The Central Bank of Nigeria (CBN) has raised the alarm that Financial Technology initiatives or companies popularly called FinTechs will soon start doing better than traditional banks and may run the latter out of business.
Governor of the CBN, Godwin Emefiele, raised the alarm on Wednesday in Abuja at the 28th edition of the Annual In-house Executive Seminar on “Digitalization of Money and Monetary Policy in Nigeria.”
Represented by the Deputy Governo,r Financial Systems Stability, Mrs. Aishah N. Ahmad, Emefiele in his address, noted that there is “the fear of FinTech outcompeting traditional banks, with associated profitability risk.”
FinTechs are organisations that use technology to support or enable banking and financial services.
Some of the famous FinTechs in Nigeria include Paga, Interswitch, Flutterwave, Kuda bank among many others.
Emefiele warned that FinTechs are likely to outshine traditional banks as such erode their current streak of profitability.
He also noted that “with increased technological absorption and financial digitization, comes increased risk of data theft and privacy, cybercrime and fraud.”
The CBN governor is therefore advocating “for not only expanding payments system infrastructure, but also updating the instruments of supervision.”
Talking about financial inclusion, Emefiele said considerable gains have been achieved in boosting financial inclusion in Nigeria, but he is worried that the 64 percent inclusion rate is slowing down “the digital transformation wheel, as all citizens must be carried along to optimise the gains of a digital economy.”
According to him, “while cash-based transactions have declined significantly in the last decade, it is still the dominant means of payment, amidst a large informal sector. Granted that Nigeria boasts of one of the fastest growing FinTech ecosystems in Africa.”
He went on to state that, “with the industry projected to grow by 12 percent annually (McKinsey & Company, 2022), the technological space is still maturing, with limited market size, funding and venture capitalists, access to baseline technologies, and skills, as common features.”
Emefiele noted that despite the significant progress “recorded in the use and spread of digital payment infrastructure, particularly in the economic cities, the current financial inclusion rate suggests that more work is needed.”
“The high cost of telecommunications infrastructure, including internet and electricity, in remote, urban and low economic activity areas, continue to dissuade investments in such areas, where low income and financial illiteracy are already inhibiting social and economic advancement.”
He then called for the deepening of the financial system through broader coverage.
In spite of these challenges, the CBN governor said opportunities still exist “for the expansion of new business models, with add-on benefits, greater efficiency and customer satisfaction. Banks can lead value propositions for the growth of local innovators by providing venture capital, while focusing on other things.”