E-Financial
Blockchain, Fintech and the Future of Banking
By Austin Okere
“Customers besiege banks on first day of partial lifting of COVID-19 lockdown: As early as 8 am, bank premises were already full of people seeking to gain entrance into the banking halls for one transaction or the other. And by 11 am, Twitter was filled with so many posts warning Nigerians about the risks of visiting any bank branch due to the mammoth crowd.” This was Dateline May 04, 2020 on Nairametrics.com. Other blogs had similar screaming headlines.
I wrote this article three years ago on May 04, 2017 when Blockchain and Fintechs finally seemed to be gaining traction in filling the gaps left by traditional banks – and surprised that we are still where we are even today. what will we learn from this, and how will we be better prepared not to be caught desperately unawares again?
Even though cryptocurrencies such as bitcoin tend to steal the limelight, it is their underlying blockchain technology that is proving to be of practical benefit. This technology, which goes beyond financial application, is expected to disrupt global supply chains by boosting transaction speed across borders and improving transparency.
Essentially, the blockchain is a shared virtual public ledger where encrypted transactions are confirmed by outside parties. Confirmed transactions are placed in a “block” and added to the chain, hence the name Blockchain. It is this technology that Fintechs are leveraging to disrupt the traditional banks
Here in Nigeria, blockchain can help to unlock the immense capital locked in Land Assets that are not enumerated because of an antiquated system of land administrated, which is very ripe for disruption.
The most disruptive application of Blockchain Technology, however, is in the Financial Sector; and this will form the focus of my discourse. The consistent complaint about banks has reached a crescendo in recent years. Is this justified?
Should Banks be changing?
Dateline, May 04, 2020 on Niarametrics.com After centuries of conservatism in receiving deposits and making loans, there are two main issues stirring the yearn for change:
- The first being that it is a very difficult Club to join as a customer, and hence the large population of unbanked adults.
- Secondly, even for the members of this elite club, the relationship is acutely skewed in favour of the banks
They have carried on as protected monopolies with no serious challenge or competition, resulting in very little innovation over the decades.
The biggest threat to the banks has been precisely their seeming success. Centuries of relatively significant higher returns, even during economic downturns that adversely affect the real sectors, has engendered an attitude of invincibility and pomposity, characterized by a loss of touch with their customers.
Considered too big to fail, they take it for granted that they will be bailed out with taxpayers’ money in the event of any missteps – this is a perfect set-up for disruption.
Fintech – the new kid on the block
Today, there has emerged a powerful force of the challenge from Financial Technology companies or FINTECHs, as they are more popularly referred to. The promise of Fintech is great. It is shaking up a stodgy banking system and helping to build a more efficient one, especially for consumers and small businesses.
Emerging Markets showing the way in Fintech
For years, emerging economies have looked up to developed countries for ideas about how to manage their financial systems. When it comes to Fintech though, the rest of the world will be studying the experience of the emerging markets, embodied by the widely successful MPESA mobile money system, championed by Safaricom in Kenya.
MPESA has made it possible for a large swathe of the population to gain financial inclusion by providing the opportunity to transact financial services via your mobile phone, on a continent where typically 70% of the population is unbanked.
MPESA today has more than 60% of Kenya’s 33 million mobile users and in 2015 transacted $28m on her platform. Similar applications have metamorphosed across Africa, and Mobile Money services are today generating 6.7% of Africa’s GDP.
Nigeria is no exception with Fintechs such as Interswitch, CWG, Paystack and Flutterwave holding sway. Take for instance, Diamond bank with 7m accounts after 23 years was able to add an additional 6m accounts in just one year after the launch of the Diamond Yello Account in collaboration with CWG and MTN.
China is the undisputed World leader in Fintech
By just about any measure of size, China is the world’s leader in Fintech. It is by far the biggest market for digital payments, accounting for half of the global market, according to the Economist Magazine. A ranking of the world’s most innovative Fintech firms gave Chinese companies four of the five top slots in 2016. The largest Chinese Fintech company, Ant Financial, has been valued at about $60b, at par with UBS which is Switzerland’s biggest bank.
Today, digital payments account for nearly two-thirds of non-cash payments in China, far surpassing debit and credit cards. Peer-to-Peer (P2P) lenders in China grew from 214 to over 3,000 in 2015, and P2P loans increased 28-fold from 30b yuan in 2014 to 850b yuan in 2016. This shows what is possible in Nigeria.
