Technology will continue to power and not only disrupt banking and finance
It is absolutely important that we get meaningful conversations going on the nexus between technology and finance.
Information technology has been evolving, mainly as an enabler of higher efficiency in business and governance. The Nigerian experience is that banks and other financial institutions have been key beneficiaries and backers of IT innovations through their patronage. We can, therefore, talk of a partnership between Nigerian IT firms and financial institutions. The same relationship is common to other local and global markets.
For Nigerian millennials, who are fortunate to be part of the 35% Nigerians that are financially included, there is the tendency to think that several IT-enabled services that defined their financial access experience have always been there. But the older generation would recall that the branches of the same banks were not always connected together. It was impossible for a customer to draw money in the Ikeja branch of his bank, when the account was domiciled in Marina. People basically travelled with their cash to wherever they had to conduct business and commerce.
But today we have many options in drawing money from our bank accounts. We can make withdrawals not only from any of the branches of the banks where we have accounts, irrespective of where the accounts are domiciled; we can also make the withdrawals from even the Automated Teller Machines of other banks, or transfer money to people by logging into the internet banking platform of our banks, using computers or mobile phones.
IT-enabled banking efficiency covers several areas of services, including account opening, customer service, credit administration, fund transfer, asset management and reporting, etc. The recent breakthroughs in mobile telecommunica-tion have made cutting-edge financial services available on hand-held devices, and on the go.
It has been a win-win for both technology and financial services firms. Banks have dramatically expanded their service coverage on both IT infrastructures and applications. While the debate continues as to whether IT actually helps reduce banking operational costs, there is no question it continues to enhance profitability by expanding both the market and banking channels.
As the profitability of the banks improves, they are able to increase their investment in information technology. This, in turn, ensures that technology firms can continue to innovate and also become more prosperous.
In recent years, however, a frontier in the relationship between technology and finance has become uneasy. Technological solutions for mobile money, electronic payment and crowdfunding have interfaced directly with merchants and the consumers, eliminating intermediary banks. This means banking customers (in relation to the affected services) are transacting directly on non-bank platforms. With the entry of Google Wallet and Amazon Payments, the disruption of financial services by technology is assuming major scale. But profound as this disruption may be, it has some silver lining for financial institutions, which should forestall over-reaction and escalation of the faceoff between technology – especially mobile telecommunication – and financial services firms.
Transactions on non-banking platforms will ultimately increase banking transactions. This is true whether we consider remittance into virtual accounts or crowdfunding. Indeed, the wider financial access that solutions like Mpesa of Kenya provides is a boost for economic growth as well as a boon for banking and finance. Moreover, disruptive solutions have the potential to raise the bar in financial and technological innovations in the banks.
In Nigeria, independent mobile money services have challenged banks to innovate and add mobile banking into their suites of financial services, in another win for their customers.
The time, and cost of commute, that are saved due to innovations that allow bank customers to transact without visiting the banking halls are considerable for productivity gain. Banks that continue to deliver more innovations will compete better, gain more market share, leave additional income in the hands or accounts of their customers, and the virtuous circle seems endless.
The partnership between IT and financial services firms has increased career opportunity and mobility. Information technology professionals are moving into banking, and bankers are moving in the opposite direction. A lot of role-changing and role-takeover have always been part of the professional landscape. In the context of the interdependence of finance and technology, career “portability” will help deepen knowledge in both professions. If bankers move to IT firms, the knowledge transfer will predictably lead to the development of more robust solutions for the financial institutions. Similarly, IT professionals pursuing careers in banking would help improve solution identification and development. Their background knowledge can enhance deeper understanding of the vulnerabilities in banks’ infrastructures and solution inventories. In-house IT experts in the banks can also provide rapid response to deter or limit cyber-attacks and frauds.
But there are potential downsides to the mobility. On the side of the banks, a malevolent in-house IT expert can increase the risk of system compromises, as part of the calculus for carrying out fraud. This is no little threat to banking, considering its long history of insider abuses and rising fraud incidents. The double-knowhow on the technology side can also accelerate financial disruption, which will continue to upset the traditional partnership between technology firms and financial institutions.
The rapid rate of technological innovation in financial services requires faster knowledge increases by relevant regulators. In this regard, we have a mixed reality in Nigeria. Regulators in some segments of the financial services space have demonstrated foresight with IT infrastructure and services requirements for the market they regulate. An incontrovertible example is the National Pension Commission, which, ab initio, specified extensive IT resources for operating as a pension fund administrator or pension fund custodian. Some other regulators have lagged behind their market needs for smart regulation using IT. For instance, the absence of the regulatory framework has prevented the formal take-off of crowdfunding in Nigeria and, therefore, constrained retail investment.
As we already know, nature abhors a vacuum. Even so does technology. A regulatory vacuum in our market, as it relates to technology and regulation, could mean our lunch is being eaten by someone else. One could imagine how crowdfunding would have limited the victims of “MMM” to absolutely the greedy. But the Russian Ponzi scheme has now victimised Nigerian retail investors of all stripes.
It is absolutely important that we get meaningful conversations going on the nexus between technology and finance. My firm, Simplex Business Solutions, which has benefited from the partnership of technology and finance, has teamed up with one of Nigeria’s finest publications – Financial Nigeria – to provide this platform.
The aim is to facilitate knowledge-sharing. As it has been said, “knowledge becomes power only when it’s shared.” Moving forward, Simplex will facilitate the sharing of insights from various participants in Nigerian technology and finance. Regulators, industry leaders, academia and the consumers will, month-in month-out, provide commentaries that will enhance knowledge on the interconnectedness of our industries so that we can all perform better.
Over the coming years, we see mobile apps, big data and cloud computing as key frontiers for financial technology. Simplex is already well-positioned for a strong play in mobile apps, with some innovative solutions to be released later this year.
The opportunities in these three areas will impact the fortunes of IT firms. Without enhancing our international competitiveness, we will lose ground in meeting the needs of financial institutions who benchmark global trends and are always inundated with proposals from foreign solution vendors. To be able to cope, indigenous IT experts have to collaborate more. We have to deliver our solutions to international standards. Indeed, we have to deploy more to foreign markets as a mark of our coming of age. What’s more, such diversification will enhance forex inflows into Nigeria in line with the economic policy objectives of the government.
In the absence of Nigerian version of a physical Silicon Valley, I believe the platform we operationalized from this month is long overdue. Followers of this space will receive insights as we promote the information technology-enabled financial services industry.
Femi Adeniyi is the Founder and CEO of Simplex Business Solutions Limited, a firm of IT solution providers for operations in the banking, insurance, asset management and pension industries.
This article is published under the series Finance and Technology, a new platform of Financial Nigeria, promoted by Simplex Business Solutions Limited. Knowledge leaders in the interception of finance and technology are welcome to contribute to the industry platform. Editorial contributions should be submitted to firstname.lastname@example.org.
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