Late in fintech boom, Nigerian banks look to regulators for help

Skyline in Lagos, Nigeria. Namnso Ukpanah / Unsplash

The domination of Nigerian banks of their own territory is virtually unprecedented. Widely protected by foreign competition regulators, Nigerian lenders control 94% of their domestic market, through assets, the largest share of local ownership in the world after Israel, according to report released before Covid-19 hit in 2020 by Chris Ogbechie and Lilac Nachum, academics from Lagos Business School.

But the threat is now local. Nigerian banks are just beginning to tackle emerging fintech companies riding the online wave caused by the pandemic. As they define their ambitions for mobile money, they are deploying their political force with regulators to strengthen the moat around their franchises.

“Some might argue that traditional banks and their regulatory ally are reluctant to restrict financial innovation from fintechs,” said Abubakar Idris, analyst at Stears Business, a Lagos-based financial and technology consultancy. “If the biggest telecom operators get a banking license, they could undermine the banks.”

The simmering conflict erupted this month when lenders kicked MTN Group, Africa’s largest mobile company, from their shared platform, protesting a nearly half cut in commissions charged on banking channels by the telecommunications provider at 2.5%. Regulators stepped in to reconnect MTN’s customers, while restoring the 4.5% commission for the purchase of airtime purchased through banks.

The fight means the 60 million people in Africa’s largest economy who have no access to banking services risk missing out on all the benefits of the fintech boom that has brought much of Africa to the forefront. of the mobile money revolution.

Investors are getting started

Anticipating entry into the underserved market, foreign investors stepped in. Lagos and San Francisco-based Flutterwave raised $ 170 million this year. This made it Nigeria’s second fintech start-up with a valuation of over $ 1 billion, after Interswitch. Jumia Technologies, a Berlin-based e-commerce platform that started in Lagos, has nearly tripled since it sold shares in New York City in 2019, giving it a market value of $ 3.4 billion .

Investment in Flutterwave by US hedge fund Tiger Global Management and New York-based private equity firm Avenir is more than double the IT spending of R26 billion (R915 million) of Nigeria’s two largest banks in 2020 The two lenders spent 13.7 euros. billion the previous year.

This explains why lenders, including Guaranty Trust Bank and Access Bank, the two largest in the country, could resort to help from regulators. They plan to launch payment units this year, more than a decade after their counterparts in Kenya and South Africa.

While the government has opened up the sector to telecommunications companies to increase access to banking services, the Central Bank of Nigeria has yet to approve payment service licenses for MTN Nigeria Communications and Airtel Africa; It has been about two years since they applied for the permits, which allows them to perform most banking functions, with the exception of foreign currency loans and deposits.

The central bank has been “lethargic” when it comes to allowing mobile operators to become “very important players” in the payment system, said Yele Okeremi, CEO of Precise Financial System, a fintech company by phone. Lagos.

Central bank spokesman Osita Nwanisobi did not respond to messages seeking comment as calls on his cell phone did not connect. A spokesperson for MTN said it was still in talks with regulators and banks to resolve the dispute over the commission.

Despite this, traditional banks are losing their grip on the electronic payments market, which grew by half last year to ₦ 158 trillion. Banking apps accounted for just 43% of those transactions in 2020, while non-banks, led by MTN, accounted for 35%, according to the Nigerian Interbank Settlement System.

Regulators also had to negotiate a dispute between banks and fintechs over pricing for USSD transactions – the type performed over the phone – by setting a flat fee of ₦ 6.98 / transaction, with banks collecting the fees. Banks are pressuring regulators to force fintechs to bill customers separately through end-user billing, an initiative they have resisted.

Mobile banking

“At the end of the day, we’re going to go for end-user billing,” predicted Segun Agbaje, managing director of Guaranty Trust Bank, the country’s largest lender, on an investor call last month. “You’re going to see more of a migration from USSD to mobile banking, as USSD will become an expensive channel.”

With the stagnation of their core lending business and the flooding of investments in fintech start-ups, the need for banks to relocate is increasingly urgent. “The banking industry is shrinking fast and all the traditional banks are thinking about how to keep pace,” said Idris, the consultant.

Guaranty Trust CEO Segun Agbaje, 56, is in the final stages of obtaining regulatory approval for a fintech unit, which he plans to start in the second half of the year. He is pushing to create a separate payments business with a mobile wallet in Nigeria and three African countries, including Ghana and Cote d’Ivoire.

While banks have rolled out digital products primarily by partnering with tech companies, they want a separate license to control the payment infrastructure.

Access Bank emphasizes payments, “which is in line with our corporate strategic plan,” CEO Herbert Wigwe said during an investor call. “Payments and remittances are essential, and you have full control over the infrastructure,” Wigwe said.

For its part, Flutterwave does not see itself as a threat to traditional lenders. “Fintechs are developing bank-level functionalities such as loan, savings or investment applications from collaborations with banks,” said CEO Olugbenga Agboola. “We started Flutterwave because we realized there were many effective niche payment methods that we needed to connect into a reliable infrastructure.” – Reported by Emele Onu, (c) 2021 Bloomberg LP

Late in fintech boom, Nigerian banks look to regulators for help

Source link Late in fintech boom, Nigerian banks look to regulators for help

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