Austin’s Five Forces Model and the future of Banking
In the face of the fierce challenge facing banks, I developed a model for analyzing the future of banking called the Austin’s Five Forces Model. There are indeed five major forces at play here:
- The banks – traditional and established, best with cash and ancillary instruments
- Fintechs – the new kid on the block, disrupter, mostly telecom roots, best with digital currencies and mobile services
- Regulators – Central Banks, regulating traditional banks; and Communication Commissions, responsible for telecoms regulation (and thus Fintechs)
- Currencies – traditional, such as cash and cheques; or Digital, including Bitcoin or other cryptocurrencies
- Customers, and the weight of their new-found voice. Typically, they clamour for whatever will give them convenience, security and lower costs.
Customers are the most significant force, and represented by the outermost sector of the concentric circles. As they tend more towards a preference for digital currencies, the Fintechs will tend to assume a more prominent role in the new face of banking, and the Regulatory regime will inadvertently tend towards the Communication Commissions under whose purview the Fintechs fall.
This will introduce a regulatory imbroglio, as future ‘Huge Banks’ may fall outside the regulatory ambit of Central Banks as seems to be the case with the MPESA.
Safaricom, the telecoms promoter of MPESA ironically falls under the regulation of the Communications Authority of Kenya rather than the Kenyan Central Bank.
If the customers however, maintain a strong appetite for traditional instruments of financial transactions such as notes & coins, cheques etc. then the current status quo will remain. The face of banking will thus be more of the same, and the regulatory authority will continue to be Central Banks. Between these two positions may be many variants, depending on the appetite and preferences of customers, and the pace at which they are willing to embrace change.
Retailers are jumping into Financial Services
Fintechs are not the only ones challenging traditional banks for turf. Retailers are also jumping into the financial services fray. For instance, Amazon has launched Amazon Cash, a way to shop its site without a bank card. This product is meant to appeal to the those who get paid in cash, don’t have a bank account or debit card, and who don’t use credit cards.
Google is also rolling out a new integration on mobile called Google Tez, which allows audio QR Codes and thus opens the door for more basic phones other than smartphones. Users of the Gmail app on Android will be able to send or request money with anyone, including those who don’t have a Gmail address, with just a tap.
Banking is going Mobile
In most emerging markets and developing countries, the current formal financial system only reaches a minority of the working-age adult population. Smallholder farmers, self-employed households, and micro-entrepreneurs have to rely on the age-old informal financial mechanisms such as rotating savings clubs (Isusu or Ajoo). These mechanisms can be unreliable and very expensive.
In Nigeria for instance 84.6m people, accounting for 47% of the population are unbanked. In sharp contrast, mobile phone penetration is very high at 94.5 per cent; a perfect set-up for the Fintechs to exploit in their mobile dominated financial services offering.
The digitization of retail payment systems and financial services has become an important economic development priority. It offers the prospect of reaching far more people at far lower costs with the broader range of financial services they need to build resilience and capture opportunities. This speaks to inclusiveness
What will be the scale of change of the Blockchain technology?
The changes coming with Blockchain will be as large as the original invention of the internet, and this may not be overstated. Who would have imagined a decade ago that e-commerce, championed by Amazon and Alibaba will be displacing high street retailers, or that ride-hailing will be dominated by UBER, a technology platform?
There seems to be a seamless change happening in the Financial Sector. According to Anthony Jenkins, former CEO of Barclays, bank branch traffic has halved in the last five years, and bank profitability could collapse by 60% in the same period. A 2015 Goldman Sachs report estimated $4.7tn of financial services revenue was at risk of displacement from Fintech groups.
Regulators are now helping Fintechs
Fintechs are getting a lot of support from Regulators, believing that Fintech firms are small enough for any problems to be manageable, and on the other hand, might produce useful innovation (the sandbox approach). The intention is to lower market entry barriers for fintech companies. For instance, France’s Central Bank has announced opening up a new innovation lab, aiming to collaborate with blockchain startups.
In December 2015, Nasdaq executed its first trade on a blockchain, through its Linq ledger. The exchange said the blockchain promises to expedite trade clearing and settlement – all the steps needed to transfer the asset from seller to buyer including recording the transaction — from three days to as little as 10 minutes. That’s because the trades remove many manual processes and bypass third parties.
