Essentially…the new barbarians are in our midst; and they are not just a first world phenomenon. Given how much they have made life easier elsewhere, we ought to welcome this development.
Much has been made of how the revolution in information and communications technology (ICT) has helped improve the ease of access to and convenience of use of services across economies — from banking through commerce. In manufacturing, the disruption has been less sanguine. Automation has wiped out much work that previously depended on brawns on the shop floor. It is currently threatening middle level workplace functions (that include large repetitive content).
So complete is the ICT disruption that even our contemporary Luddites are equally bothered. They understand the need to rally against this new machine age. Yet cannot ignore the irony of having to carry out much of their organising through smartphones and the internet.
In those places where this impact has been felt the most, the demographic context has compensated. With many of the countries in the OECD struggling with falling birth numbers and the greying of their societies, robots have usefully taken up the slack.
For frontier emerging markets, like Nigeria, much of the conversation around these phenomena and the trends around them (how the sharing economy, for instance, threatens to re-define what “work” means), therefore, have occurred in spite of us. We have been spectators of a sort.
At least that is what I thought until recently.
…what all of the telcos are doing with their call credit is, strictly speaking, “retail lending”; and it is on a daily basis far bigger than what most of our local banks do.
Then I get told, first, that MTN, the leading domestic telecommunications company may have ceased to define itself as a telco since 2011. On one hand, given the size of its call credit business, analysts have started describing it as the leading lender in the domestic space. The numbers that I have heard being discussed are mind-boggling. I do not have official numbers, and so I am loth to repeat them here. But it suffices to say that what all of the telcos are doing with their call credit is, strictly speaking, “retail lending”; and it is on a daily basis far bigger than what most of our local banks do. Second, MTN seems to have acquired a license to stream pay-tv through phones on its GSM network.
Then there is the case of Nigeria’s leading shopping mall chain. Yes, Shoprite. It would seem that management there has decided to acquire a license to provide transaction switching and electronic payments processing services. On the back of this, the markets expect that Shoprite would begin to issue electronic cards to their customers.
Essentially, therefore, the new barbarians are in our midst; and they are not just a first world phenomenon. Given how much they have made life easier elsewhere, we ought to welcome this development.
There is but one difficulty. These digital barbarians are knocking at a gate about which economies like ours are unnecessarily finicky: the banking sector. There are a number of threats in these developments for the banks. First is the danger from customers of these businesses keeping “wallets” with them. As our nascent e-retail businesses have demonstrated, these wallets make both payments and refunds easier; and so make sense.
However, every wallet that each customer of our new ecommerce businesses opens with the digital disrupters is deposit fleeing the banks. Worse, is that the banks still get saddled with the vault cash management expenses associated with these wallets. Then there is the distinct possibility that the ecommerce operations may then aggregate their respective customers’ “wallets” and return same to the banks at much higher deposit rates.
Our banks should join in the disruption of their currently staid operations as part of the process of improving customers’ experience…It would help even more, if the regulators could learn to stay out of the way while these changes are afoot.
It could get worse, when you consider that these businesses have proven more adept at mining customer data than our banks have been. In which case, from “customer buying behaviour” data to insights on their spending patterns, chances are that these businesses would be able to build databases on their customers that would make any credit bureau livid, and eventually lend more profitably to their retail customers.
On these measures, the danger to what the Central Bank of Nigeria (CBN) calls “deposit money banks” is not just of their respective lunch packs being expropriated by these insurgents. It is that they run the risk of being redefined out of existence.
Okay!!! I exaggerate. But only a bit. It is easy to point to the West and indicate that even more robust challenges to the financial services sector there from non-bank insurgents has not removed the former’s raison d’être. However, peculiarities in our space lend all the difference. The default setting of our banks is regulatory protection. The default setting of our financial sector regulators is “bank cossetting”.
Together these would ensure that the banks’ response to these digital disrupters would be to raise and reinforce the battlements that separate “their business” from commerce. This would be the instinctive thing to do; but it would not necessary be a wise response.
Ease of access. Convenience of use. These are the new tests of businesses’ value propositions in the digital age. Our banks should join in the disruption of their currently staid operations as part of the process of improving customers’ experience.
It would help even more, if the regulators could learn to stay out of the way while these changes are afoot.