Data and analytics are transforming the banking industry globally, enabling banks to make more informed decisions, improve customer experience, enhance service offerings, reduce costs and mitigate risks. However, many Nigerian banks are still lagging behind in adopting data-driven strategies and capabilities, missing out on the huge opportunities data and analytics presents.?
In this article, we will explore the role and opportunities for Nigerian banks to leverage data and analytics for competitive advantage, providing actual examples from leading Nigerian. We will also discuss common obstacles and provide some pragmatic and actionable steps that Nigerian banks can take to leverage data and analytics across various functions within the bank.
The Increasing Importance of Data and Analytics in Banking
Data and analytics are now essential capabilities for banks to understand their customers, markets, competitors, and regulators better, and to optimise their operations, products, and services accordingly. With data and analytics at their fingertips, banks can:
- Track customer spending patterns and preferences: leveraging insights from data and analytics, banks can better segment customers based on their profiles, behaviours, needs, and values. This can help banks to offer more personalised products and services, tailor marketing campaigns to individual customers and segments, cross-sell and upsell effectively, and increase customer loyalty and retention. For example, Access Bank uses data analytics to segment its customers into four broad categories: transactors, savers, borrowers, and investors. Based on these segments, the bank offers customised products and services, such as Access Money Wallet for transactors, Access Savings Plus for savers, PayDay Loan for borrowers, and Access Wealth for investors.?
- Implement risk management processes and comply with regulatory requirements: A bank's lifeline lies in its ability to manage risks. Data and analytics can help banks to measure, monitor, and mitigate various types of risks, such as credit risk, market risk, currency risk, operational risk, liquidity risk, fraud risk, country risk, cyber risk, etc. Data and analytics can equally help banks report accurately and timely to regulators, adhering to standards such as Basel III, IFRS 9, CBN’s Risk-Based Supervision Framework, etc. For example, Zenith Bank uses data analytics to assess the creditworthiness of its customers, using variables such as income level, occupation, age, gender, marital status, education level, etc. The bank also uses data analytics to monitor its loan portfolio performance, identify early warning signals of default or delinquency, and comply with CBN’s prudential guidelines.
- Enhance service offerings and innovate new products: Data and analytics can help banks identify new opportunities, gaps in the market, customer needs, and emerging trends. This is instrumental for developing new products and services that meet customer expectations and create value. Data and analytics can also help banks to test and refine their products and services before launching them to the market. For example, First Bank uses data analytics to innovate new products and services that cater to different segments of the market, such as SMEs, women, youths, etc. Some of these products and services include FirstMonie Agent Network, FirstGem, FirstEdu Loan, etc. The bank also uses data analytics to evaluate the performance and impact of its products and services on its customers, segments and stakeholders.
- Enhance their operational efficiency and agility: Data and analytics can help banks to streamline their processes, automate their tasks, and optimise their resources. This can help banks to reduce costs, errors, delays, and redundancies, and improve productivity, quality, speed, and flexibility. For example, Union Bank uses cloud computing to host its data warehouse and analytics platform. This enables the bank to access, store, process, and analyse data more efficiently, effectively, and securely. The bank also uses artificial intelligence (AI), machine learning (ML) to automate its credit scoring and fraud detection processes. This helps the bank to reduce manual work, human errors, and fraud losses. The bank also uses natural language processing (NLP) to analyse customer feedbacks and sentiments. This helps the bank to understand customer needs, expectations, and satisfaction levels better.
- Incorporate retention strategies and improve customer satisfaction: Data and analytics can help banks to identify customer pain points, feedbacks, complaints, churn drivers, and satisfaction levels. This can help to significantly improve customer service quality, resolve issues promptly, offer incentives or rewards, and enhance customer loyalty and advocacy. For example, GTBank uses data analytics to measure its Net Promoter Score (NPS), which is an indicator of customer satisfaction and loyalty. The bank also uses data analytics to track its customer retention rate, which is the percentage of customers who stay with the bank over a period of time. The bank aims to achieve a high NPS and retention rate by offering superior service delivery, innovative products, such as GTWorld app and 737 USSD banking, and value-added benefits, such as GTBank Fashion Weekend and Food & Drink Festival.
