“I’ve been unable to open the One Bank app for over five days,” a Sterling Bank customer who asked not to be named told TechCabal. 

While the bank notified customers about possible service disruptions due to the upgrade, it did not provide specifics. 

“A core banking application is a critical tool for all financial institutions, so an upgrade of this nature is a big deal,” said a software expert at a Nigerian bank who asked not to be named.  

Building these systems is time-consuming, expensive, and risky. A botched system upgrade at Royal Bank of Scotland (RBS) in 2012 left over 6 million customers unable to access their accounts. The bank was later fined £56m by regulators. 

SEABaaS, its new software, was built to Sterling Bank’s specification, three people with knowledge of the matter told TechCabal. A Google search shows that SEABaaS is also a product by Bazara Tech Inc., a Nigerian software company, suggesting that they may have developed the new software.

According to Bazara Tech Inc. ’s website, “SEABaaS is a future-proof, platform-agnostic core banking SaaS solution designed to elevate user experience for enterprise customers. Its architecture features microservices, APIs, hybrid cloud, and multi-cloud. It also spans a unified 360-degree customer view, AI and machine Learning capabilities, and intuitive user interfaces.”

Bazara Tech Inc. did not immediately respond to a request for comments. 

Sterling Bank previously used Temenos T24, a banking software used by Keystone Bank and the Central Bank of Nigeria. Finacle is another popular core banking software option First Bank, Stanbic IBTC, UBA, and FCMB use. 

Changing its banking application could be driven by cost considerations, difficulties in integrating with existing legacy systems, or attempts to avoid vendor lock-in. 

Sterling Bank did not respond to a request for comments. 

Sterling Bank will share details of the new banking software and migration process next week after it solves the current downtime, two people with knowledge of the process said. The bank considers the development of its custom banking software a major move in Nigerian banking, the same people said. 

Before that grand rollout to the press, it will need to pacify customers, many of whom could still not use the One Bank app at the time of this report, so as not to jump ship while it continues its migration. 

Sterling Financial Holdings has two banking subsidiaries, Sterling Bank and the Alternative Bank. Adjusted recapitalisation rules mean both banks need to increase their minimum paid-up capital. 

Per Sterling Bank’s full-year 2023 report, its total qualified capital (share premium and share capital) was ₦57.2 billion, implying a need for ₦142.8bn in additional capital since it is a national bank. Alternative Bank needs ₦10 billion to meet its capital requirements.

The holding company believes most of the capital can be raised from the Nigerian Exchange. 

“We are open to foreign sources of capital as an alternative but with our shareholders fully committed, hence our preferred approach is rights issue, followed by private placement,” said a Sterling Holding executive who asked not to be named. Tapping the NGX for capital will also ease communication with investors. 

If the company raises N200 billion, it will be more than it needs to meet capitalisation targets. It could deploy the remaining capital to enhance its SME, retail, and digital banking. 

“We anticipate that they would keep their innovation curve steep and improve investment in establishing an even stronger identity among the young banking population,” Ikeoluwa Alabi, investment research analyst at Afrinvest Consulting Ltd told TechCabal. 

In June 2021, Guaranty Trust Bank, one of Nigeria’s leading financial institutions, transitioned into a holding company from its standalone commercial banking structure.  Segun Agbaje, CEO and Managing Director of Guaranty Trust Bank (GTB) said the switch was necessary because Nigeria’s central bank rules required commercial banking business to be separated from other financial services businesses. The idea was that alongside its commercial banking business, Guaranty Trust Holding Company (GTCO) would enter the non-banking financial services space.

Non-banking financial services is corporate formalese for fintech. Mr Agbaje’s bank did not want to be left out of a fintech boom that had only recently seen Flutterwave valued at more than $1 billion after only 4 years of operating. Others, like Kuda bank, a digital-only challenger bank, had raised $50 million at a valuation of $500 million. And in 2020, Paystack, another payments company, had been snapped up by American payments giant Stripe for a tidy $200 million—a windfall for early investors in the company.

The bonanza was too appealing to pass up—not with five-year-old Kuda becoming the 7th most valuable bank in Nigeria; more valuable than all tier 2 banks combined.

