By Okey Nwosu
SPECIFICALLY, the Nigerian retail financial services market consists of institutions such as banks, insurance companies, finance houses and assets management companies, among others, that deliver products to direct end users, the customers, being the largest and most visible single group of end users.
The retail products available to this group in its generic form include depository accounts, credits and payment services. Though statistics are sketchy, it would not be out of place to suggest that this market encompasses more than 300 businesses, which include the 24 commercial banks; mortgage banks, securities companies and brokers, insurance agencies, micro-finance banks and leasing companies, among others.
Retail financial services are considered heavily regulated, especially as offered by commercial banks. Though deposit rates have been deregulated, competition in the industry has kept rates in check. More radical changes in the industrial landscape has witnessed importation of the global trend of convergence between corporate banking, investment banking, retail banking and insurance, with universal bank licensing and the merger process laying to rest any lingering thought of product dichotomy.
It is not contestable that the merger and acquisition process has left banks with greater capacity to drive businesses, thus placing enormous strain on operational efficiency and financial performance, which the urban sector is struggling to cope with. The post-merger era has thus thrown up the challenge of taking retail financial services deep into the rural areas. Though the initial results from the industry restructuring are impressive, we have reached a stage where to drive the next phase, financial institutions need to look beyond the comfort of the urban centres and seek to derive value from the numerically larger rural population.
The immediate response by banks has been the resort to the cradle-to-grave banking philosophy whereby all banking relationships are managed on a product bundling criteria to avoid customers seeking alternative service providers. This, in turn, has heightened competition and resulted in product deepening and new delivery channel developments, with e-channels being the most appealing. For the industry, the new competitive frontiers have become Internet banking, e-payment systems, telephone banking and m-banking.
To remain competitive, banks in this changing financial services landscape must simultaneously expand their product lines, add new delivery channels, develop more effective market outlets and enhance service quality levels.
Of all these challenges, developing more market outlets profitably may be the most complex and difficult. We need to shift better and broader retail banking products and services to the rural markets such that they too can access many different types of service channels such as ATM, counter services, telephone banking and Internet banking, providing them with anytime, anywhere banking conveniences. We need to transform the banking landscape rapidly in order to provide the best available services to the rural areas, a key engine of the nation's economy.
Despite the opportunities provided by the evolving financial sector to the retail market, there is still the challenging problem of defining or indeed forecasting the needs of the increasingly discerning customer, designing solutions and the most convenient means of delivering such to them.
Nigeria's savings to GDP ratio of about 20 per cent is extremely low when compared to the BRIC (Brazil, Russia, India, China) economies or even those in other SANE (South Africa, Algeria, Nigeria, Egypt) economies. Consequently, credit to GDP ratio is low at about 30 per cent as at June 2007. The challenge is to improve the savings rate more that five fold to generate comparative and equivalent funding basis for rapid economic development.
Most banks are still grappling with the difficult challenge of achieving integrated, multi-channel experiences for various customer segments despite the fact that this is the major ingredient for delivering the next generation of retail products that are emerging. The key from this dilemma has variously been defined by banks as aggregating the various individual customer needs under the generic products and utilising Information Technology (IT) to deliver same on an on-demand basis.
The market response in this guise has been a plethora of convenience products, among which are: The ATM, Flash-Me-Cash - the first robust mobile payment solution in Nigeria, Naira Debit and Credit Cards, U.S.$ Debit and Credit Cards, Consumer Credit Products, Share Acquisition Loans, Mortgage Loans and E-payment Products.
It is pertinent to note that most of these products are delivered on IT portals with e-platforms provided to affect an on-demand delivery. A typical example is the e-payment platform which allows customers to settle such bills as DSTV subscriptions, GSM phone subscriptions and school fees, among others, on an on-demand basis. For the customer, retail banking has totally redefined the term "convenience." Most transactions can now be carried out at the convenience of the customer without needing to leave the comfort of his/her immediate environment.
