The Central Bank of Nigeria (CBN) has sounded the alarm that financial technology initiatives or companies commonly known as FinTechs will soon start outperforming traditional banks and could lead to the bankruptcy of the latter.
CBN Governor Godwin Emefiele sounded the alarm on Wednesday in Abuja during the 28th Annual Internal Executive Seminar on “Digitalization of Currency and Monetary Policy in Nigeria”.
Represented by the Deputy Governor for Financial Systems Stability, Ms. Aishah N. Ahmad, Emefiele in her remarks noted that there is “the concern that FinTech will compete with traditional banks, with an associated profitability risk” .
FinTechs are organizations 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 eclipse traditional banks as they erode their current trend of profitability.
He also noted that “with increased technological absorption and financial digitization, the risk of data and privacy theft, cybercrime and fraud increases.”
The Governor of the CBN therefore advocates “not only to expand the infrastructure of the payment system, but also to update the instruments of supervision”.
Speaking on financial inclusion, Emefiele said there have been huge gains in boosting financial inclusion in Nigeria, but he fears the 64% inclusion rate will slow down “the wheel of digital transformation, as all citizens must be trained to maximize the gains of a digital economy.
According to him, “while cash transactions have declined significantly over the past decade, it is still the dominant means of payment, within a large informal sector. Certainly, Nigeria boasts of one of the fastest growing FinTech ecosystems in Africa.
He went on to state that, “with the industry projected to grow 12% annually (McKinsey & Company, 2022), the tech space is still maturing, with market size, funding and investors limited venture capital, access to basic technologies and skills”. , as common characteristics.
Emefiele noted that despite the significant progress “recorded in the use and diffusion of digital payment infrastructure, especially in economic cities, the current rate of financial inclusion suggests that more work is needed”.
“The high cost of telecommunications infrastructure, including internet and electricity, in remote, urban and low-economic areas continues to deter investment in these areas, where low incomes and financial illiteracy already hamper the social and economic progress”.
He then called for deepening the financial system through broader coverage.
Despite these challenges, the CBN Governor said opportunities still exist “for the expansion of new business models, with added benefits, greater efficiency and customer satisfaction. Banks can drive value propositions for the growth of local innovators by providing venture capital, while focusing on other things.”