Opportunities for Nigerian Banks to Leverage Data and Analytics
It’s prime time for Nigerian banks to ride the data wave. Forward thinking Banks have a huge opportunity to leverage data and analytics for competitive advantage, given the following factors:
- The growth of digital banking in Nigeria. According to a report by McKinsey, digital banking penetration in Nigeria increased from 12% in 2014 to 40% in 2019. The report also projected that digital banking could account for up to 50% of total banking revenues by 2025. This implies that Nigerian banks have access to a large and growing amount of data from their digital channels, such as mobile apps, USSD codes, internet banking, ATMs, POS terminals, etc. This data can be used to generate insights and value for both the banks and their customers.
- The rise of fintech and open banking in Nigeria. According to a report by EY, Nigeria has the highest number of fintech startups in Africa, with over 200 active players. These fintech startups are disrupting the traditional banking landscape by offering innovative solutions in payments, lending, savings, insurance, wealth management, etc. Some of the leading fintech startups in Nigeria include Flutterwave, Paystack, Carbon, PiggyVest, Cowrywise, etc. Moreover, the CBN is developing a regulatory framework for open banking in Nigeria, which will enable banks to share customer data and offer services through third-party platforms. This will create new opportunities and challenges for Nigerian banks to leverage data and analytics to collaborate or compete with fintech players and other banks.
- The availability of advanced analytics tools and technologies. Nigerian banks can leverage various advanced analytics tools and technologies to enhance their data capabilities and outcomes. These include cloud computing, artificial intelligence (AI), machine learning (ML), natural language processing (NLP), big data, data visualisation, etc. These tools and technologies can help Nigerian banks to store, process, analyse, and present data more efficiently, effectively, and securely. For example, Union Bank of Nigeria uses cloud computing to host its data warehouse and analytics platform. The bank also uses AI and ML to automate its credit scoring and fraud detection processes. The bank also uses NLP to analyse customer feedbacks and sentiments.
Challenges Along the Data Highway
While the horizon looks promising, some challenges and barriers might hinder Nigerian banks from unlocking the full potential of data and analytics. Some of these obstacles include:
- Data Quality Concerns: Reliable insights requires quality data. Sadly, most Nigerian banks are still struggling to improve the quality, accuracy, completeness, timeliness, and consistency of their data, which affect their ability to generate reliable and actionable insights. Moreover, Nigerian banks may not have access to sufficient or relevant data sources, especially from external parties, such as customers, regulators, competitors, or partners. This limits their scope and depth of analysis and reduces their competitive edge.
- Data Governance and Security Lapses: Many Nigerian banks are yet to establish clear policies, processes, roles, and responsibilities for managing their data assets and ensuring their compliance with regulatory and ethical standards. They also need to implement robust measures to protect their data from unauthorised access, misuse, theft, or loss. The absence of data governance frameworks and security systems, unduly exposes banks to legal, repetitional, and operational risks.
- Gap in Data Skills and Culture: Nigerian banks need to invest in developing their own data talent and capabilities, as well as fostering a culture of data literacy, curiosity, experimentation, and collaboration across the organisation. However, many Nigerian banks face challenges in recruiting, training, retaining, and empowering their data professionals, as well as in creating a conducive environment for data-driven decision making and learning.
- Infrastructure Constraints: Most Nigerian banks need to build or upgrade their data platforms, tools, and systems to enable fast, secure, and scalable data processing and analysis. They also need to leverage advanced technologies, such as cloud computing, artificial intelligence (AI), machine learning (ML), natural language processing (NLP), big data, data visualisation, etc., to enhance their data capabilities and outcomes. However, many Nigerian banks lack the necessary resources, expertise, or willingness to invest in their data infrastructure and technology.
