The future of banking is branchless: Nigeria’s ALAT leads the way with digital only bank

Imagine the cost a Nigerian bank can save by not having a physical branch where hundreds of thousands are burnt in diesel monthly. We could see a bank that offers the best deals in the country, encouraging the unbanked population to get onboard, thereby helping to increase financial inclusion and growing the economy. This is the future of banking – no branches that struggle to make enough profit to cover their running costs. Wema Bank, Nigeria’s oldest indigenous bank has taken the future in its hands by setting up ALAT, Nigeria’s first fully digital bank. The story is just starting.

In February, global professional services firm PwC released its Nigeria FinTech Survey 2017 report, with a striking message: Nigerian Retail banking and Payments sectors will be the most disrupted by a group of new companies building financial technology (FinTech) solutions. This has been long coming, and the forward-thinking financial institutions have prepared for this by partnering with startups earlier seen as competitors.

It is true that banks have the advantage of legacy and wide customer bases overFinTech startups, but many lack speed and the capacity to understand and quickly build a very good user experience to improve efficiency and decrease costs. Suchadaptability is what characterizes the typical FinTech startup today.

Dr. Andrew S. Nevin Ph.D., Advisory Partner and Chief Economist, PwC Nigeria in his comment on the Nigeria FinTech Survey 2017 report, noted: “FinTechs are empowering customers by providing services that are delivered via technology applications on customer’s mobile devices. This allows consumers conveniently initiate and complete transactions, connect to third party entities and access information without restrictions.

“All over the world, the increasing momentum of FinTechs and their success is challenging financial services players to devise a spectrum of strategic responses.”

While some collaboration has started, banks remain worried about the threats posed by the sheer determination and guerilla strategies of these startups. At PayThinklast September, major organizations in the payments industrygathered to discuss innovations and trends in the payment space.A line of thought kept emerging at the conference: the existing relationship with FinTech startups won’t advance innovation in banking, and fear might stymie it. What then can banks do?

PwC’s Nevinis convinced that not all FinTechs pose the same threats or opportunities. “In some cases, FinTechs will be viewed as enablers to traditional innovation and continuous improvement. In others, it presents a series of disruptions and threats as they continue to make inroads into banks’ traditional territory by offering a competitive service or product.” The question remains: what then can banks do?

Innovate or Die! The popular saying is the stark message for banks in the era of marauding FinTech startups. The message of collaboration and adoption of an ecosystem approach where banks grant startups access to their API endpoints, large sales and agent networks, is gaining traction but it is a lazy way out for banks. Microsoft and Google do not remain relevant by giving in to threats posed by startups. They have remained relevant by constantly innovating and getting into the trenches with the startups. Big companies, sometimes due to the fear of risk taking, often find it difficult to innovate. Not Google. Not Microsoft. Not Facebook. When they can’t beat you in innovation, they buy you, rather than ‘collaborate’ and leave the future of a part of their business at a startup’s mercy.

Collaboration is the short-term answer to the threat posed by FinTechs but for a bank that has been around since 1945, short-term is never good enough. Wema Bank has not survived crises in the global economy and the Nigerian banking industry to leave its fate in the hands of FinTech startups. Wema Bank will innovate. Wema Bank will compete.

But the current struggle is not the end. In the UK, app-only banks are becoming an increasing threat to traditional banks. It goes beyond a traditional bank having a robust e-banking offering; because let’s face it, who has time to go to a bank branch for the initial documentations of new account holders and documentations for some services? British app-only bank Atom has raised £135 million since it was founded in 2014.

“At launch, we raised more money than any other bank in the UK had raised to launch,” Atom Chairman Anthony Thomson told Business Insider.

Atom is just one of a couple of app-only digital banks that have started up in the UK over the last 18 months. Others include Monzo, Starling, Tandem, and Tide.

With operating cost cut to the barest minimum, Atom can give customers the best deals on savings. Callum Brodie, a Senior News Reporter at MoneySavingExpert.com listed the app-only bank’s industry best deals.

One-year account — 2%

Two-year fix – 2.1% (next best, Charter Savings Bank at 1.75%)

Three-year fix – 2.2% (next best, Secure Trust Bank at 2%)

Five-year fix – 2.4% (next best, Secure Trust Bank at 2.2%).

ALAT gives 10% (on savings) and more. Welcome to the future of banking!