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Nigerian Banks Ramp up IT Spending as Electronic Revenues Surge

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Nigerian largest banks are ramping up spending on information and communications technology (IT) as the industry is increasingly reliant on emerging digital technologies to attract and retain customers.

The investment has gone into both software and hardware acquisition, with a couple of them investing in cloud marketplace.

Banks spent N48.94 billion on ICT in the second quarter of 2021, and that is 4.27 percent higher than 2020’s N46.94 billion as at June 2020, according to data compiled by MoneyCentral.

Financial institutions are using financial technology products to boost efficiency of operations and enhance customer satisfaction through the introduction of applications that ensures transactions are carried out expeditiously.

Of course, these investments are paying off as lenders have recorded a remarkable growth in electronic business commission and fees.

The revenue was generated from the fees and commission that the banks charged their customers when they carried out transactions through Automated Teller Machines, USSD, Internet banking, Point of Sale payments and agency banking.

The 11 largest banks saw fees on electronic product income spike by 50 percent to N133.40 billion in June 2021 from N88.97 billion the previous year, according to data gathered by MoneyCentral.

Their combined fees and commission income followed the same growth trajectory as it was up 32.51 percent to N328.46 billion in the period under review from N247.86 billion as at June 2020.

A breakdown from the figures shows Zenith Bank’s fees from electronic products surged by 90.75 percent to N17.04 billion in June 2o21 from N8.93 billion as at June 2020.

Its volume of internet and mobile money transactions surged by 118 percent to 907 million in June 2021 from 416 million the previous year.

Access Bank saw channels and other electronic banking income increase by 36.94 percent to N29.91 billion in the period under review from N21.84 billion the previous year.

The lender’s total transaction count increased by 28 percent to 894 million in the period from 700 million the previous year

Guaranty Trust Holding Company, the largest lender by market capitalization, saw fee income from electronic transactions increase by 60 percent to N10.49 billion as at June 2021.

“The introduction of the USSD flat charge of N6.98 per successful transaction by the Regulators triggered a migration of customers from the USSD platform to the Internet banking and Mobile Banking platforms,” said the bank.

United Bank for Africa, the pan African lender with branches across the continent, saw fees from business income spike by 65.08 percent to N29.60 billion as at June 2021.

First Bank Holdings Plc’s fees from electronic transactions grew by 32.68 percent to N28.81 billion in June 2021 from N21.71 billion as at June 2020.

Since the central bank’s dovish stance has created a punitive environment as income from yields on both short- and long-term government securities are declining, it is important for lenders to magnify revenue from electronic banking space.

What that means is that they have to spend more on the latest technology and software to meet the needs of the young generation customers.

There are growing concerns that the vast majority of the Nigerians (especially those in the rural areas are underbanked), which has inadvertently paved the way for financial technology (Fintech) firms to fill the vacuum.

It is important to note that Fintech firms are taking advantage of the proliferation of smartphones and the country’s young growing population to expand their footprint in Nigeria.

Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million, according to global research body, Mckinsey and Company.

Analysts at Chapel Hill Denham in a recent note to clients said MTN Nigeria’s revenue will be above the fee & commission income of any Nigerian bank by 2025 (FY-25E.).

“According to management, MTNN is open to strategic partnership/acquisition that will lift its game in the fintech space. Thus, inorganic growth is on the cards for the fintech business, in our view,” said analysts at Chapel Hill Denham.

The telecoms giant will generate Fintech revenue- which is equivalent to fees and commission income- of N468 billion by 2025, according to research house Chapel Hill Denham.

That compares to United Bank for Africa’s (N237 billion); Access Bank, (N194 billion); Zenith Bank, (N160 billion); FirstBank Nigeria, (N136 billion); Stanbic IBTC, (N105 billion); Guaranty Trust Bank, (N73 billion); FCMB, (N45 billion), and N35 billion.

There are also concerns that the launch of the Central Bank Digital Currency, e-Naira could disrupt the traditional banking business models and may redefine the role of banks in financial intermediation.

“On the part of the banking industry, revenue generated from service charges may be hampered as customers gravitate to a less expensive means of transacting businesses. However, the Central Bank has come out to refute common perceptions of a “thrust in the flesh” for the banks,” said analysts at United Capital Limited.

“They noted that the e-Naira would neither stifle nor compete with banking activities, since the main focus of the apex bank is to increase financial inclusion, drive efficient money transfers and reduce the cost of handling cash. The banks have also been tasked with promoting and marketing the e-Naira as a viable alternative to existing and potential customers,” said the analysts.

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