Nigerian banks turn to ruthless strategies in market share race – FDC
Amid growing competition from telecommunications and financial technology companies, some Nigerian commercial banks are adopting ruthless strategies to expand their market share, the Financial Derivatives Company Limited has said.
The Lagos-based FDC, led by renowned economist Bismarck Rewane, said in a new report that data from the Nigeria Inter-Bank Settlement System Plc showed that the payment system had moved almost by 80 per cent to electronic and digital payments.
“The banking industry is grappling with competitive rivalry within the industry as hungry players like Access, Zenith and GT are adopting ruthless strategies to expand market share domestically and across Africa, on the one hand, whilst simultaneously defending itself from cannibalistic competitor moves by the Telco’s and their surrogates – the fintechs,” it said.
In first quarter of 2021, the ratio of electronic payments to cheques rose to 78:1 from 33:1 in Q1 2020, according to NIBSS.
According to the FDC analysts, the payment and settlement system has now become a high volume thin margin business.
“Nothing demonstrates this better than the economic spats between MTN and the money deposit banks on the commission on recharging airtime via the banking system,” they said.
The FDC noted that MTN was alleged to unilaterally cut the discount due to the banks and contractors, adding that the banks responded viciously, until a temporary amicable solution was reached.
The analysts said, “What is clear is that MTN was making a well formulated strategic move and the banks were responding tactically. In the final analysis, the banking system will come to terms with their declining leverage as a function of time.
“Earlier, the USSD termination charge of N6.98 and the arrears to be spread over a number of years was a sign of a changing or deteriorating bargaining position of commercial banking in Nigeria.”
According to the report, digital banking is not leveraged by traditional metrics of capital adequacy, net worth and loans to deposit ratios but by the nimbleness of a bank and its ability to build on its intrinsic value and brand equity.
“This is where Polaris, Wema, UBA, GTBank, etc., are moving exponentially in the wooing of the generation Z who do not care about balance sheet size and number of branches. Our view is that if anything is going to differentiate Nigerian banks in 2022/23, it is cost containment and digital efficiency,” the analysts said.
