The global banking system has witnessed a massive transformation over the last 20 years as innovation keeps opening up more opportunities to break new ground. This journey is far from its end. Globalisation, innovations in communication technology and regulatory reforms have contributed significantly to these changes. Today, banks play a critical part in keeping economies afloat and societies stable. From funding critical infrastructure to providing liquidity to retail customers and SMEs – the role of banks could vary according to capacity and scope.
The Nigerian banking sector is not immune to the global evolution, as many banks have moved speedily from tedious, laborious paper-based banking to somewhat fully digital-compliant systems. Bureaucratic barriers that long existed between customers and financial institutions have been shattered. Today, consumers lack the patience to wait in long queues at physical bank branches to fill out tons of paperwork, especially when numerous intuitive self-service digital banking solutions provide a low-effort, quick, and pleasurable user experience via an array of consumer devices.
Some of the self-service capabilities successfully incorporated into our banking system include Self-registration, online account opening, bill payment, loan origination, insurance purchase, etc. Operations that were once strictly carried out in the confines of banking halls can now be consummated in the comfort of our living room sofas. According to reports published on Statistica, Nigeria had 122.3 million bank customers in 2021, compared to 62.3 million in 2016. A separate study by ACI Worldwide in collaboration with GlobalData and the Centre for Economics and Business Research (CEBR) discovered that 64.7% of Nigerian consumers own and use a mobile wallet.
Digital banking has birthed new ideas that are continuously changing the technology landscape, and this wave of innovation is responsible for the advancement experienced in our payment system. The Nigeria Inter-Bank Settlement System(NIBSS), jointly owned by the CBN and licensed banks, plays a critical role in today’s Nigerian banking industry. With the shared infrastructure it has put in place, interbank payments have moved from batch procedures to real-time online. NIBSS Instant Payment (NIP) has become the standard platform for instant funds transfer between bank accounts, with very high volumes of transactions passing through it daily. A Business Day analysis of electronic transactions puts the total volume of NIP transactions in 2022 at 5.2 billion, from 3.7 billion recorded in 2021. The same report projects real-time transactions to rise to 8.8 billion by 2026.
The entrance of fintech into the Banking and financial services space has further strengthened our payment system with very efficient gateways developed to handle transactions beyond our local financial territory. Interswitch, Paystack, Flutterwave, Paga and the like are taking the lead in this sector. Nigeria’s fintech landscape is regarded as one of the most vibrant in Africa, with fintech investments growing by 197 per cent over the past three years alone. According to African Tech Start-ups Funding Report 2022, Nigeria was the best-funded country in Africa for the second year, with 180 start-ups (28.4 per cent of Africa’s funded ventures) raising a combined US$976,146,000 (29.3% of the continent’s total). Fintechs accounted for almost half the country’s funded ventures (86, 47.8%) and over half its funds (US$536,655,000, 59.4%).
The COVID-19 pandemic allowed the world to build entirely new systems centred around remote working and contactless transactions. Regardless of the prevailing conditions, people still had to consume goods and services and pay for them. Business continuity models were developed speedily and adopted to plug gaps and mitigate inherent risks. Training, meetings, and performance management sessions were moved online out of necessity. Slack, Microsoft Teams, Zoom and even WhatsApp became powerful work tools that made internal communication among departments seamless. Efficiency levels were raised to new highs. Stanford University researchers found that remote workers were 13 per cent more productive when compared to office-bound workers. In addition, a Buffer survey found that 97 per cent of workers would prefer to work remotely for at least some of the time for the rest of their careers. This system birthed a whole new level of contentment, and since then, the focus has shifted to more contactless payments than ever before.
Conversational AI-powered technology has transformed how organisations interact with their customers and manage issues they encounter. Chatbots now leverage advanced technologies like Machine learning, Natural Language Processing(NLP) and Analytics to respond quickly and intelligently to user enquiries by breaking down input text and voice to identify words, sentences, and parts of speech. Banks now leverage these smart bots’ speed, accuracy, and high availability to reduce turn-around time and improve corporate turnover. Chatbots can work 24/7 round-the-clock as long as they remain deployed, allowing backend support teams to focus on more complex issues.
Roughly 1.5 billion people are using chatbots worldwide, with chatbots expected to become the primary customer service channel for 25% of businesses. In 2023, the chatbot market is projected to grow over $994 million, indicating an annual gain of around $200 million from the previous year. This number is expected to reach $3 billion by the end of this decade, with its current compound annual growth rate (CAGR) of about 22%. Chatbots are already heavily used by online retail and e-commerce stores, healthcare, real estate, b2b and b2c companies.
The BFSI (Banking, Financial Services, and Insurance) industry holds a significant share of the chatbot market in utility. According to multiple sources, this was valued at $600 million in 2021 and is estimated to reach between $5 to 7 billion by 2030. Using financial services, chatbots can help banks save up to $11 billion in human resources costs and save customers around 4 minutes per inquiry, directly adding value to customer satisfaction. As many as 43% of banking customers prefer to resolve issues through a chatbot. About 25% of commercial banks in Nigeria already have chatbots running on their digital platforms, with more banks planning to enter the fray.
Despite these giant strides our banking system has attained over the years, constantly building on major successes could sometimes be challenging. One of the biggest obstacles to the Banking and Financial Services Industry is the frequent policy changes that distort its stability. A case in point is the recent currency redesign and cashless policy introduced by the CBN to limit the volume of cash in circulation, inadvertently forcing banks to deliver more value via digital channels. This policy has put more pressure on the existing payment infrastructure available to the banks, resulting in incessant transaction failures. The volume of NIP transactions processed by NIBBS in January 2023 alone is 638 million, compared to the 438 million recorded within the same period in 2022.
Daily, consumers have to adjust their choices based on the ability of the market to provide digital payment channels. In the scarcity of cash, retailers who accept PoS payments and bank transfers are more patronised than those who do not offer both. The open markets and the public transportation segments are arguably two of the worst hit by the cashless policy. This demography has relied heavily on liquid cash to transact smoothly and swiftly. While these sectors were strictly cash-dependent, available digital payment alternatives were considered less cost-effective. Supermarkets and ride-hailing services like Uber and Bolt fall under this category. Today, over 90 per cent of consumers are forced to make payments using debit cards and online funds transfers.
Every crisis provides a window of opportunity, and for the banking system, it is an excellent time to be proactive and inventive. Sometimes, the most profound form of creativity is discovered and exhibited in the face of adverse situations. Banks and fintech can expand their financial services portfolios to capture the unbanked and semi-banked. Players in the financial services industry must understand the need to scale up and scale out swiftly and seamlessly. Now is the time to consider investing more in technology infrastructure and quality talents to help steady the tide. Equipping employees with the right skills and digital tools, doubling down on digital marketing, and establishing robust digital infrastructure are likely crucial to success in the next normal.