Banks vs fintechs

The threat was also clear. When Flutterwave tripled its $1 billion valuation following a $250 million fundraise announced in March this year, it became worth more than Guaranty Trust Bank and Zenith Bank, two of the five largest banks in Nigeria.

Of course, valuations tell a poor story of a business’ actual value in the present. But they are not meaningless and Agbaje and several of his colleagues in Nigeria’s banking brass took notice.

On the 2nd of June this year, GTCO announced it had received final approval for its payments unit HabariPay Limited from the Central Bank of Nigeria. “Payments are central to the development of financial services globally and represent a key growth area for the group,” Agbaje said in the statement announcing the launch of HabariPay. HabariPay’s flagship product, Squad, combines a payment gateway, and eCommerce platform with a Point-of-Sale business.

Like Guaranty Trust Bank, Access Bank, another one of the FUGAZ (First Bank, United Bank for Africa, Access Bank and Zenith Bank) list of top Nigerian banks adopted the holding company structure in May 2022. On the 21st of September, it announced it had received final approval from the Central Bank of Nigeria (CBN) for its wholly-owned payment subsidiary, Hydrogen Payment Services Company Limited.

“The establishment of Hydrogen is a natural step in our aspiration to create a globally connected community and ecosystem,” said Group CEO, Herbert Wigwe in Access Holdings’ statement announcing Hydrogen.

The big banks are not the only guys piling into the fintech space in Africa’s largest country. Smaller banks like Sterling Bank and Wema bank are also joining the fray. 

Wema, Nigeria’s oldest indigenous bank has ALAT, a digital-only bank product launched in 2017. And Sterling bank announced this week that it is on track to reform as a holding company and has already secured approval for a non-interest banking business from the Central Bank of Nigeria.

Sterling already has Specta, a digital lending platform available to customers of any bank. Sterling bank’s path to a holding company is hardly a secret.

In 2020, Sterling’s CEO, Abubakar Suleiman told TechCabal that unlike GTCO’s Segun Agbaje and Access Holdings’ Herbert Wigwe, he was uninterested in the payments business. “What is driving our fintech engagement is really the sectors of focus,” Suleiman told TechCabal. “So rather than fintech within finance which is sometimes in view overrated. It is tech within the other sectors that would really create value.” The bank’s digital services portfolio includes Social Lender (an online lender), Doubble and I-Invest (investment apps) and Alt-Mall, an e-commerce platform that allows users to buy items and pay later. If Suleiman is sticking to his 2020 lines, then a “Sterling Holding Company” may see his bank double down on digital lending and investment products. “Our end-to-end plan is that we want to significantly leverage technology to become the major financial adviser and lender in specific sectors,” Suleiman said.

Flutterwave has taken notice of the new players coming for its lunch. The company recently obtained a switching and processing license that will enable it to process payments without intermediaries. Smaller fintechs who do not have the financial wherewithal to dig in may look for opportunities to serve niches, consolidate by merging or acquiring other financial institutions, or partner with the telcos who are now attacking the fintech market with their payment service licenses. 

In Nigeria, and throughout much of Africa, banks hold a natural advantage as pillars around and through which financial services flow. Their fintech plays also enjoy the privilege of being born with silver spoons. But corporate startups are tricky and being entrenched also has its downsides.

Because they have different priorities and a diverse client list and numerous stakeholders, banks tend to move slowly. Banks do not rely on the retail consumer business for most of their profits. Retail channels are simply a deposit acquisitions play, whereas for fintechs, penetrating the retail market is a top priority despite its poor margins. Whether the banks are willing to loosen the apron strings and let their “corporate startups” explore remains to be seen. With all the consumer complaints (unreliable bank apps, etc.) that banks have to deal with on their existing digital platforms, it is almost certain that they will struggle.

Banks vs telcos

In South Africa, the story follows a similar path—only this time it is banks reacting to how mobile network carriers are leveraging their position as internet gatekeepers to serve their customers with financial products.

According to the African Digital Transformation Report 2022, published by Backbase, a Dutch banking technology company, African banks see the entry of telecommunication companies into banking services as a threat to their market share.

As far back as 2015, First National Bank (FNB), a leading bank in South Africa launched FNB Connect, a Mobile Virtual Network Operator (MVNO) service that uses Cell C’s network to offer prepaid data, voice and SMS services.

