Bank technology and the unhappily banked

I have always said that the future of African fintech (Financial technology) is banking but the future of banking is NOT fintech. Buying or owning technology by the banks is not enough if they can’t nimbly provide the services. There is a rapidly growing service chasm between banks and financial technology companies. Challenger financial technology companies will capitalise on this gap and could upend incumbents the same way new generation banks took over dominance from older banks in the past.

People moved from older to newer banks a couple of decades ago because of service-related issues. Those “new generation banks” (as they were called) have now grown old. History seems to be about to repeat itself as another generation of financial services companies, powered by technology, is springing up. New technology standards now make it much easier to set up a financial services company serving a niche customer base than ever before.  The only thing that stands between Nigerian banks and technology-powered disruption is not capital or technology; it is the regulator.

The regulator claims to act in the interest of the economy, but the economy is built by the people who are not being appropriately served. People would instead remain unbanked because being a bank customer provides more friction and no significant advantage. An airtime trader I know made a loss of four million Naira on one billion Naira turnover because of bank charges. He only now does cash transactions.

I told someone recently that if telcos had the same customer service issues that Nigerian banks currently subject their customers, the telco regulator would have heavily penalised them or shut most of them down by now. The reality is that competition would have forced the telcos to shut down even before the regulators mandated it. The Indian telecoms challenger company “Reliance Jio” on-boarded 160 million customers in just over a year after launch. That is the entire population of Nigeria for only one company! The competition in telecommunications and pressure on voice revenue by OTT (Over The Top) channel players has forced efficiency.

I believe the banks are ill-equipped to serve our vast population. They are struggling to catch up in a world where technological advances already exist to provide services to customers at scale.  Banking worldwide is seeing the same pressure as telco from financial technology companies that have emerged as “challenger banks”.  It is inevitable that well-capitalised challenger banks will soon appear to close the gap left by African banks.

The unhappily banked
There was a time in the past when merely going to pay or withdraw “your own money” from a bank meant waiting in long queues and taking what we used to call “tally numbers” to indicate when it is our turn. Cheques used to take days to clear; the entire financial sector was slow and prone to fraud. At the same time, making phone calls was also that difficult. Few people owned phones, and we used to also queue at street phones not only to make calls but receive calls.

I happen to have been in both telco and banking industries (post Y2k) when deregulation and tech overhaul was taking place. The response by both industry regulators to the quality of service issues is what led us to the progress we have made today. The banking regulator encouraged electronic banking and banks went on a spending spree to upgrade their infrastructure. New banks who were “technology-driven” were also given licenses to challenge the older banks. It is now possible for me to make USSD transfers via my phone from one bank to the other but I don’t think this alone is enough.

Bank technology seems to follow Murphy’s Law, an adage typically stated as: “Anything that can go wrong will go wrong”. A lot of things usually go wrong, and they are not fixed on time leading to customer discontent and even churn. Our population has also snowballed in the last twenty years. While the telecommunication companies have tried to keep pace with the growth, the financial service institutions have not fared so well.

Bank customers are unhappy. Banking halls are full again. “Tally numbers” have returned in a more sophisticated manner and this time it is mainly for people with customer service-related issues. It has taken two months for a bank to replace a faulty security token tied to my bank account. The service gap seems to be widening daily.

There is an increasing air of despair and frustration at the dismal service levels, and this can only mean one thing for the banks—the customers will seek better alternatives. Those alternatives are already providing services like consumer credit and others. The regulator keeps talking about reaching the unbanked with services, but those services are currently sub-par.  There is not enough focus on the “unhappily banked”. Banking cannot be forced on the population when banks do not provide services at a level that inspires confidence or delight. The handwriting is on the wall for banks, and it is written digitally.