I was surprised when I read this week that Zenith Bank had claimed the coveted title of “Best Digital Bank” in Nigeria, in a consumer banking satisfaction report. Zenith Bank. With over 500 branches located across the length and breadth of Nigeria – in every Nigerian State no less – Zenith Bank is a digital bank. With its massive physical infrastructure. How so?
Zenith provides online banking services; I would hazard a guess that this might be around 30% of their business. But online banking ≠ being a digital bank. They are still, fundamentally, a brick and mortar bank but with solid online capabilities. It is worrisome that a reputable ratings company like Agusto and co, the pan-African ratings agency who authored the Consumer Digital Banking Customer Banking Satisfaction Index Report, has not identified the distinction between a legacy bank and a digital bank.
What’s even more worrying is that they’ve researched and created an entire report around digital banking – and haven’t quite gotten to grips with what it is.
Mention the words Revolut or Monzo to anyone, and they know they are digital banks. You don’t walk in to a Monzo branch. You cannot look the Revolut customer service person in the whites of their eyes when you’re interrogating them on why your POS payments aren’t going through. No-one is counting notes in front of you – cash in its physical form is non-existent. Their branch network is the cloud, yet they offer the same end-to-end financial services as traditional banks; current accounts, savings, loans etc. Most importantly, and herein lies the main differentiator – digital banks are making approvals and decisions about you, based solely on data. They don’t need to see you, to know you. To them, you are a complex algorithm. To Zenith and traditional banks – the majority of their decisions are based on how a real life human perceives your risk levels. This is somewhat problematic and is one of the many reasons why we have so many under banked people in Nigeria.
We talk a lot about financial literacy in this country – I include myself in that camp. We will never achieve anywhere near the levels of financial inclusion that will power the economy and improve the lives of millions, if we do not start with financial literacy and education. But how can we expect people to be financially literate when a ratings company doesn’t fully understand what a digital bank is? By awarding Zenith Bank with the title of “Best Digital Bank”, they are actually creating confusion at a time when the industry as a whole is trying to educate people on the future of financial services and the opportunities that can open up an entire market. And the future of financial services must include digital banks in Nigeria. The intention to support digital banking is admirable; however the execution is questionable.
Digital banking is easy to set up, it is secure, it has lower fees for the consumer and it is scalable. Yes, like all financial institutions, it requires infrastructure but guess what, we have it in Nigeria. The mobile phone. We actually have the branch network in the palms of our hands. Literally. So why don’t we have more digital banks in Nigeria? And by this, I don’t mean online lenders, or mobile money providers – they are financial services platforms, and they play an important role in our expanding financial services sector, but they are not digital banks that give end-to-end services to customers.
For me, there is really only one true digital bank at present, and that’s, Kuda – the “bank of the free”. They are unshackling users from brick-and-mortar stores, from bank charges and from day-to-day banking wahala, although unlike traditional banks, they are yet to offer loans, from what I can see. But I can’t imagine this will be far away, as they grow.
However, one on its own is a monopoly – we need more digital banks that can deliver seamless services for millions of people who need and deserve to be financially included. The market is ripe for digital banking in Nigeria. But let us not get it twisted. If we are to gain the trust of the market as leaders of this segment, we should clearly distinguish what a digital bank is or is not. Barclays, HSBC, and many global banks do provide you an element of digitized services, and great banks they are in enabling businesses, but digital banks they are not. Let’s be quite clear about that. They are there to be disrupted, not the disruptors.
There is definitely a role for different types of institutional, traditional brick and mortar commercial/ retail, investment banks, finance houses and even microfinance. Look – this is a massive market and we need choice – different strokes for different folks. In fact, you can decide to be any of these and adopt a digital or traditional strategy based on what your customer preferences are or on your own convictions. I’m not advocating for axing every bank branch in Nigeria. I’m petitioning for better choice and better access to banking that leads to improved financial inclusion rates. Traditional banks have definitely been instrumental in the financial inclusion drive but there is a limit to their scale, and not because they don’t want to, but it boils down to their infrastructure and the economics of scaling.
We have the apparatus to deliver digital banking services into the lives of many – but our financial institutions [and ratings agencies] need to understand the power and opportunity of digital banking – and how it will transform our society for the better. Digital banking will power this from now on. Banks like Zenith will, I believe, continue to grow and develop their online presence in line with the market and their immediate customers’ needs, but whilst they still maintain a massive offline network of bank branches, and whilst the majority of their decisions are made via human interaction rather than system and data driven decision making, a digital bank they will never be. All that said – I congratulate my colleagues on their accolade – the work they have done in improving their transaction success rates for USSD platforms, as well as their attention to detail in dealing with customers’ online support services, should be applauded.