Three years later, Standard Bank, Africa’s largest lender by assets, rolled out Standard Bank Mobile, an MNVO product but exclusively for its banking customers. The company is also taking on the mobile money market with Unayo, a mobile payment service. Wally Fisher, head of the service, told Reuters that Unayo wants to corner “a meaningful share of the mobile money market in the near term and believes it can capture at least 1% of around $90 billion in remittance and donor aid payments made every year as revenue.” Unayo, which plans to be active in every market where Standard Bank operates, is building out an agent network. By 2021, it had already signed on more than 6,500 agents in Malawi.

Nedbank, another leading lender in South Africa, was an early adopter of mobile money. In 2010, only three years after Safaricom’s M-PESA launched in Kenya, Nedbank teamed up with Vodacom to release a similar offering also named M-PESA in South Africa. Unlike its Kenyan namesake, M-PESA failed to grow but Nedbank is not giving up. The bank is now looking toward small and informal traders for growth, Vanesha Palani, a Nedbank executive told Reuters last year.

While South African banks battle telcos’ dominance in mobile money services, they are resetting their sights lower to target voice and data—the core business of telcos.

This week South Africa’s Capitec bank launched an MVNO play, Capitec Connect, promising “data that never expires”. The service, like FNB Connect, will rely on Cell-C’s network.  Banks are an unlikely source of competition with telcos, but with the importance of digitally delivered financial services becoming clearer, banks see the entry of mobile companies into banking services as a threat to their market share.

At any rate, the competition is weird, to say the least, since it relies on Cell-C—a telco, that sometimes piggybacks on MTN’s network for out-of-coverage areas. 

Capitec Connect will be a pure prepaid service with no contracts and device sales attached, in contrast to FNB Connect which offers a prepaid option, as well as contract and device bundles, including data-only packages. Capitec is South Africa’s biggest bank by customers—with offerings that cater to mostly low-income earners.

“South Africans have been complaining about the cost of mobile data. It’s expensive and complicated. Bundle pricing, off-peak and peak rates, and the fact that your data expired are all things that make no sense. We’re changing this by giving our clients access to a mobile solution that is simpler to understand, much more affordable and can be recharged easily on our digital channels,” said Gerrie Fourie, CEO of Capitec.

But Fourie disagrees with analysts who say Capitec Connect is a play to disrupt the mobile market. “We have eight million clients that are buying prepaid and we believe we can give better value to them… It’s all about the client experience for us, it’s not about disrupting anyone,” he said in a local TV interview last week.

Regardless of how it is sold, the reality is that banks are yet to figure out how to counter the threat that digital-first businesses like fintechs and telecommunications pose in today’s mobile world. But fighting on telco turf may be an admission of helplessness. MVNOs do not really own the networks or services they sell. They simply rent bulk spectrum space from mobile carriers and resell it to their customers. And fintechs are better designed to find what works and grow fast.

As the banking sector in Africa comes under pressure to both reinvent itself and remain relevant, the battle between telcos, banks and digital-only challengers battle to meet the continent’s changing consumer demands will only become stronger. At the same time, a frontal assault by central bank digital currencies also threatens bank dominance of consumer financial services.

For now, banks are safe, but they are also rapidly running out of wriggle room.

On Tuesday, July 5, the African Social Impact Summit held a press conference at  Sterling Towers, Lagos, Nigeria, ahead of the summit proper, which will hold on July 13 and 14 at the Transcorp Hilton, Abuja. 

The summit brings together key public, corporate, and development-sector stakeholders from across the world to engage in regional inclusive development discussions to accelerate the Sustainable Development Goals and mobilise impact investments into vital African economic sectors. 

The theme for the inaugural summit is “Rethink, Rebuild, Recover – Accelerating Growth for the SDGs”. 

Speaking at the press conference were Olapeju Ibekwe, CEO, Sterling One Foundation; Abubakar Suleiman,  MD/CEO, Sterling Bank; Nwamaka I. Onyemelukwe,  director, public affairs, communications & sustainability, Coca-Cola Nigeria; Efeturi Doghudje, head, marketing & corporate, VFD Group Plc; Ebuka Emebinah,  matchmaker, Impact Investors Foundation (IIF); Soromidayo George, board chair, United Nations Global Compact Network Nigeria.

