Digital Financial Services: The Present, the Future, the Consumers

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Technology innovation is like fire, it cannot be covered because as time passes by, it develops and later develops into new models with no option of jettisoning. Though, adaption of new models might take time but it will definitely come and it can only get better and better with time.

The concept of electronic banking or digital financial service may sound familiar to few Nigerians but the real core of digital financial service is still farfetched. Our traditional or conventional banks are still operating a model of financial service that is very much primitive, expensive to run and most importantly, demands more from the bank consumer.

It is apparent to note that global financial service has now gone beyond the model being presently used in Nigeria, commercial banks need start looking at going totally digital to tap the total pros of digital financial service.

It is not surprising to see that FinTech start-ups are now springing up, FinTechs are defined by The Economist as, “New entrants that use internet-based and mobile technologies to create new or superior banking products. FinTech firms range from startups to the bank product offerings of large tech firms, such as Google or Apple.”  Many have described the disruption phenomenon.

The disruption of the banking sector by FinTechs can be regarded as a good development in the right direction as this would not only ensure easy models of financial services, it will also put the conventional banks on their toes to do more to make financial transactions easy, less expensive and instant for consumers.

It is not a gainsaying that huge amount of cash are trapped outside the financial sector, because of so many constraints been faced by some consumers, especially Nigerians from the informal sector as they prefer to trade and exchange money hand to hand to avoid the bottle necks of going to the bank.

It is an obvious fact that the ecosystem too is filled with distrust from consumers as they do not trust the commercial banks and even the telecommunication companies that would provide technical supports.

Reasons for the distrust are not far-fetched, failed money transfers, failed mobile financial transactions which telecommunication companies and banks push the blame to themselves,  Inadequate mechanisms for redress and complaint resolution process, such as USSD fees borne by consumers, cases of multiple charges on a transaction and many other consumer issues would only hamper financial inclusion of the underbanked and unbanked.

In order to fill in the gap that the commercial banks are opening up, FinTech start-ups are now beginning to enter into the financial space in the country to ease the pains of bank customers, there are different FinTechs with different selling points to consumers, some are investment FinTechs, few are payment platforms, while others are mobile money operators.

Fintechs are coming with different features which the consumer might find good but might not want to adopt it if proper regulations and policies are not put in place to nip in the bud challenges of identity theft.

Some Fin Techs naturally with their business model have less stringent requirements than conventional banks, and offers loan amounts mostly over a period, with Interest rates on loans varying.

Although, there isn’t one single large disrupter, banks are being assaulted from all sides. For example, consumers don’t necessarily need to go to a bank to access small loans or transfer money – savvy fintech companies are now increasingly servicing that market, thus, would disrupt traditional banks’ revenue streams.

International communications firm Burson-Marstelle recently stated that in the past 12 months “controversial company developments” were the type of crisis most frequently encountered, with the entry of new and innovative business models into their market the second most experienced cause of crisis.

There are signs indicating that a bank without capital or a vast physical distribution network is possible, according to Simon Mathews, Chief Strategy Officer for Extractable, a digital consulting agency. He goes on to say the “uberisation of banking” is making it harder for banks to sell more products to each consumer.

One company that seems to be a real disrupter in the financial-services sector is Jumo, which allows financial access through mobile wallets, with no need for a bank account, physical structure or collateral.

It is expected that more disruption of the present financial system and structure would come, only financial institutions with digital ideologies would stand the test of time.

More and more methods of servicing consumers have started gaining ground in Nigeria. Mobile money operators are also trying to reach more people in the rural areas. Most banks concentrate on the urban areas, which is one of their undoing and contribution to financial exclusion of the ‘unbanked’ and ‘underbanked’.

Mobile payments or digital wallet payment system is a situation whereby money is loaded in wallets and with the launch of e-wallets you can add money using digital wallet apps.

However, all the aforementioned models that would make financial transaction easy will not come to place if proper regulations or guidelines that would address quality of financial service delivery for consumers are not provided by the Central Bank of Nigeria.

If Fin Techs would come up with different business models to attract more people into the financial sector, the Central Bank of Nigeria needs to start coming up with regulations and policies to make the operators run smoothly and also ensure the protection of consumers from fraud and identity theft.

The regulator, which is the apex bank, through the department of consumer protection would need to enhance the redress system for consumer complaints and make the requirements to tap into the digital banking less stringent to enable more clients across all financial outfits that are willing to adopt technology in finance.

Consumer advocates have often raised alarms that the redress mechanism is not proactive enough as there are so many illegal deductions that often happen on customers bank accounts, though the CBN, through the its consumer protection department is resolving issues and complaints, but it is so obvious that with the level of current dissatisfaction from consumers, the CBN needs to do more to support the whole sector.

The CBN cannot do it alone, it needs to leverage on the activities of the Consumer Protection Council, consumer advocates, NGO’s, create an active consumer ombudsman, and utilizing all Central Bank offices in all the states in the Federation to attend to consumer complaints.

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