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The financial sector witnessed a number of successes and milestones in 2019, balanced with doses of telling regulations, massive funding, and development of various financial solutions across different sectors.
Adedeji Olowe — CEO of Trium Networks and Trustee of Open Banking Nigeria made a number of interesting predictions for the fintech space in 2019 which we revisited in December after quite a number of his predictions came to pass.
In a Medium post, Olowe once more made interesting predictions for the year 2020.
Banks won’t improve lending to the retail sector
First is that commercial banks will still remain tight-fisted in providing retail credit despite the push by the Central Bank of Nigeria (CBN) for more loans to be given out to the retail sector.
Recall that the CBN increased the loan-deposit ratio to 65% in 2019, probably forcing a number of banks to deviate from the norm and begin dishing out collateral-free loans to different classes of individuals.
Despite widespread projections that the LDR would be increased to 70%, last week, Nigeria’s Apex bank decided to retain it at 65%, citing the fact that it has witnessed improvement in lending to the real sector since the directive was made.
Olowe is of the opinion that given the long history of tightfistedness amongst commercial banks, most would rather endure the brunt of the CBN’s wrath than improve lending to the real sector.
Account-based payments will explode
Despite improved digital facilities, paying with debit cards has not really panned out the way many users expected. In fact, there have been some unconfirmed complaints about instances of failed transactions and failure to receive one-time passwords (OTPs) which are needed to authenticate some online transactions.
Olowe believes that account-based payments would soon become the preferred means of payment.
Seeing that account-based payments have been predominantly used on WhatsApp and Instagram e-commerce, Olowe envisages the integration of APIs with this payment method, which he believes would affect 50% of all card payments
Trouble for bankers
This year, Olowe predicts a shakeup in the financial industry once MTN lays hold of the Payment Service Bank (PSB) licence.
The CBN, with the aim of deepening financial inclusion, introduced guidelines for PSBs in 2018, to enable access to financial services for low-income earners and the unbanked.
However, as we pointed out in an earlier piece, the guidelines restrict PSBs from anything beyond offering high-volume, low-value transactions in remittance services, micros-savings, and withdrawal services.
PSBs, with no access to loans or foreign exchange services, as pointed out then offer little beyond increasing the number of people with bank accounts, thereby limiting the scope of financial inclusion.
In 2019, Olowe predicted that the Payment Service Bank (PSB) licence would falter but not a single PSB was launched throughout the year. An approval in principle was given for three PSBs.
Given that MTN is Nigeria’s largest and most widespread telco, it likely has a bigger pool for prospective customers than most Banks, but considering the limitations of the PSB, will banks have enough reasons to be worried?
Monthly interbank transfers to hit 300m in volume
CBN reduced bank transfer charges from ₦52.52k ($0.15 ) to ₦10 ($0.028) for transactions below ₦5000 ($13.83), ₦25 for transactions between ₦5001-₦50000 ($13.83 – 138.3), and ₦50 (₦52.52k VAT inclusive) for transactions above ₦50,000 ($138).
Olowe projects interbank transfers to hit a volume of 300 million monthly driven by cheap low-value transfers as people become more comfortable transferring smaller amounts of money.
According to the Nigeria Inter-Bank Settlement System (NIBSS) e-payment fact sheet for the first quarter of 2019, NIBSS instant payments (NIP) transactions had an average daily volume of 2.6 million which came to 77.6 million transactions per month.
Going by Olowe’s predictions, the volume of daily, monthly, and quarterly NIP transactions would have to increase by ~286% if these numbers are to be reached in 2020.
The first quarter of 2018 put average daily NIP transactions at 1.55 million and an increase to 2.6 million in 2019 represented a decent 67% rise.
During the periods in question, the cost of transfers was still relatively high and the market had not yet been fully penetrated by the likes of OPay, Kuda Bank, and Rubies.
However, high volumes of such low-value transactions may not be feasible for regular bank account holders since they have other charges to deal with.
For instance, if more users start transferring sums like ₦250 for a loaf of bread or ₦150 for a drink, it could lead to the accumulation of several SMS alert charges (₦4) for every debit alert received.
On the flipside, such low-value transactions might be more suitable for account holders on Kuda Bank that does not have inter-bank charges for any transaction, regardless of the amount.
The past year saw the OPaycalypse, brought about by Opera-backed platform, OPay. Boasting several features/services designed to keep users within the app, OPay’s strategy has increased the use of its payment platform which facilitates all transactions within Opay.
Olowe is forecasting that Opay will become one of the top ten banks in Nigeria within the course of the year by pushing massive retail credit and offering better investment rates.
“Expect them to get a seat at the Banker’s Committee soon. And if they ain’t invited, they would buy one of the commercial banks,” says Olowe.
This appears to be very much like Opay’s strategy in the relatively short time it has been in the Nigerian market.
In 2018 Opay acquired Nigerian mobile money platform, PayCom, and in less than a year, through the use of other verticals like ORide, OFood and some others, became a notable player in the payment space.