Olapeju started the press conference by stating that the summit was a timely initiative of the public and the private sector to accelerate the SDGs, especially after the impact of COVID-19 in Nigeria. She added that the summit will have a deal run to attract investors willing to fund scalable solutions. She mentioned that one of the goals of the summit is to drive inclusion, adding that 2,000 people from 50 countries were going to be in attendance.

The CEO of Sterling Bank went on to implore everyone present to live up to their commitments referencing previous commitments that weren’t achieved. He said that the bank feels impacting society is their corporate social responsibility and that they intend to bring this responsibility into their mainstream operations. He also stated that although it might be difficult to achieve this, he is ready and willing to take on this challenge. 

Coca-Cola’s representative, Onyemelukwe, went on to say that to achieve the SDGs, there must be a collective effort to pull resources together to make a difference. She added that the community needs to be sustainable, and referenced how Coca-Cola is providing water to impoverished communities to counter drought. She concluded by saying that if sustainable communities are built then businesses will become sustainable.

George said that the summit was timely in the sense that the impact of COVID-19 and the current global financial crisis is a factor in the increasing rate of poverty in Nigeria. She added that we all had to take care of communities and work to see them prosper.  

Emebinah, the representative of the Deal Room partner, IIF stated that they hope to support entrepreneurship, and they look forward to identifying verifiable companies. He added that their priorities were profit, purpose, and partnership. VFD Global, through their representative, also added that they were committed to transforming lives, and this commitment is echoed by their decision to partner with companies to achieve the SDGs. She added that as a proprietary investment company with investments in 40 companies, they were particularly interested in health and education. 

In an engaging session after the key speeches, representatives from the different organizations took turns to answer questions raised by journalists present at the press conference.

Ibekwe defined the reason behind hosting a summit, clarifying that partnerships were essential for the realisation of the SDGs. “The 17th SDG goal is to get partnerships for the goal. For us to do that, we need to get them all in a room, speak to them, appeal to them, and let them see the why. If we just sit in our offices and think we can make a lasting change, then we’re deceiving ourselves. We need to drive collaboration,” she said. 

The Sterling One Foundation CEO also described how the summit intends to empower female entrepreneurs in the development space. “We are going to have a panel dedicated to women empowerment. One of our partners, Adesuwa Okunbo Rhodes of Aruwa Capital, focuses on empowering women-led organizations,” she said. 

“These organizations will, in turn, work on solutions that impact more women, down to the rural women. We have been intentional in picking the resource persons for our panel.” she further explained.

Emebinah, in answering questions raised about the funding style, said the goal of the exercise is tied to sustainable funding “The idea behind this summit is to find the most promising entrepreneurs and finance them in the most sustainable way. Funding will come from a combination of commercial and concessional sources. As for the funding instruments, the investors and investees will sit together to come up with mutually beneficial instruments, which could be debt, equity, or both.”

For  George, the summit is a means of getting businesses to rethink their processes around impacting communities. “We want to get sustainability ingrained into the DNA of businesses, not to set aside one lump sum,” the UN representative asserted. 

“Now is the time for us, through this summit, to bring investors together and collaborate in such a way that draws people away from the poverty-characterized bottom of the pyramid” she further opined.
Interested participants who cannot make it to Abuja for ASIS are advised to attend the event virtually through the registration link on the summit’s website.

August 8, 2021

The Next Wave provides a futuristic analysis of BizTech in Africa. This newsletter goes out every Sunday at 3 PM (WAT) and is written by TechCabal’s managing editor, Koromone, with support from TC Insights.

Hey everyone, it’s Koromone. I have always been fascinated by the pace at which fintech companies move and grow in Nigeria. In the beginning, when these companies arrive on the scene, everyone is curious about who they are, their products and services, how they plan to penetrate or take over an existing market, and how they plan to grow into a profitable business. 

So far, we’ve been pretty impressed with some of the success stories coming out of Nigeria’s fintech industry. Apart from Flutterwave and Paystack’s meteoric rise to influence and superstardom, TeamApt and PiggyVest are equally blazing trails within our ecosystem. These companies are not just talking the talk, they are also expending much energy into growing their business, expanding into new markets, and putting some money back into the pockets of their investors and backers. 

