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Adesola Adeduntan, CEO of one of sub-Saharan Africa’s oldest and largest private sector banking groups, reviews the dominant trends of the sector in Nigeria and the wider West African region and discusses the relationship between the banking industry and the increasing number of telcos which are providing alternative financial services. Interview by Rafiq Raji.
How do you think Nigerian banks would respond to telcos’ imminent foray into mobile money?
I would like to note that the imminent foray of telcos [telecommunication companies] into mobile money is being driven by the Central Bank of Nigeria’s focus on deepening the financial services sector by promoting financial inclusion and enhancing access to financial services for the low-income earners and unbanked customer segment.
The recently released guidelines for the licensing and regulation of Payment Service Banks by the Central Bank of Nigeria provides the required regulatory platform for the participation of new players (telcos, banking agents, retail chains, postal services providers, existing mobile money operators, FinTechs, and financial holding companies) in the provision of banking services to individuals and small businesses.
Of all the potential categories of new entrants or players, the telcos are better positioned to make significant competitive impact in the industry given their existing advantage with respect to investment in technology/digital infrastructure and access to target customer information/data.
As telcos prepare to join banking industry incumbents in the provision of financial services to individuals and small businesses, the incumbent banks may potentially respond in either of two ways:
[1.] Compete: Recall that prior to the release of the guidelines for the licensing and regulation of Payment Service Banks, most Nigerian Banks had already embarked on the rollout of the Agent Banking and Unstructured Supplementary Service Data (USSD) Banking service offerings.
The target customer segment, the base of the pyramid segment, of the Agent Banking and USSD Banking offerings is largely the same as the Payment Service Banks’ target customers. As such, most banks will accelerate the rollout of their Agent Banking and USSD Banking offerings, and position to gain competitive advantage over the telcos.
The banking industry incumbents will position to gain competitive advantage by becoming more innovative and proactive in creating solutions that will ensure they can profitably serve the base of the pyramid customer segment. In addition, they will create innovative products and services to ensure they improve overall customer experience while creating “stickiness” with their existing and potential customers.
[2.] Collaborate: Incumbent banks may also respond by establishing strategic partnerships with the telcos who may want to play in the banking industry. Incumbent banks have the industry know-how and cash management logistics capabilities; while telcos have superior technology/digital infrastructure and product innovation capabilities. The partnership will seek to harness the existing strengths of both the telcos and the incumbent banks to create a mutually beneficial relationship.
- Interview was first published in the first quarter 2019 issue of African Banker magazine