Chukwuemeka Fred Agbata Jnr. (CFA)
Technology has no doubt changed the financial services industry in so many ways but some experts believe that blockchain will change it in more unbelievable ways.
Experts have argued that artificial intelligence will ride on blockchain to offer the world much more effective banking services with little or no high charges. Hard to believe? Well, only time will tell!
Globally, businesses are beginning to witness rapid displacement, not just disruption and in worse cases, going into outright extinction due to rapid change in technology. The financial services industry, especially, is beginning to feel the heat from this and many other disruptive technologies.
Key areas of the financial services that are most likely to be affected by blockchain include transfers, payment and lending. We have seen different start-ups such as OneFi, Inspire, Upstart, and Funding Circle, playing critical roles in peer- to -peer lending and services to individuals.
Lending had always been a traditional banking function. What this means is that, individuals do not need to go to banks to seek for certain kinds of loans anymore.
We know how strenuous it has always been to obtain loans from the financial service providers. Aside from the high-interest rates, the conditions and requirements for individuals and businesses are usually high.
So these platforms are providing alternative decentralised lending solutions to individuals and small businesses, using the innovative blockchain technology.
This innovation has increased the quest for peer-to-peer lending services in developed countries such South Korea, US and even Russia, which has led traditional banks to come up with new survival strategies with some throwing their weight behind crypto currencies.
One of the key benefits promoters of blockchain claim is that it’ll eliminate the monopolistic power of financial service providers. Also, that transactions are usually safer, transparent, decentralised and that is going to be a fair game for everyone.
Blockchain uses strong predictive algorithms that can detect any form of fraud. What this means is that instead of having a centralised authority just like the Central Bank of Nigeria, it makes use of a network of computers to approve transactions, otherwise known as “blocks.”
These blocks are linked to the “chain” of computer codes. The security of blockchain technology is, however, built around cryptography, making it more difficult to manipulate but hackers are not resting on finding back doors.
Beaming the spotlight down to Nigeria and West Africa; do we have any innovation built on blockchain technology yet? The closest we have seen so far is what VoguePay, a leading online payment start-up, has done.
It recently launched a multi-currency payment platform to enable businesses to send and receive payment from local and international customers, allowing merchants to accept payment in dollars, Euros, Rands, Cedis, Naira and Bitcoin payment.
Chief Executive Officer, Voguepay, Michael Simeon, said, “With Voguepay digital bank, our partner banks can tap into cross-channel market to attract diverse depositors. Account holders with Voguepay bank enjoy plurality, as they do not have to operate multiple accounts in different countries. They simply enjoy the benefit of local banking services.
“For business owners, the benefits are even greater, as it reduces time and money spent in opening new accounts since their VoguePay bank account works cross-border. This is indeed a significant shift, especially, for the Diasporas.”
Ideally, banks should be adding more value to the Nigerian economy by assisting small businesses with loans and overdrafts but they have failed in this respect over the years, preferring to loan to large corporates. Many start-ups and great ideas have been lost through their actions over the years.
The average Nigerian bank pays about five per cent interest rate on fixed deposits while requesting for two-digit interest rates on loans from customers. Economically, this does not make much sense because the margin is too wide when compared to what they offer for holding customers’ fund. Many people are tired of the highly monopolistic nature of banking.
While not praying for the extinction of the financial sector as we know it today, the industry players should start availing themselves of how to key in to the blockchain technology in order to remain relevant in the near future.
Some players in the industry should start considering strong partnerships with and outright acquisition of some of these start-ups causing lots of disruptions around the globe. Some leaders in the sector around the world are already brainstorming on the way forward, considering the imminent shift in control away from the banks.
Some leaders in the financial sector are, however, in panic. “The industry could go the way that file transfer technology changed music, allowing new businesses like iTunes to emerge. That is why there are such feverish activities at moment”, says Michael Harte, Chief Operating and Technology Officer at Barclays, who wrote in an article published in The Financial Times.
This issue calls for an immediate action plan from all the players in the financial and other sectors in Nigeria, as the sector needs to key in to this fledging technology, so, as not to be left behind by the rest of the world as well as avoiding the kind of mistakes the banks made when they failed to key into the potential of Fintechs.
Simeon said, “The impact of blockchain technology in Nigeria is innumerable, emphasising that, in the banking services it will enhance security, efficiency and transactional transparency through the provision of seamless transactions audit chain. Furthermore, it can help in formalising land and title ownership as well as uses in health, governance and every sphere of life.”
As an entrepreneur based in Nigeria, I honestly think it is high time banks here were disrupted and I cannot wait for it to happen because the way our banks are structured makes it nearly impossible for SMEs to really scale.
I have no doubt that by the time fintech start-ups such as Voguepay see their disruptive blockchain services gain traction, the big banks will wake up but I only hope it wouldn’t be too late then. Again, only time will tell.
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