While payment gateways and savings apps are helping Nigerians get more comfortable with using their local cards and trusting technology to manage and grow their wealth, digital banks are playing their part to improve banking services in the country. 

Traditional Nigerian banks have come under fire lately due to increased transaction failures, buggy mobile banking apps, and poor customer service. Last month, Daniel published an eye-opening report on the mass exodus that occurred in GTB midway through the year. With GTB losing a good portion of its IT and infrastructure team, it was no wonder that their customers complained about delayed outgoing bank transfers and incoming payments. 

So who can deliver us out of the hands of conventional banks who seem to have lost their way and forgotten that they exist to serve their customers, not frustrate them? 

Let’s find out. 

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In the beginning was ALAT bank…

For the sake of those who are relatively new to the digital banking scene, Kuda Bank isn’t the first digital bank to promise Nigerians seamless and secure banking services. 

In 2017, Wema Bank – yes, the 76-year-old financial behemoth that banked our parents and grandparents – launched ALAT as Nigeria’s ‘first fully digital bank’ (their words, not ours). Fully digital meaning their customers didn’t need to go into a banking hall to set up their ALAT account and request a debit card. ALAT’s arrival into Nigeria’s financial scene was unprecedented and largely unexpected but we whipped out our phones, downloaded their app, and immersed ourselves in their digital banking experience. But in the three years following their launch, ALAT has gone quiet and their Instagram comments section is littered with complaints and accusations from frustrated and embittered customers. 

Fast forward to the second half of 2019 – a year before the deadly outbreak of the coronavirus forced the world to literally shut down — Kuda Bank (formerly KUDImoney) — arrived on the scene to save the day. But beyond colorful debit cards and personable brand ambassadors, what’s interesting about Kuda Bank is their funding trajectory. 

Kuda Bank’s funding trajectory

In 2019, Kuda announced a $1.6 million pre-seed raise led by Haresh Aswani and a number of angel investors. 

A year later, in December, Kuda raised $10 million – the biggest ‘seed’ round to ever come out of Africa. At this point, the digital bank had 300,000 customers and had processed over $500 million transactions per month. 

Pretty impressive numbers. 

In March of this year, Kuda raised $25 million in a Series A round led by Valar Ventures with Target Global in participation as well. 

Are you still tracking with me?

Last week, the fintech startup announced a Series B raise to the tune of $55 million at a valuation of $500 million. If you do the math, Kuda’s new raise happened just a little over four months after their $25 million Series A. The aspirational digital bank has also grown from 300,000 customers to 1.4 million customers and now offers overdraft allowances to pre-qualified and vetted Kuda Bank users. 

Kuda Bank is clearly a vision-driven company. According to Babs Ogundeyi, co-founder and CEO of the fintech startup, Kuda is on a mission to ‘bank every African on the planet.’ This is a pretty ambitious mission and the question on my mind is: Are they also ambitious about acquiring underbanked and unbanked customers in Nigeria and on the continent? It’s one thing to serve people who are well-versed in digital banking technology; but it’s a completely different story when it comes to building baking services for under-represented customers. 

Keeping the future in mind, we have to acknowledge the new players in our digital banking ecosystem. Sparkle, Fundall and Eyeowo have caught our attention. Fairmoney recently announced plans to evolve into a digital bank, and Sterling Bank has plans to migrate their customers from the OnePay to OneBank – it’s ‘100% digital banking app.’

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Digital First

Customer acquisition and retention can be a tough task for banks. An Oracle survey found that customer satisfaction with traditional banks decreases as the customer relationship progresses across the financial lifecycle. 

Across the world, digital banks like Nubank and Chime are doing a great job of easing the onboarding process for new customers.  

By adding more products across the customer life cycle such as small-and-medium enterprise banking, investments and financial management and credit facilities, customer satisfaction is beginning to increase.

A study by PwC reveals that customers who experience pain points with their traditional bank are most open to digital banking. In Singapore, 77% of customers with three or more pain points were more interested in opening a digital bank account.

In  Africa and other parts of the world, to open an account with a traditional bank typically requires a lot of paperwork. It’s the first impression that deters many. 

