Enterprise Television- Moody’s: Investments in Digital Platform to Enhance Banks Product Expansion
Moody’s Investors Services has stated that the widespread use of e-channels in Nigeria will allow banks in the country to expand their products beyond the current transactional products and increase client transaction volume.
Nigerian banks are investing in their information technology (IT) infrastructure, strengthening e-platform security to reduce risks such as cloning and identity theft as well as enhance the customer experience.
According to a report by the rating agency, IT enhancements will weigh on already-high cost-to-income ratios for most Nigerian banks, adding that “as more clients migrate to e-platforms, bank revenue from e-business will grow a credit positive.”
It noted that: “As banks’ e-platforms replace more traditional transactions, banks will be able to save on branch expansion costs, reduce the square footage of their branches and engage cheaper branch models such as agency banking.”
The report showed that in the first half of 2017, IT-related costs for Access Bank Plc, United Bank for Africa Plc and Zenith Bank Plc increased by an average of 39.8 % from a year earlier.
On the other hand, IT-related expenses as a proportion of total expenses excluding staff costs increased to an average of 8.1%, from 7.6% over the same time period.
The National Bureau of Statistics (NBS) recently released select banking sector data that indicated Nigerians’ rising use of electronic payment platforms (e-platforms) at the expense of cheques and ATM transactions.
The NBS report had indicated that the volume of cheques declined 16.2% in 2017, while e-payment channels such as point of sales rose 89.6%, internet payments rose 82.2% and NIBSS Instant Payment, an online real-time bank account number based interbank credit transfer system, rose 102%.
Also, the value of cheque payments declined by 22.5%, while the value of mobile payments increased by 42.9%. Cheques’ transacted values show a downward trend, contributing 4.1% of total transacted value in December 2017, versus 7.9% in December 2016 and 10.9% at the beginning of 2016.
“Although Nigerian banks will charge lower fees on their e-platforms than they charge on cheques, client migration to these platforms will positively affect fee and commission income as volumes grow, supporting banks’ revenue.
“Nigeria’s five largest banks’ revenue from e-business grew strongly between 2014 and 2016 and the e-business contribution to total fee and commission income increased to 30.9% in 2016 from 23.1% in 2015.
“Widespread use of e-channels will allow Nigerian banks to expand their products beyond the current transactional products and increase client transaction volume. This will counteract low e-platforms fees and the risk that charges on e-platforms likely will fall because of competition and regulation.
‘Although disclosure for e-business income for the six months that ended June 2017 varied across banks, e-business income was strained, partly because of reduced use of naira debit cards outside Nigeria.
The reports added,“Likely revenue improvements and lower branch-network-related costs ultimately will improve Nigerian banks’ cost-to-income ratios over the next 18 months. We expect Nigerian banks also to develop underwriting capabilities on their e-platforms, and offer loan products, particularly to households and small and medium enterprises, widening their revenue sources.