scalable software that can be easily updated without overhauling the entire system.
Since their technology stacks are designed to be agile and adaptable, fintechs don’t need to pause operations to perform large-scale migrations. They can make incremental updates and improvements in real-time, ensuring that services remain smooth and uninterrupted for users.
Fintechs vs traditional banks
From transaction speeds to easy accessibility, fintechs like OPay have arguably better services than most traditional banks. This superiority has played out well in the past few weeks.
However, this does not diminish the importance of traditional banks in Nigeria's financial system. While they may not have the agility of fintechs, they have deep-rooted expertise, regulatory compliance, and long-standing trust with customers.
Traditional banks have also been instrumental in the growth of fintechs. Fintechs leveraged partnerships to offer certain services before regulations were created to cater to those services.
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But the narrative of fintechs being a threat to traditional banks is heightened because of the failures of traditional banks. Users who have turned to fintechs like OPay might be inclined to stay with such platforms. So what does this mean for traditional banks and Nigeria's financial system?
While these banks are taking steps to upgrade their core systems, the agility and responsiveness of fintechs during this time have set a new benchmark for customer experience, forcing traditional institutions to rethink their long-term strategies.
For Nigeria's financial system in general, this period highlights the importance of a diverse system. Fintechs have proven to be an important part of the system, and hopefully, these time-outs by traditional banks inform growth on the part of players as well as regulators.