Digital banks on the other hand, allow customers  to  open  accounts  easily,  in  a process  known as digital  on-boarding, with  facial  recognition  and  document uploading  technology. This allows them to verify the identities of potential customers without their physical presence. 

This approach has warmed the likes of Kuda and Piggyvest into the hearts of many. With a young population, and a large percentage of mobile internet users, the market exists.

But it’s not all rosy. Many account holders of digital banks still hold on to their accounts at traditional banks for fear. There’s an assurance that walking into a banking hall brings when problems arise.

But one can’t bet against the growth potential of digital banks. Backed by venture capital, a young and digitally-savvy customer base; their future looks bright.

Without physical locations or branches, digital banks must invest in excellent customer service to keep their customers happy. This will go a long way in making them a primary option for young Africans.

Technology may bridge the gap but money remains a legal tender that depends on trust. 

Have a great week

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– Koromone Koroye, managing editor, TechCabal

Nigerian banks don’t give out a lot of loans, especially to individuals and small businesses (retail lending). According to data from Proshare, big banks like Union Bank, First Bank, UBA and Zenith Bank provided less than 51% of their deposits as loans in the first quarter of 2019.

This reality is why fintech startups have emerged over the last couple of years. Growing at a period when the Nigerian market dipped into a recession, these startups have simplified the lending process, allowing people to secure loans within a few minutes.

Their rising number and innovative digital approaches have fueled speculation about what disruption could mean for banks.

Now, the Central Bank of Nigeria (CBN) wants banks to lend more. This time it’s not just talking. It is compelling them, somewhat. But the new policy it has issued could set the stage for the first real tussle between banks and fintechs.

But hold up briefly; why do banks shy away from retail lending?

Why banks don’t do much retail lending

There are different answers to this.

“Retail lending [in Nigeria] is very terrible,” said a finance analyst at a top consultancy firm in Nigeria who requested anonymity. He explained that the underdeveloped nature of the retail space makes it very difficult for banks to provide loans to the mass market with a very high risk of defaults.

So banks are quite selective of the kind of people they give loans to. In the absence of credit ratings, banks target high-quality borrowers, “people with very solid places of employment,” the analyst said. They do this, he shared, because they can see your salary history and because it is easy to trace loan defaulters if they work in credible places.

“What banks are trying to avoid is the high cost of recovery,” the analyst said.

Agreeing with this, Abubakar Suleiman, Managing Director of Sterling Bank told TechCabal that there are three reasons why many banks don’t play in the retail market.

“First of all, if you [the bank] have not digitized the lending process, it is very expensive to lend manually to individuals because the workforce you need would have to be sizeable,” he said. Meanwhile, even while manual, the same workforce could be used to do large corporate lending at a cheaper cost per unit.

The second reason he said was data, which is obvious. “We [banks] just did not have authentic data, we just did not have identity [system] – and all of these are critical to lending,” he explained. 

And third, Suleiman shared that the absence of bankruptcy laws for individuals makes it hard to recover retail loans. “So if somebody were to take a loan and not pay, the process of trying to recover the loan is so tedious,” he said.

But he explained that issues like credit rating, data integration and identity have been solved with the creation of the Credit Rating Bureau and the Bank Verification Number (BVN). Yet, the technological gap between fintech lending and bank lending remains.

“It is very hard to assess the risk of a retail lender,” said Julian Flosbach, General Manager Nigeria at FairMoney, an online lending platform. He adds that “traditional banks don’t have the technical capabilities to assess these risks outside their existing customer base – ergo, profitability from lending to large companies or the government/treasury bills is much higher for banks.”

“Rather than the banks lending to people, they are putting money into treasury bills because it is a convenient place to earn interest,” said the financial analyst.

So how does the CBN want to correct this?

What is the new CBN lending policy?

In the first half of 2019, the CBN began contemplating ways to get banks to lend more. With the banking regulator fighting hard to prop up the economy, it wants banks to complement its efforts by providing more credit that will stimulate the economy. 

“For us to achieve growth those whose responsibility it is to provide credit must be seen to perform that responsibility,’’ CBN Governor Godwin Emefiele said in May.