As such, “settlement risk exposure can be reduced by over 99%, dramatically lowering capital costs and systemic risk,”. Other stock exchanges tinkering with the blockchain include Australia, Germany, Japan, Korea, London,Toronto and Myanmar.
The Future of Fintechs
The future of Fintech seems bright. Accenture recently released a report which found that investment in Fintech around the world has increased dramatically from $930 million in 2008 to more than $12 billion by early 2015. Fintechs employ Artificial Intelligence, Big Data and Machine Learning to glean the credit habits of customers from their mobile usage, and so have mitigated against the risk of default.
The lucrative Transfer market will be significantly impacted
The lucrative global transfers markets are major targets by Fintechs. International money transfers, which have long been a thorny issue, are getting easier. For smaller transactions, services like PayPal automatically convert currencies, so it’s easy for a customer to purchase goods from anywhere in the world.
More importantly, a service called TransferWise is streamlining international money transfers, significantly disrupting that sector by offering a 90 per cent discount on traditional bank transfer fees. According to the founder, Taavet Hinrikus, the idea was borne out of his personal frustration in money transfers. ‘It typically took 3-4 days to receive transfers, albeit the exchange rate used by banks was exorbitant, leading to a loss of almost 10% of the value of money sent’.
In this exorbitant regime, Western Union and HSBC typically earned $600m and $800m per annum respectively in profits from only transfers. These huge contributions to their bottom-line will be dearly missed when displaced by TransferWise and their co-travellers. In Taavet’s view Fintechs will command about 40% of the global Financial Services market in the next 10 years.
Banks and Fintechs’ collaboration for mutual benefit
Fintech companies in emerging markets have shown that with blockchain technology, it is possible to leapfrog to new forms of banking.
Truth be told, Banks are best placed to continue to influence the future of Financial Services because of their huge branch network, solid reputations, and risk controls, as well as years of customer cultivation and loyalty. They, however, have to radically change the mindset of ‘we win when you lose’.
The big take awayThe ubiquity of broadband and the pervasiveness of mobile phones, along with breakthrough technology such as Artificial intelligence, Big Data and Blockchain are expanding the frontiers for business models in ways that were hitherto not possible, and levelling the playing field in the process.
Any bank that does not read the signs and join the innovation train will definitely be disrupted and left behind. Remember that there was a time when the Post Office was at the centre of our lives. When was the last time you visited a post office?
Austin Okere is the Founder of CWG Plc, the largest security in the technology sector of the Nigerian Stock Exchange & Entrepreneur in Residence at CBS, New York. Austin also serves on the Advisory Board of the Global Business School Network, and on the World Economic Forum Global Agenda Council on Innovation and Intrapreneurship. Austin now runs the Ausso Leadership Academy focused on Business and Entrepreneurial Mentorship.
The World Bank has faulted the Federal Government’s conditional cash transfer programme, stating that the initiative failed to reach millions of Nigerians in need of urgent economic relief, as only 37 per cent of the targeted households had so far benefited from the scheme.
It said the scheme launched in 2023 after the abrupt removal of fuel subsidy and unification of the foreign exchange market by the current administration, only reached 5.6 million households out of the planned 15 million, two years after the launch.
The global lender disclosed this in its latest Nigeria Development Update report titled “Building Momentum for Inclusive Growth”, released in Abuja.
The World Bank had approved a loan of $800m for the programme.
According to the report, a combination of surging inflation and sluggish economic growth has pushed an additional 40 million Nigerians into poverty since 2019, raising the poverty headcount to 46 per cent of the population.
“Successive years of rising inflation and sluggish growth have increased poverty and hardship levels. Since 2018/19, an additional 40 million people fell into poverty, and nearly half of all Nigerians (46 per cent) are estimated to have been living in poverty in 2024.
“Labour incomes have not kept up with inflation, depleting the purchasing power of Nigerians. Poverty has deepened and broadened, especially among urban Nigerians,” the report stated.
In response to the deepening hardship, the Federal Government had launched a temporary cash transfer programme aimed at supporting 15 million vulnerable households.
But the World Bank said the roll-out has been slow and inadequate. It stressed that efforts to urgently provide support to the poorest and most economically at-risk households should be redoubled and expanded.