Convenience alone cannot attract the level of savings envisaged in the economy. Customers must look to the banks for provision of reasonable funding assistance in the form of consumer loans and other benefits in return for savings. In addition, the macro-economic indicators and fiscal policies must encourage a downward inflationary trend to encourage savings at a positive real interest rate.
Arising from the above, the major issue now facing retail financial institutions is how to reduce channel cost and capture value from the IT investments. The obvious answer is to keep teller-to-customer ratios low by encouraging customers to move transactions to alternative channels such as ATM.
To effect this change, the financial institutions need to: drive an increase in card usage, develop a credit data base accessible to all retailing institutions, create a credit factoring outlet to handle the inevitable delinquent card loans and leverage on insurance to improve the risk on delinquent consumer loans. The challenges that arise from this dilemma can best be viewed as opportunities.
However, it is becoming clear that most of the Internet and mobile banking opportunities have been stretched. Differentiation has become a prerogative which banks now seek to establish by gaining a simple view of customers, delivering consistently excellent services over multiple channels or delivering new services as quickly as clients demand. There is no doubt that e-channel technologies have paved the way for a multitude of different banking products being offered by industry players.
Development of non-core businesses such as insurance and stock brokering, revenue collections, passport and visa payment collection, among others, has allowed banks to tap into other potential avenues of revenue generation and improvement in payment services. These are all e-enhanced opportunities which, to a large extent, have been harvested in the urban centres but to which the rural centres has remained relatively immune.
The clustering of banks and their retail products in the urban centres leave more than 60 per cent of the bankable population (residing outside urban centres) unreached. The import of this fact is that there is an under-utilisation of available markets in retail financial service products.
How can we reach these markets at an economic and profitable cost?
The simple answer is to emulate the South African and Brazilian models. Retail institutions in Brazil have adopted a branchless model to reach remote areas with a total absence of bank branches, ATM or even MFl. The model consists of adopting outlets (mainly provision and supply vendors) as agents using P.O.S to facilitate bill settlements, salary accounts, cash lodgments and account enquiry.
Operating simple P.O.S machines, the agents credit or debit customer accounts on the basis of the cash they received or paid out to or from the operator's account. The South African "WIZZIT" model operates on similar terms. WIZZIT agents assist adopters use bank retail services, especially bill payment facilities, airtime top-ups and balance inquiry. The net effect of both models is the deepening of the retail financial service market as a wider scope of the population is reached. The statistics are staggering:
95 per cent rural dwellers now use retail service to transact in payment of bills,
51 per cent has opened bank accounts as a result of the service, and
In South Africa, 50,000 active rural users were signed on within the first two years.
For us in Nigeria, the key issues filter down to the following questions: Can technology make it profitable to deliver a range of retail financial services to the "unbanked" remote rural population? How can technology increase access to retail products for extremely remote customers?
Which technology can be deployed and how should they be adapted to help reach the rural areas where micro-finance has not yet impacted? What regulatory policies should we seek to encourage innovation while protecting businesses and customers? What role will the new micro Finance Banks (MFBs) play in this dispensation? How can universal banks partner MFBs to deepen the market for the unbanked rural population?
Current practices in the Nigerian retail financial market have shown in clear terms the impact of innovation. The combination of market segmentation strategies with customer-level-pricing, parametisation and loyalty programmes have increased retention.
The market is now crying out for the creation of innovative product combination spanning transactions, investments and insurance account delivered on a convenience portal of technology. This should be available, not just for the urban centres but also for the rural areas. Given that over 60 per cent of our potential retail market is still untapped, we must build our bundled product offering on this.
Going forward, the focus of retail strategic thought and technology investment should clearly be directed at the enhancement of delivery channel capabilities to drive both service excellence and cross-sell opportunities and establish a more efficient payment system.
Nwosu is the MD/CEO of First Inland Bank Plc.