By July, it issued a new policy. It ordered banks to increase their loan-to-deposit (LDR) ratio to a minimum of 60% by September 31, 2019. The LDR ratio is the total amount a bank has issued as loans from consumer deposits. Any bank that failed to comply will be forced to keep more cash with the CBN and earn no interest on them. 

This may not sound like much of a penalty. But when the September deadline passed, the CBN forced erring banks to give up N499.1 billion ($1.4 billion).

It has since revised the LDR policy to 65% and extended the deadline to December 31. (It reviews the LDR policy quarterly.) Although it refunded the $1.4 billion, banks will be wary of the new deadline for LDR compliance. And this could increase competition in the retail lending market, a market fintechs want to dominate.

“If we don’t have that kind of thing as sanction coming from the central bank, what you will find is that most banks will not do it,” said Herbert Wigwe, CEO of Access Bank, Nigeria’s biggest bank by deposits.

How will banks meet the LDR target?

According to Suleiman, there are literally only two strategies banks can use to meet the LDR target: reject customer deposits or lend more.

“The implication is that banks will have to aggressively lend or aggressively reject deposit which they might not want to do,” said the financial analyst.

But the lending strategies many banks could adopt to meet the LDR target could lead to direct competition with fintechs.

Fintechs vs banks: Fight

Banks could refinance loans, Sterling Bank’s Managing Director, Suleiman alludes. With 79% of its deposits already given out as loans, Suleiman said his bank is no danger of the LDR penalty. But he said banks could try to attract loan customers from “other banks that are sleeping”.

“There will be competition in the market for who gets a higher amount of loans because everyone is trying to grow their loan books,” said the analyst.

But if banks lend more, it could affect the business of digital loans platforms for different reasons.

To begin with, banks already offer lower interest rates than digital lenders. Many fintechs offer loans with interests as high as 30%. But some banks like Guarantee Trust Bank (GTBank) offer loans as low as 21%.

If banks leverage this, it could cause fintechs to lose customers.

“I think that the first set of people that would migrate into borrowing from banks are the high-quality borrowers that are paying fintechs 5% per month,” Suleiman said. 

“It provides this class of borrowers the same loans for less interest. If I were a high-quality borrower, I would migrate.”

But fintechs are betting that even with the push to lend more, banks will continue to focus on current customers. Flosbach, the General Manager for FairMoney admits that bank loans “would cost online lenders to lose some customers.” But he said banks are “very old-school and don’t focus on the average Nigerian.”

He predicts that “banks will try to lend more aggressively to corporates… [and] will enter the retail loan segment more and more.” “However, [they will] mainly focus on their existing customers, where they have visibility of their cash flows,” he added.

Could banks acquire fintechs?

Another way increased bank lending could have an impact on fintechs is how banks begin to leverage technology to reach new customers. “A lot of banks don’t have the capacity or the technology to do extreme retail,” said the financial analyst. Compared to banks, “we [fintechs] have an advantage and the technological advantage we have is huge,” said Flosbach.

Meanwhile, the next LDR deadline is in less than 10 weeks and subsequent ones could follow every three months. The timeline is too short for many banks to develop a market-ready consumer loan product.

They may have to acquire fintechs and co-opt their technologies for faster growth on the lending front.

“It is not impossible that banks will acquire fintechs,” Suleiman said, whose bank has built different digital platforms targeted at a host of consumers. He says acquisitions are possible “as long as they [banks] can transparently audit the logic of the fintech product to be sure it is something they are okay with.”

But he believes that regardless of the routes banks follow, all of them would have to build their own financial technology platforms. “Absolutely, they will all have to do it,” he said. 

“It makes the cost of processing credit more viable for the borrower, removes the human element from the traditional system and improves the quality of user data banks can analyze.”

A few banks, like GTBank and Sterling, have already developed their own digital lending platforms. In 2018, GT Bank unveiled QuickCredit, a platform that offers instant loans with an interest rate of 1.75% monthly (21% annually). 

In February 2018, Sterling Bank announced Specta, its own digital lending platform. Specta uses its own credit scoring engine to calculate the creditworthiness of borrowers and issues loans and accompanying interests based on that engine. It provides loans for tailored needs ranging from payday loans to rent and even wedding loans. Its loans typically carry interest of around 22% and 28%. Like regular lending platforms, Specta works for customers of any bank.