- Lack of data innovation and differentiation. Nigerian banks need to use data and analytics not only to improve their existing operations, products, and services but also to innovate new ones that meet customer expectations and create value. The banking sector's offerings are often perceived as generic, underscoring the need for differentiation via data-driven innovation. This offers a huge opportunity for banks to further differentiate themselves from their competitors and other players in the market by offering unique and superior data-driven solutions. However, many Nigerian banks lack the vision, strategy, or creativity to leverage data and analytics for innovation and differentiation.
The Steps for Nigerian Banks to Leverage Data and Analytics
To leverage data and analytics for competitive advantage, Nigerian banks need to follow a structured process that involves the following steps:
- Start by analysing the company landscape to establish your long-term vision and more immediate goals and metrics. Review your current situation, strengths, weaknesses, opportunities, and threats in relation to data and analytics. Identify your key stakeholders, such as customers, employees, regulators, competitors, partners, etc., and their expectations and needs. Define your value proposition and differentiation strategy based on data and analytics.
- Develop a data strategy that aligns with your business strategy and objectives. Prioritise the use cases and initiatives that will generate the most value for your bank and your customers. Define the scope, requirements, resources, timelines, risks, and benefits of each use case and initiative. Establish a governance structure and framework that will ensure data quality, security, privacy, compliance, ownership, accountability, etc.
- Strengthen internal data and analytics capabilities by investing in developing your data and analytics talent, infrastructure, and culture. Recruit, train, and retain data engineers, data scientists, data analysts, data translators, and other roles that are essential for delivering data-driven solutions. Build or upgrade your bank’s data platforms, tools, and systems to enable fast, secure, and scalable data processing and analysis. Be deliberate about fostering a culture of data literacy, curiosity, experimentation, and collaboration across the bank. Adopt best practices and benchmarks from other industries and geographies that have successfully leveraged data and analytics for competitive advantage. Consider setting up an analytics academy to upskill employees on data and analytics concepts and techniques. Alternatively, partner with academic institutions or external providers to access data and analytics expertise and resources.
- Build a data ecosystem using internal and external sources. Identify the data sources that are relevant for your use cases and initiatives. These can include transactional data, operational data, customer data, market data, competitor data, regulatory data, etc. Collect, integrate, cleanse, and enrich the data from various sources using appropriate tools and techniques. Store and manage the data in a centralised or distributed data warehouse or lake, using cloud or on-premise solutions. Ensure that the data is accessible, reliable, consistent and well protected across the bank.
- Implement data analytics using advanced tools and technologies. Apply various analytical methods and techniques to the data to generate insights and recommendations. These can include descriptive analytics (what happened), diagnostic analytics (why it happened), predictive analytics (what will happen), prescriptive analytics (what should happen), etc. Use AI, ML, NLP, and other technologies to automate and enhance the analytical processes and outcomes. Use data visualisation and reporting tools to present and communicate the insights and recommendations in a clear, concise, and compelling way.
- Embed data analytics into decision making and workflows. Ensure that the insights and recommendations from data analytics are integrated into the bank’s strategic, tactical, and operational decisions and actions. Create a culture of data-driven decision making and learning across the bank. Empower and enable the employees to access and use the data and analytics tools and platforms. Provide training, support, and incentives to foster adoption and usage. Monitor, measure, and evaluate the impact and performance of the data analytics initiatives and use cases. Learn from feedbacks, results, and best practices. Iterate, improve, and scale up.
For Nigerian banks, the future lies in embracing the transformative power of data and analytics, banks must effectively become data-driven powerhouses, by developing the human and infrastructural capabilities for data and analytics. This will be vital for their survival and growth in the dynamic and competitive banking industry. Data and analytics can help Nigerian banks to gain a deeper understanding of their customers, markets, competitors, and regulators, and to optimise their operations, products, services, and innovations accordingly. However, Nigerian banks face significant challenges and barriers in adopting and implementing data-driven strategies and capabilities. While challenges persist, the road ahead promises growth, innovation, and unparalleled competitive advantage. Clearly, banks must unlock the full potential of data and analytics to have any chance of achieving sustainable growth and profitability in a digital age.
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