Nigeria’s major banks join the fintech fray –

Access Bank, now a holding company, announced last Wednesday that it had received final approval from the Central Bank of Nigeria (CBN) for its wholly-owned payments subsidiary, Hydrogen Payment Services Company Limited.

Guaranty Trust Holding Company (GTCO), another Tier-1 bank, had in July launched its payment unit after being confirmed as a holding company by the CBN.

Herbert Wigwe, CEO of Access Bank Group, described the fintech subsidiary as a natural step in the bank’s ambition to create a globally connected community and ecosystem, and it is also in line with its mission to build and maintain one global platform, open to all join where people can connect with exceptional opportunities.

Nigeria’s Tier-1 banks are some of the largest investors in electronic payments and the primary beneficiaries of this investment, with 5 accounting for 80 percent of revenue in the first quarter.

However, for GTCO and Access Bank, becoming a holding company means taking things a step further – playing directly into the booming fintech industry.

Access Bank’s Hydrogen comes less than three months after GTCO launched Squad, the payment entity and product of HabariPay Limited – a subsidiary of GTCO. Squad’s services include payment, payment gateway, PoS and e-commerce. Sellers will be charged a fee of 1 percent of the transaction amount plus N50.

A digital banking expert who wishes to remain anonymous told BusinessDay that one of the main reasons why the big banks are setting up new fintech units is valuation. Fintech companies such as Interswitch, Flutterwave, Opay and Paystack have more valuations than many of the big banks. Therefore, the expectation is that by building new fintech entities from scratch and financing them at higher valuations, the holding companies will also be affected.

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Segun Agbaje, CEO of GTCO, had insisted in 2018 that the bank would consider a merger or acquisition because many of the existing fintech companies were overvalued. Therefore, it will build its fintech unit from scratch and will eventually compete with established companies such as Paystack.

But such expectations may be misguided, given that the current meltdown in the tech ecosystem that led to the drastic reduction in venture capital funding, layoffs of tech talent, and the closure of once-promising startups is attributed to overvaluation.

African tech startups may appear least affected as they recorded higher funding levels in the first half of 2022, with $3.1 billion raised, but valuations are already in doubt. There are no new $1 billion valuation startups (unicorns) in 2022, unlike in 2021 when at least two startups had become unicorns by August. Africa startups have also not received mega deals like they did in 2021.

GTCO is among those expecting payments company Squad to become a unicorn, but experts say such valuations can be hard to come by for a bank-owned fintech company.

“Valuation is complex, but what the market is actually saying is that foreign investors believe fintech has a brighter future than legacy banks,” Adewale Adetugbo, a fintech expert, told BusinessDay.

Before Access Bank and GTCO launched their fintech units, Wema Bank and First City Monument Bank entered the market with ALAT and Credit Direct respectively.

Launched in 2017, Wema Bank made so much noise about what it was going to achieve with ALAT. While it hasn’t performed badly, with over one million downloads, it also hasn’t lived up to the hype it was launched with. Non-bank fintech companies launched almost in the same period as Cowrywise, Piggyvest, Kuda Bank and Opay have more going for them in terms of brand recognition and in some cases higher valuations.

Some experts suggest that with the limited resources banks have at their disposal, more immediate priorities should have been given to improving the performance and reliability of their electronic banking systems.

All the banks have implemented, among other things, mobile applications, online banking and chatbots to serve the growing consumer need for convenience and fast delivery.

Nevertheless, there are still many consumer complaints. Consumers say that these complaints take a long time to resolve and that they always happen again.

Some experts, who did not want to be named to enable them to speak freely, say the new bank-owned fintech companies will struggle to shed the banking culture responsible for thousands of customers who now prefer to deal with fintech- companies outside banks. ALAT, for example, is often juxtaposed with Wema Bank in consumer complaints. This affects potential customers’ trust in the fintech company.

However, the entry of the bank-owned fintech companies would spur existing fintech companies to increase their expansion drive. This can intensify the pressure for public market-like financing. Interswitch and Flutterwave are already on this path, and more companies may jump on board if they succeed.