According to Suleiman, Specta has provided over N40 billion ($100 million) loans to customers across the country since it launched. “We are currently lending about N8 billion a month and we are projecting N10 billion per month,” he told me over the phone.

In another example, the Nigerian subsidiary of Standard Chartered has largely focused on corporate finance for over 20 years. But in September, it announced plans to increase retail banking from 6% to 15% of its revenue in the next two years. The company wants to also grow lending by 5%-10% by the end of 2019. “Retail is where we’re going to see exponential growth,” said Lamin Manjang, chief executive officer for Standard Chartered in Nigeria.

What this means is that banks could re-enter the lending market in different ways that could threaten online lenders.

Regardless though, many banks, for now, don’t have the technology that is required to be successful at retail lending. In addition, millions of people remain excluded from accessing financial services in Nigeria. According to Flosbach, “the amount of customers in Nigeria that is not (and never will be) served by traditional banks is huge.” His company, Fairmoney, and other digital lenders will be aiming to reach this group before banks can.

Social Lender is a social lending service developed by the Lagos-based IT company, BinCom. The product is targeted at Nigerian banks to allow them create a community where users can access soft loans based on their social reputation.

How does the platform determine your social reputation, you ask? What is social reputation anyway? I asked those too.

According to the company, “there is a proprietary Algorithm and software to rank available social profile according to several predefined parameters. The algorithm pulls information from the social media platform about the user (based on access granted by the user) to generate a Social Reputation Score. Every user is given a Social Reputation Score in percentage.”

What the algorithm analyzes to figure out your Social Reputation Score includes the social information available about you (you either had to sign up with your Twitter or Facebook profile), the duration of activity on your social network, the investigation done by BinCom’s Social Credit Officer, additional Social Collateral submitted by you and validation of the Social Guarantors provided by the user.

This looks like quite a lot of hoops to jump through. Although it’s understandable; the need to ensure there is a real human (who won’t hightail it after getting the fund) behind the account requesting a loan, but there has to be a way to make the process look less like the user is applying for a Visa to North Korea.

BinCom licenses the technology to banks who can go ahead to customize it to their brand themes. Currently, Sterling Bank is the only known licensee.

“Sterling Bank is the first bank to get on board the product in Nigeria.  We have many more banks coming on board in 2016,” Bade Adesemowo, BinCom’s deputy group head told TechCabal. “The run with Sterling Bank has been very successful so far. None Sterling Bank Account holders can also borrow using the Mobile Money option.”

On the Sterling Bank social lender, you can borrow up to N10,000, although a first time borrower is limited to a maximum credit of N3,000. Transaction charges ranges between 100 and 500 depending on how much the borrower is requesting.

“In the long run, we expect every Bank in Nigeria will be using the product,” Bade said. “We are proud of our successes so far and look forward to more success with our new partner Banks as well.”

Photo Credit: epSos.de via Compfight cc

Banking has evolved interestingly since the days bank patrons had to pick a place number when they visit banking halls because of human traffic. They would spend hours waiting their turn to meet the teller or whoever would attend the affair that brought them into the banking hall in the first place.

Human traffic began to ebb inside banking halls with the introduction of automatic teller machines (ATM) and introduction of mobile banking applications that allow Bank patrons run basic transactions without seeing the brick and mortar have only sent this back-snapping and sweat-pooling time further down our banking history.

Nigerian commercial banks have seen the good in this and are catching on. Here is a list of 19 that have mobile banking apps out of the 21 commercial banks in Nigeria.

Access Bank

Diamond Bank

Ecobank Nigeria

Enterprise Bank

First City Monument Bank

Fidelity Bank Plc

First Bank of Nigeria

Guaranty Trust Bank

Heritage Bank

Keystone Bank

Mainstreet Bank

Skye Bank Plc

Stanbic IBTC

Sterling Bank

UBA Plc

Union Bank

Unity Bank Plc

WEMA Bank

Zenith Bank

CitiBank Nigeria and Standard Chartered Bank do not have mobile banking apps as at the time of writing this article.

This post is brought to you in partnership with gidiapps.com, an app store that curates locally developed applications and applications Nigerians use the most. Discover great apps to use in Nigeria at Gidiapps.com.

Image: Skitterphoto Via Pixabay