About 40 per cent of financial services hitherto under the purview of commercial banks are at risk of being lost to startup financial technology (FinTech) companies currently riding high on technology and the digital revolution.
In this interview with Daily Sun, the Chief Financial Officer of Heyden Petroleum Limited, Dr. Jerry Igwilo, says Deposit Money Banks (DMBs) must adjust their business models to survive the growing creative force of technology-driven innovations not only in the financial services ecosystem, but across all economic sectors.
Dr Igwilo, a former investment banker, further provided insights into what banks must do to survive the tough competition threatening to throw laggards overboard.
Future of FinTech firms bright despite high default rate
As a tech enthusiast, I see Fintech companies as fantastic development; they are the future, in my view. Every traditional deposit money bank should be worried over the disruptions Fintech firms are making possible. The banking business, as we know, is not going to be conducted in the future the way it is being conducted today. This means that technology is going to drive unprecedented changes to move economies forward.
I have in the course of my studies looked at the impact of ICT on African stock market development in general. What I saw in that process was that in the past ten years, African stock markets have moved from where they were to a new frontier driven mainly by technology adoption. Today, you can buy shares from your smartphones or any internet linked device and buy or sell shares on different stock exchanges from anywhere in the world. Technology has made it relatively more comfortable for them to trade shares and other securities. When it comes to banks, that is the trajectory it is going to take. You cannot run away from it because FinTech companies that are financially driven are giving loans and facilities to individuals online because our ID system is beginning to work.
Today, we have the BVN, the National ID Number (NIN), Driver’s License and International Passport Number, etc. All these are being fed into databases which makes it easier to identify and track an individual, which we never had. So, technology has played a major role in ID tracking, too. Everywhere in the Nigerian financial system, you can identify individuals with one number. This, therefore, means that when someone takes a loan from an online company, it is not free money. That individual must repay the money because as long as you have signed the terms and conditions of that loan, you are responsible for that loan.
Impact of COVID-19 pandemic
Of course, the COVID-19 pandemic has created challenges for these FinTech companies and the economy in general. What the FinTech companies need to do in these trying times is evaluate their customer base, know their customers who are genuinely in trouble, know those facilities they have to restructure, and those who don’t intend to repay, they must prosecute.
Also, the good thing about the FinTech space is that your Digital ID is your Digital ID, and once it is blacklisted, no other financial services institution will deal with you from a loan perspective. So, I think technology is beginning to make it possible for people to begin to access some of these facilities that they were not able to access before now. For me, it is a good development. It is the way to go even though it is still evolving. With time, we are going to feel the impact of these technological advancements on the economy. For me, that is another frontier that needs to grow. I believe that with time, technology will help to bring these informal sectors into the tax net. That is what the government has to do as this is going to improve revenue generation needed to build more infrastructures to improve living conditions for everyone in the country.
What DMBs must do
Fintech companies are riding on technology. They are not sitting on physical assets like buildings, computers, large personnel, and all kinds of assets. I don’t understand why banks have multiple branches, and they own the properties. Are they into banking or property investment? That needs to be clear. If they are into banking, they need to focus on banking. What they need to do is focus more on technology-driven services. They can dedicate a different business unit to do that but they must be mindful of the future. The future must be driven by technology, and whosoever jumps into the bandwagon last might pay for it dearly. In my view, some of the traditional big banks will come out stronger in the technology space; while some will be caught unawares. Unfortunately, what happened to businesses like Nokia, BlackBerry, IBM, etc. might happen to them.
Initially, financial services traditionally were an industry that required fixed assets (branches, computers, and larger personnel for example) to scale, acting as an entry barrier to newcomers. But today, technological advancements allow startups to run complex operations virtually. For this reason, traditional banks need to have a strategy which is medium to long term in nature and decides where the business is going. Of course, the cost they are carrying traditionally on having so many branches all over the world, all over the states, huge physical assets as well as a large staff, is no longer feasible because more bank customers are becoming more confident in conducting their banking transactions online. And if the usage rate continues to grow, then that is a good development, because the transaction cost will reduce for the customers and the banks can reduce their operational costs and fix assets holding.
Future of ICT in Nigeria
In my personal opinion, the sector that is going to drive growth in technology. And I believe that Nigeria has great potential to position herself in the technology space. Of course, telecom is part of technology. But when I say technology, it is in the sense of having a significant number of individuals, young men and women, who are in the technology space, coding and creating solutions through building apps and solutions that can be used on mobile phones. These can help change the ways we access different solutions like healthcare and legal services, etc. Technology is the future. This country has a youthful energy that is willing and able to learn. If we support that sector and structure it correctly, that sector is going to set Nigeria apart from any country soon just like India and China.
Lingering court cases affecting Ease of doing business
As you may know, the law of the contract is what defines how parties in a transaction behave and these agreements can be written or oral. However, when there is a dispute in these agreements, the expectation is that the arbitration process should be initiated, where there is an arbitration clause in the agreements. However, there is also the expectation that when the dispute gets to court, the judiciary is to take responsibility and expedite the process so that whatever question the parties seek clarity on, can be resolved quickly, and business can continue. But when this process lingers and delays in courts, it adds extra cost to the businesses.
The perpetual delay of business-related cases in courts does not augur well for the economy, because it is only when businesses are profitable that the entities can remain in business which in turn impacts the economy for good. So, there is a critical need to strengthen the ability of our judiciary system to adjudicate on commercial matters in line with the 21st-century standards so that our businesses can thrive given the environment we are in.
Future of Nigerian upstream and downstream oil companies
The green energy and environmentally friendly revolution have been here for a very long time. Generally, the pollution rate has also been reduced in recent times. In our environment where we mostly consume secondhand cars popularly known as “Tokunbo”, we expect that the pollution level and carbon emission by these cars should be high because most of them were built ten, twenty, or thirty years ago. Of course, newer cars emit less CO2.
Having said that, I think that in our environment, the consumption of our traditional fuel will continue for some time. Of course, there is a need for us to gradually begin to mix the fuel we use from traditional to more environmentally friendly fuel. From the car perspective, we have natural-gas driven cars. You see trucks these days also using Compressed Natural Gas (CNG) and all those gas that reduces CO2 emission. That is the future and technology is the keyword.
I also think that, in our environment, it is going to be relatively gradual. Yes, it is needed. Yes, we are ready for it. Very soon, you will start seeing filling stations where you can refill your car with CNG. It is coming. The government has been taunting it, preaching it. Of course, the modalities will be laid out soon. Of course, very soon we will start seeing electric cars on the roads. However, this is going to take some time for us to be able to significantly reduce traditional fuel consumption. The plan is there to move towards environmentally friendly fuel in all space. All these can be achieved through innovation and technology adoption because we need cleaner energy and a better environment for everyone.
Timeline for green energy
The timeline is a very tricky one because if you look at when the advent of electric cars started most people believed that by 2020, they would have gotten rid of diesel and petrol-driven cars. But today, electric cars in the world are not up to 20 per cent of vehicles on the road. This means a lot of work needs to be done in that direction to be able to get it to where it needs to be. So, the future is for everyone that wants to invest, and hopefully, the future is green.