Trends And Challenges In The Financial Services Sector

For too long, banks and other financial services providers have operated within the whims of their horizons. With the constantly evolving world of technology, the players in the financial services sector will need to synchronise their approaches to meet the new technological trends. First by understanding the change in digital orientation and its transformational consequences, and second, by architecting their banking and service experiences to meet the novel expectations of their customers. These changes, powered by technology, are redefining the future of financial services provisioning from traditional engagement to digitalizing customer experiences at different demographic levels.

Let’s explore the current trends in the financial services sector as the business model must be adapted to emerging technology and customers’ novel expectations.

The future of the financial services industry will look very different from today, with the constant change in consumer expectations, the introduction of new technologies, and the re-adoption of business models. The industry has now adopted an agile approach by rethinking and re-strategizing its product and service development model to address customer needs.


Adoption of digital technology 

In the not-too-distant past, the typical customer would have had to make an in-person appearance at the bank branch to conduct a banking transaction. This has changed significantly with the rapid adoption of Automated Tellers Machines (ATMs). The entry of ATMs in 1989, by the then Société Générale Bank of Nigeria (SGBN) into the mix quickly opened up the opportunity for cooperation amongst banks with the joint ownership of Nigeria Inter-Bank Settlement System Plc (NIBSS), including the Central Bank of Nigeria (CBN.). NIBSS has since championed issues like interbank settlements including interoperability boosting the banking ecosystem in Nigeria.

Now, in-person visits at bank branches have almost become a thing of the past, as the financial landscape in Nigeria has fully embraced digital transformation. Ever since then, it has been a case of innovative solutions, for example, USSD, Online/Web payments, Mobile Money, and then the most disruptive form of banking – Digital Banking.

Both retail banks and fintech firms are aggressively leveraging the different channels including mobile bank transfers, USSD, mobile money, and PoS terminals

Notwithstanding the banking and financial services industry is focusing on innovation to prepare for a future driven by technology. The growth of technology and its application in the financial services industry has made customers realise that a physical bank presence is neither necessary nor a requirement. A seamless transaction can be run through the internet-enabled mobile phone; customers can lodge complaints and have their items attended to without delay. 

The facts speak for themselves, for instance, according to data provided by NIBSS as of 2021, the value of point-of-sale (POS) transactions has more than tripled to N699.7 billion from N167.5 billion in 2017. In the first quarter of 2022, Nigeria recorded Mobile money transactions valued at N4.86tn while the total real-time transactions in the country were 3.7 billion, making Nigeria the 6th in world’s most developed real-time payments markets.

The buoyancy of the market has been driven by the willingness of the banks to invest in technology. According to audited reports, 40% of the banks made an aggregate investment of N120 billion in software acquisition and upgrades as far back as 2018. Additionally, a younger generation, who are early adopters of technology products and services as well as overall mobile and internet penetration.

And the trend has only just begun, as social distancing and other health concerns brought on by the coronavirus push Nigerians to adopt digital banking in increasing numbers. Despite the bullishness of the markets, they are still major challenges the trends have not been able to address.


Supply-side issues

The benefits of digital banking have been limited to a select few creating a digital divide and excluding over 38 million from any form of the banking system. As of 2021 NIBSS says there are a total of 976,898 PoS machines in Nigeria but only 167,000 are active. It’s a similar story for ATMs, and bank branches, there are 30,000 Automated Teller Machines (ATMs) and over 6,000 bank branches. Nigeria also has 25 licensed mobile money operators (10 are bank-led and 15 non-banks-led) catering to 15.3 million customers as of December 2019. 

There are also infrastructural challenges, mostly network and connectivity issues as well as issues of cybercrimes and frauds which have grown in tandem with digital banking adoption. 

How must financial service providers respond to these challenges? 

Embrace a culture of customer obsessiveness. This means banks need to demonstrate a willingness to understand customers’ goals, their goals, and preferences at every stage of their engagement. The right mix of value delivery, ease of use, and user-friendliness should be factored into their product development cycle.

For a financial service provider, the limited availability of skills is a threat to growth. Digital transformation requires the application of new skills such as software development and management skills, user experience, data analytics, cloud storage, and iteration. These require a significant change in the personnel financial services providers need and how they attract, engage, deploy, and develop them. The adaptability of skills has also made talent retention a new challenge. So financial services providers must adapt their human resources strategy to reflect the skills and employment structures best for retaining talents.

The threat to cybersecurity as hackers exploits the vulnerabilities of the computer systems to carry out cybercrime. Cyber-attacks cost Nigerian businesses about $649 Million annually, and there were other alleged bank hack cases. There have been trends of chatbot hacking, spear-phishing, insider threat, malware, and other threats within the industry. Companies, especially FinTech, create awareness by sharing information with their customers on protecting their account details and using two-factor authentication.

Regulations in the financial service industry continue to increase. Players in the financial services sector spend a large part of their revenue on making sure they are compliant. They make sure there are systems to keep up with ever-changing regulations and industry standards. Traditional banks have to constantly evaluate and improve their operations to keep up with fast-changing consumer and shareholder expectations, technology, and industry regulations.

With the proper regulatory settings, financial services providers can tap into emerging technologies, providing innovative businesses with the social licence to operate and protect the consumers and their community. The advantage of regulation is to promote consumer confidence and position the companies to pursue best practices.

Digital transformation in the space of financial services provisioning allows customers to be fluid in their loyalty. A simple dissatisfaction in customer service engagement can make a customer of Bank A move their assets to Bank B with a simple and few clicks on their mobile phone. Today’s customers are more aware of their power and increasingly expect companies to provide them with personalised and meaningful experiences through intuitive and simple interfaces irrespective of the devices they use. Also, the rise in competition is challenging companies to build on customer loyalty to achieve feasible and consistent turnover.

In summary, the banking industry will continue to reconfigure itself and the markets they serve. The ability to adopt an agile and customer-centric approach in a shifting landscape, will make them more competitive and appealing to their customers.