It was not that long ago that the typical experience of banking was a three-hour visit to a long darkly-lit, dusty hall with walls painted sometime in the 1970s and manned by tired-looking staff working with the snail-like speed of a typical Nigerian government worker.
The new upstart banks have changed the comfort and speed of the Nigerian banking industry. They have invested in imposing bank branch buildings with brightly lit, air-conditioned halls equipped with airport-style seating and young, energetic smartly dressed staff waiting to assist. Branches are now highly computerized and interconnected with world class software and ATMs to provide more efficient and faster banking services.
However, despite the reshaping of the banking industry over the last few years, there are only around 30 million accounts in the entire banking industry. This seems like a lot until you compare it to the 85 million active mobile subscribers and the 68 million voters registered recently by INEC which both provide indicators of potential market size. This suggests that somewhere between 50-70% of the Nigerian working age population remain unbanked.
It is evident that Nigerian banks have mostly been catering to a slice of the Nigerian population which is generally urbane and comprises workers at medium to large private businesses, government salaried employees and university students.
Clearly left out of the banking equation are all those people that make up the teeming informal markets that characterize a large part the Nigerian economy – the small-scale trader, market stall operator, suya seller, salon tailor, okada rider, danfo driver and the rural farmer. To bring these unbanked millions into the system will require fundamentally more creative and innovative thinking from Nigerian banks and the use of better business intelligence.
For one, it needs a rethinking of the existing one-size-fits-all branch model Nigerian banks have rolled out across the country in their recent stock-market fueled expansion drive. Many of those brances while profitable in a Lagos commercial setting, are huge cost centers when replicated in areas with vastly weaker economics. Banks need now to experiment with different branch formats to suit the less densely populated, less wealthy and smaller urban and rural markets.
The hub-and-spoke model which the airline and transport industry has used to great effect in providing services to far-flung and remote communities has great applicability especially in Nigeria where banking customers are geographically spread out. In this model, a series of central hubs for example in major cities provide main services to smaller branches (“spokes”) within a certain area. These spokes can be as small as a two or three-person office providing basic transactional banking services or in the case of mobile banking it can even be as small as a single-person kiosk.
The thought of a kiosk serving as a bank branch would instinctively make many of Nigeria’s image-conscious bankers recoil in horror. But this is at base what is is behind the explosive success of mobile banking in Kenya. An agent working out of a kiosk acts as a branch where customers can deposit money, or make cash withdrawals into and from their mobile account. The customer then can send or receive money transfers and make payments through their phone.
Periodically, the agent liases with a central hub for cash management and account settlement. The mobile banking model provides a low-cost and highly scalable spoke for the banking industry to deliver basic banking services to the Nigerian masses without the huge overhead costs of setting up and running a branch designed and scaled for an Adeola Odeku, Victoria Island location.
In just three years of operation, there are already over 14 million account holders for the market leading M-Pesa brand in Kenya and over 25,000 outlets. This is significantly more than the 8.5 million bank account holders and 85 bank branches recorded in that country. More importantly over 50% of the country’s poor, rural and unbanked population use the service transacting the equivalent of around $1.5 billion per year.
Can the M-Pesa Kenyan experience be replicated in Nigeria? With a huge unbanked population of 30-60 million and with less than 6,000 bank branches in the whole country, the potential is enormous for taking banking beyond main cities into small towns and villages. One can imagine that mobile banking can easily expand branches to over 100,000 points of presence, bring $3-5 billion into the banking system and create an additional $10 billion in transactions.
Whether this potential can be realized is a whole different story. Unlike in Kenya, where the regulator allowed Safaricom to prove the concept, the CBN has put the banks in the driving seat requiring mobile companies and mobile payment providers to partner with them. This will require Nigerian banks to be a lot more innovative than they are at present.