Nigerian banks to face stiff competition from fintech firms as CBN moves to boost USSD, agent banking and PSBs

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  • Nigerian banks will face stiff competition from fintech firms, according to Moody's Investors Service.
  • This is coming as CBN make plans to implement measures to boost the utilisation of USSD, mobile banking, agency banking, and payment service banks.
  • Nigerian larger banks, Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria, United Bank for Africa Plc and Guaranty Trust Bank Plc will defend their market shares due to their customer bases and technology budgets. 

Nigerian banks will face stiff competition from fintech firms as Central Bank Of Nigeria (CBN) announced plans to implement measures to boost the utilisation of unstructured supplementary service data (USSD), mobile banking, agency banking, and payment service.

Moody's, a global investors service, stated this in a report released on Monday and made available to Business Insider SSA.

Moody's stated that the CBN's plan will deepen the role of financial technology firms (fintechs) in Nigeria's banking system and a credit negative for incumbent banks because it will increase competition. 

Peter Mushangwe, a banking analyst at Moody’s, says, “Nigeria’s plan to deepen the role of FINTECH firms in Nigeria's banking system will result in increased competition for incumbent banks, a credit negative. However, we expect Nigeria's large banks – Access, Zenith Bank, First Bank of Nigeria, United Bank for Africa Plc and Guaranty Trust Bank Plc to be better positioned to defend their market shares due to larger customer bases and large technology budgets.” 

According to the report, Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria, United Bank for Africa Plc and Guaranty Trust Bank Plc are better positioned to defend their market shares due to their larger customer bases and technology budgets. 

With this in mind, small and midsize banks and fintech competitions will battle for the SME industries with innovative products.

Last week, CBN governor, Godwin Emefiele revealed five-year monetary plan which includes payment systems and infrastructure, access to credit for micro, small and midsize enterprises (MSMEs), consumer lending, financial inclusion, and financial stability among other issues.

The apex bank also said within the five-year, commercial banks will need to recapitalise. 

“The CBN proposals cover payment systems and infrastructure, access to credit for micro, small and midsize enterprises (MSMEs), consumer lending, financial inclusion and financial stability among other issues. The CBN will also develop a regulatory sandbox that will enable fintechs and banks to test their innovations in a controlled environment, minimising risks of financial instability in the Nigerian banking system.

“PSBs will challenge incumbent banks because of their ability to develop their own digital platforms, hold deposits and make transfers without partnering with banks. These new entrants will compete with banks, especially on retail banking products, which will negatively pressure banks’ consumer business unit margins.

“Fintechs may also create alternative distribution and payment channels that risk eroding banks’ payment services' fee income,” Moody's says in its analysis.

Nigeria’s fintech market is fast-growing, largely dominated by payment service companies such as Interswitch Limited, e-Tranzact, Emerging Market Payments and Unified Payments; consumer payment apps and digital commerce platforms such as Quickteller, KudiMoney, Jumia and KongaPay; and online microlenders.

To bring highly unbanked population into the financial space, large telecom companies will be able to leverage their large customer bases, threatening banks' strategies to mobilise retail deposits via mobile-phone-based platforms, although banks will be able keep deposits where wallets are held in their trust accounts.

Some telcos have applied for payment service banks (PSBs. The Payment Service Bank (PSB) is part of CBN's plans to drive financial inclusion in the country. It is modelled after Kenya's Safaricom.

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