“Only 5.6 million households—around 37 per cent—have received at least one tranche of direct transfers. Further expansion of the programme remains dependent on biometrically verifying at least one adult member of the household with a foundational digital identity. Also, efforts to urgently provide support to the poorest and most economically at-risk households should be redoubled and expanded,” the bank noted.
It warned that unless urgent efforts are made to scale up support, millions of poor and economically insecure Nigerians risk being left behind amid rising living costs and eroding incomes.
The bank advised the Federal Government to urgently improve its social protection framework, accelerate cash transfer distribution, and reallocate a portion of its recent revenue gains to targeted social programmes.
The report added, “Alongside macroeconomic reforms and emergency cash support, stronger growth and a robust social protection framework are essential to promote productive livelihoods.
“Leveraging early dividends from macroeconomic reforms, Nigeria’s social protection system should be structurally strengthened, with a focus on providing the foundation for human capital investments, promoting economic inclusion, building resilience, and breaking the inter-generational cycle of poverty.
“This needs to be complemented by growth-oriented reforms and higher, more efficient investments in public services, especially in health, education, and infrastructure.
“With more than half of the population below the poverty line, poor and economically insecure households need assistance to regain economic agency and cope with shocks.”
It recommended the creation of up-to-date social registries with verified digital identities as the foundation for targeting pro-poor initiatives. Beyond emergency interventions, the Bank stressed the need for structural reforms and investments in public services to ensure long-term poverty reduction.
“Leveraging early dividends from macroeconomic reforms, Nigeria’s social protection system should be structurally strengthened with a focus on promoting economic inclusion, building resilience, and breaking the inter-generational cycle of poverty,” it said.
The report also called for increased and more efficient investments in critical sectors such as health, education, and infrastructure, to support inclusive and sustainable economic growth.
Central Bank of Nigeria (CBN), in collaboration with the Nigeria Inter-Bank Settlement System (NIBSS) on Tuesday inaugurated an innovative digital gateway allows Nigerians in the diaspora to obtain a Bank Verification Number (BVN), remotely without the need for a physical presence in Nigeria in Abuja.
The initiative, tagged Non-Resident Bank Verification Number (NRBVN) platform was described as a milestone in Nigeria’s financial inclusion journey and a critical bridge connecting the country to its global citizens, according to Mr Yemi Cardoso, CBN Governor.
“For too long, many Nigerians abroad have faced difficulties accessing financial services at home due to physical verification requirements. Nigeria: Nigerian fashion
“The NRBVN changes that. Through secure digital verification and robust Know Your Customer (KYC) processes, Nigerians worldwide should now be able to access financial services more easily and affordably,” he said.
“It is not the final destination, but it is the beginning of a broader journey.
“Stakeholders across the financial ecosystem, including banks, fintechs, and International Money Transfer Operators (IMTOs) are encouraged to integrate and collaborate in shaping and refining the system as it evolves,” he said.
He said that remittance flows through formal channels increased from 3.3 billion dollars in 2023 to 4.73 billion dollars in 2024, due to recent reforms and policy shifts, including the introduction of the willing buyer, willing seller FX regime.
According to him, with the NRBVN in place, the CBN is optimistic about reaching its one billion dollars monthly remittance target.
“We are building a secure, efficient, and inclusive financial ecosystem for Nigerians globally.
“This platform is not just about financial access, it is about national inclusion, innovation, and shared prosperity,” he said.
Cardoso also reiterated the apex bank’s commitment to reducing the high cost of remittances in Sub-Saharan Africa and ensuring continued engagement with stakeholders to optimise the platform.
In his remarks, Muhammad Abdullahi, CBN’s Deputy Governor, Economic Policy Directorate, said that the NRBVN stood as a transformative tool, meticulously designed to enhance the banking experience for our diaspora community.
Abdullahi said that by providing secure, remote access to financial services, the platform simplifies the process of maintaining robust banking relationships, facilitating meaningful investments in Nigeria, and supporting the seamless flow of remittances. Nigeria: Nigerian fashion
” It is our firm belief that this initiative will not only strengthen economic ties, it will also foster a sense of pride and belonging among Nigerians worldwide, encouraging them to play an even greater role in our nation’s development,” he said.
The event also featured a presentation by Mr Premier Oiwoh, managing director of NIBSS, and a panel discussion with key industry stakeholders.
The NRBVN is part of a broader framework that includes the Non-Resident Ordinary Account (NROA) and Non-Resident Nigerian Investment Account (NRNIA).
