5 Ways Digital Banking is Reshaping Nigeria’s Economy

Digital banking is a virtual way banks use the Internet to deliver services to customers or the automation of traditional banking services. From 1894 when First Bank in Nigeria was established to 1917 when Union Bank (now acquired by Titan Trust Bank Limited) was founded, Nigeria’s long-standing banks have primarily relied on manual processes (chiefly paperwork) to perform their transactions and meet their customers’ needs. Over time, many of these brick-and-mortar banks have collapsed, giving way to a generation of banks that leverage internet technologies to provide faster solutions and satisfy their customers.

You see, digital banking changes the way we bank, not necessarily banking itself. This is because banks still expect you to open an account, deposit some money, make withdrawals and make payments. So, automation of this process hasn’t in any way changed the concept. However, what online banking does is introduce mobile apps, software and electronic/online platforms in order to expedite the processes to have little or no human interaction.

Understanding Digital Banking in Nigeria

In Nigeria, digital banking is unfolding in two ways. Firstly, banks are adopting cutting-edge technologies to enhance their financial services – something some scholars prefer to call online banking. Secondly, internet-powered branchless banks that offer full or limited services (neobanks) are increasingly springing up. Examples of neobanks are?Waya , Kuda, Opay, VBank, Wise (Transferwise) and TransferGo.These are predominantly early-stage Fintech startups that are challenging well-established banks.

Way back in the early 1980s, Nigerian banks recognized the need to automate their processes. Ever since these institutions have deployed technology for performing their day-to-day activities and meeting customers’ ever-changing needs. For instance, in 1989, National Cash Registers (NCR) installed the first automated teller machine (ATM) for the now defunct Societe Generale Bank Nigeria (SGBN). Over the decades, other banks jumped on the bandwagon. By 2020, the number of ATMs in the country skyrocketed to 18,810 (Source: International Monetary Fund). This step played a pivotal role in what is today’s digital banking.

?To this end, the neobanks offer incredibly low transaction fees, convenience of use, a seamless online banking experience, and disruptive products and services. For instance, account opening takes a long time in traditional financial institutions because the requirements are burdensome, including lots of paperwork and KYC (know your customer). On the flip side, these banks merely ask for your full name, phone number, bank verification number (BVN), and contact address.

5 Ways Digital Banking is Changing Nigeria’s Economy

So far, we have seen the two fundamental ways digital banking is playing out in Africa’s largest economy. However, this section will x-ray the broader impact of digital banking on the Nigerian economy.

1. Financial inclusion:?According to the United Nations, Nigeria’s population is roughly 218,075,560. Of the estimated, about 40% don’t have access to banking services or bank accounts. However, in June 2022, Nigeria Communications Commission (NCC) disclosed that Nigeria has hit 44.30% broadband penetration with 84 million internet subscriptions. Experts forecast that 60% of Nigerians are likely to have access to the Internet by 2027. It costs a lot of money for banks to open and run a branch. Given how important it is for traditional banks to meet their overheads and make a profit, sitting up branches in Nigeria’s rural areas is near impossible. But then, this is where branchless banking comes in as it allows people to access banking services without seeing the bank’s physical office. In other words, rural dwellers with internet access can enjoy online banking services without leaving their localities. This way, financial exclusion gaps are significantly bridged.

1. Job creation:?It also allows for reskilling, upskilling and redeployment of employees into new roles. With customers transacting through different secure digital channels, an entirely new tech department has been created, with new jobs for network specialists and server administrators, database managers, cybersecurity experts, etc. Contrary to the generally held misconception about digital banking kicking bankers into the labour market, LaminManjang, the CEO of Standard Chartered Bank Nigeria, agrees that digital banking creates new job opportunities in the industry.
2. Round-the-clock service availability:?For a moment, think of a financial services industry that has to shut down for two days because it is a weekend and workers who mostly work from 8 am through 5 pm are at rest. This means that the economy will bear the brunt. Fortunately, thanks to digital banking - banking services are available 24/7, allowing customers to make payments, transfer funds and meet other financial obligations. As a result, the industry doesn’t have to be on hold for a second, which helps Nigeria build a truly digital economy.
3. Efficient service efficiency:?Another way digital banking is reshaping Nigeria’s economy is that it ensures efficient financial service delivery. This implies that automating banking processes will culminate in less banker-customer interaction, paperwork, transaction errors, transaction completion time, and fraud. Because technology promotes transparency and accountability, banking services are now attractive to many conservative Nigerian traders and artisans.
4. Cost reduction:?There is no gainsaying that all traditional brick-and-mortar banks cannot site their branches in rural places in Nigeria. This is mostly due to the cost of running them. In short, a recent Bloomberg report shows that Standard Chartered Bank Nigeria planned to close down 50% of its branches in Nigerians in order to deepen its focus on digital services. This is primarily because the cost of maintaining the traditional model is extremely high. With the retail bank’s plan to go from 25 to 13 branches, they will considerably cut their overheads and ensure that they stay in business.

What Does the Future Hold for Digital Banking in Nigeria?

Let’s establish some truths here – there’s no economy without finance (or better still, money). Plus, technology has no known substitute for now. Put simply, Nigeria and the rest of the world will continue to see technology disrupt the way things are traditionally done, including financial service delivery. Beyond a shadow of a doubt, digital banking enormously impacts Nigeria’s economy. According to the Guardian Newspaper, in April 2021, experts estimated that Nigeria had over 170 million active mobile phone users, with about 25 to 40 million of that population using smartphones and that the population of smartphone users would hit 140 million by 2025.

Furthermore, data from Enhancing Financial Innovation & Access (EFInA) shows that Nigeria’s financial inclusion grew from 63.2% in 2018 to 64.1% in 2020. However, financial gurus are projecting that Nigeria will achieve 95% financial inclusion by 2024. Indeed, by estimating that over 40% of Nigerians are unbanked today, it means that over 87 million Nigerians don’t have access to proper financial services. Given how costly it is to run a bank’s branch, digital banking is well-suited to close up that financial exclusion gap. In simple English, the future of digital banking is sparkling bright as Nigeria still has millions of unbanked populace. This can only mean the huge untapped potential for existing industry players and Fintech entrants in Africa.