Nigeria’s financial sector has changed significantly over the years. For decades, traditional banks dominated the landscape, offering essential services like savings, loans, and payments.
However, their ability to innovate has often been constrained by legacy systems and regulatory pressures.
In recent years, the rise of fintech has disrupted this status quo, delivering financial services in a tech-driven manner.
This shift has not only challenged the traditional banking sector but has also led to collaboration between banks and fintech companies, leading to the convergence of the two.
The convergence of banking and fintech represents a pivotal moment in Nigeria’s financial evolution.
As mobile payments, digital lending platforms, and blockchain-based solutions gain traction, the line between what defines a bank and a fintech company has started to blur.
The result of these blurring lines means more efficient delivery of financial services for people. Before this convergence, financial services only pandered to a select few people.
According to Inside the business of card payments in Nigeria, “a major problem the earliest financial institutions faced was that they were elitist in their operations, and did little to cater to the banking needs of the masses.”
In contrast, fintech companies rose to prominence by focusing on ease of use, speed, and inclusivity.
These companies have transformed how payments are made, how loans are accessed, and how everyday banking is conducted, often reaching demographics that traditional banks have found difficult to serve. By leveraging mobile technology and cloud-based platforms, fintechs offer services that are faster, cheaper, and more tailored to the individual needs of customers.
It is important to also note that the fintechs were only able to do this because traditional banks provided the foundation for it. From commissioning the Nigeria Inter-Bank Settlement System Plc (NIBSS) to the creation of NIP, fintechs had something to work with.
So if fintechs and traditional banks are so different what is driving convergence now?
The convergence between fintechs and traditional banks is necessitated by the need for further growth in Nigeria’s payment industry. After the rapid growth of the fintech industry, the remaining room for development requires the joint effort of fintechs and traditional banks.
We are witnessing this convergence in different areas. One area of convergence is in payment infrastructure. Nigerian fintechs excel at creating fast, user-friendly digital payment solutions, but they often rely on established banking networks to facilitate these transactions.
Traditional banks, on the other hand, lack the speed and agility that fintechs bring to payments, leading them to partner with these innovators to offer services like instant transfers and mobile payments.
Platforms like Flutterwave, Paystack, and Interswitch have worked closely with banks to ensure that payments can be processed efficiently and at scale.
By integrating fintech APIs with banking systems, customers can now enjoy seamless transactions across different platforms, showing how neither side can dominate the payment space alone.
Lending is another sector where fintechs and banks are increasingly converging. Nigerian fintechs have pioneered quick, digital loan services, using alternative credit scoring models and automated platforms to reach the unbanked and underbanked.
However, the scale and stability needed to expand these offerings require access to the capital and regulatory structure that banks have.
This has led to partnerships between fintech lenders and traditional banks, where fintechs provide the front-end user experience and data-driven loan assessments, while banks offer funding and back-end support.
For instance, some banks have launched digital lending products that mimic fintech services but rely on fintech technology to drive the process, blending their resources for mutual benefit.
However, there’s a new kind of convergence between fintechs and traditional banks, one that is occurring on the blockchain.
This convergence is facilitated by Zone, touted as Africa’s fastest-growing payment infrastructure company, to usher in the next phase of financial service development in Nigeria.
This convergence brings traditional banks and fintechs together on Zone’s regulated blockchain network to form a robust payment infrastructure.
This payment infrastructure ensures the direct routing of transactions between them, facilitating transparency and eliminating errors.
According to industry stakeholders this innovation by Zone is not just another indication of increasing partnerships between fintechs and banks it could redefine the convergence of financial institutions as we know it and subsequently birth a new form of collaboration.