Together, they enable access to savings, mortgages, insurance, pensions, and investment opportunities in Nigeria’s capital markets.
Under current regulations, Nigerians in the diaspora will retain the flexibility to repatriate the proceeds of their investments.
Importantly, the NRBVN system has been built with global standards in mind, incorporating stringent Anti-Money Laundering (AML) and KYC compliance protocols to ensure the integrity, transparency, and security of Nigeria’s financial system.
Every NRBVN enrollment undergoes comprehensive verification checks to safeguard against illicit financial activity, bolstering international confidence in the platform and the broader financial ecosystem.
President Bola Tinubu has reiterated his commitment in undertaking bold and comprehensive reforms to reposition the country’s fiscal architecture for resilience, inclusiveness and economic growth.
Tinubu said this during the 27th Annual Chartered Institute of Taxation of Nigeria (CITN) Tax Conference in Abuja on Tuesday.
The theme of the conference was ‘Taxation for development, policies, law and implementation.’
Tinubu, who was represented by the Minister of State for finance, Dr Doris Uzoka-Anite, said that the central pillar of the reforms was taxation.
”I believe that a robust, transparent and fair tax system is essential not only for financing government operations but also for creating an environment of accountability, stability and long-term development.
”Accordingly, the government has taken deliberate steps to restructure and modernise our tax administration and legal framework.
”In this regard, the establishment of the Presidential Committee on Fiscal Policy and Tax Reforms marked a significant turning point,” the president said.
According to him, the committee was tasked to simplify the tax system, broaden the tax base, curb leakages and ensure alignment between fiscal policy and national development objectives.
“Members of the committee worked tirelessly to achieve their mandates, which include addressing issues of multiplicity of taxes and improving coordination between the federal, state and local government tax authorities.
“The Federal Government also pushed forward with the Economy Stabilisation Bill, which has now also been passed,” he said.
He said that the success of any reform depended on implementation, adding that the conference presented an opportunity for all stakeholders to explore how policies and laws can be translated into practical and measurable outcomes.
“This is also an occasion to discuss solutions to long-standing issues such as taxation, informal sector integration, fiscal federalism and equity in taxation.
“As tax professionals and policy makers, you are the custodians of Nigeria’s tax future. I, therefore, urge you to leverage this platform to engage meaningfully, challenge assumptions and craft pathways that will strengthen our tax institutions, boost revenue and ultimately improve the lives of Nigerians,” Tinubu said.
Vice-President Kashim Shettima said that the theme was an evidence that the CITN acknowledges the centrality of government revenue generation in the achievement of growth and development for any country.
Shettima was represented by the Special Adviser to the President on Economic Affairs under the Office of the VP, Dr Tope Fasua.
He said that the focus on the tax aspect of revenue conferred a dual responsibility on the taxpayer and the tax administrator (government).
“Taxation is crucial to the achievement of economic development.
“We hope to listen to ideas at this conference around how to ensure that a stakeholder’s view is taken right from the policy enactment stage up to the point of implementation.
“This is bearing in mind that taxation is a continuous affair, and legitimacy is conferred by the delivery of service to taxpayers.
”The need for a stakeholder point of view is why the Presidential Committee of Fiscal Policy and Tax Reforms is made up of professionals from diverse walks of life,” he said.
The 16th President of the CITN Council, Mr Samuel Agbeluyi, said that tax was an important factor in every economy.
Agbeluyi said that taxation was not merely a tool for revenue generation but a powerful instrument for promoting equity, redistributing wealth, incentivising growth and funding public services.
“However, for taxation to truly serve these developmental goals, policy formulation, legal framework and implementation mechanisms must be harmoniously aligned.
“When policy is progressive, the law is enabling and implementation is both efficient and equitable.
“The result is a tax system that engenders trust, encourages voluntary compliance and delivers shared prosperity,” Agbeluyi said.
He said that Nigeria faced significant challenges from economy to security and social dimensions, adding that there was a dire need for sustainable solutions.
“At the heart of these solutions lies our tax system. In this regard, one cannot overlook the commendable effort by the Tinubu-led administration.
“The work of the Presidential Committee on Fiscal Policy and Tax Reforms reflects a resolute commitment to charting a course for sustainable socio-economic development through effective and efficient taxation system,” he said.
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