Adapt or Die: Nigeria's big banks are thinking like startups again
A look into Access HoldCo ambitious five-year plan
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Banks want to become startups again
“In terms of how we will compete I think quite frankly we have the technology, we have the resources, we have the people and we are setting up that platform that would basically compete with all of them, and even better because of the existing customer base and merchants that we have. It is not going to be subdued by the heavy infrastructure of the parent or the heavy processes of the parent. That is why it needs to be kept separate.” - Herbert Wigwe, CEO, Access Group Holding Company
Two years ago, quite a number of Nigerian banks figured that staying competitive for the future meant that they had to provide more than the typical banking services. Many of these banks, once startups themselves, have become continental brands but they’re now contending with digital upstarts that are spending big to win over millennials and Gen Z customers.
While most of their new competitors brand themselves as neobanks, others make no such claim. Yet by virtue of the kind of services they provide, they’re forcing customers to rethink how they save, spend, invest and access credit—four things banks do. Now, as banks restrategize, their thinking is not to move away from these core functions but to expand the scope of their services and find new and exciting ways to remain vital to customers.
For most banks, their current corporate structure won’t allow them this freedom. And so began the scramble for regulatory approval for new holding company structures. Last year, Guaranty Trust Bank, GTB, became Guaranty Trust Holding Company, or GTCO as displayed across its over 300 branches and mini outlets in Nigeria. This week, Access Bank became Access Holdings. I did some speculation about GTCO’s plans in this February newsletter, so I won’t rehash that. Instead, I’ll share some of the most interesting bits from Access Bank’s earnings call. It will provide some insights into the group’s thinking for the future.
Digital lending is big business for Nigeria’s big banks
Legacy banks get a lot of flak for their pretty sluggish approach to consumer lending. Most of those criticisms hold up. Yet don’t lose sight of the fact that in the last four years, the banks have upped their credit game; GTCO did a madness with QuickCredit and charges the least interest rates compared to other digital loan products in the market. Access Bank offers a similar service although its own rates are around 5% with an extra 1% management fee, which feels steep but is still cheaper than what’s on offer by many payday lenders.
With its credit services spanning payday loans, salary advances and asset (and device) financing, Access Bank grew its digital loan value by 50% to N160 billion—although it still represents a fraction of the bank’s N4.5 trillion loan book. Curiously, this increase came despite a significant decline in loan volume. The bank logged 3.8 million digital loans in 2021, a 12% drop compared to the 4.3 million in 2020. In 2021, the bank introduced more stringent requirements for loans to reduce delinquency, pointing to the fact that digital lending is a tricky business that’s less about how to give loans and more about getting them back.
Access HoldCo’s play
GTCO’s Holdco play has seen it acquire a pension and fund manager, but it has made no bones that its primary ambition is in payments. With payments startups enjoying huge valuations, GTCO reckons it has all the tools in its arsenal to create a standalone payment business that could command equally high valuations. Access HoldCo is also pursuing payments as a standalone business, but will also have agency banking, consumer lending and insurance brokerage as three standalone businesses.
“Now, HoldCo is going to invest in a payment platform, which we have already started. And our idea is that it’s not just a valuation game. It’s about adding value to our customers, and then the valuation is secondary. What we are selling is we are creating a proper payment platform and making sure that payments, whether it is online, your card business etc. through whatever channels across the entire sub-Saharan Africa happens seamlessly. So that’s what we are going to be doing. And it’s a separate vehicle that we are doing it.”
Herbert Wigwe, CEO, Access Holding Group
Already, Access has 95,000 agents for its agent banking business with a transaction value of N14.4 Trillion from those agents, suggesting there’s definitely value in the planned subsidiary. In any case, Access HoldCo will only begin executing its plans for these businesses by the second half of 2022. One thing to note about how the banks are thinking about their planned new verticals is that they’re not taking additional risks to build out these businesses. They already have most of what they need in-house.
Mergers and acquisitions are on the horizon
Access Bank’s $235 million takeover of Diamond bank in 2019 is just one instance that shows it is no stranger to acquisitions that create value. Taking over Diamond Bank made it Nigeria’s biggest lender by total assets. In the same year, it also acquired Kenya’s Transnational. In 2020, it acquired Zambia’s Cavmont and then Mozambique’s African Banking Corporation one year later.
In setting up its new verticals, you can expect that Access will lean on M&As, with the Group’s CEO, Herbert Wigwe, sharing that a lot of activity will happen between May and June. With final licences and approvals also in the offing for its payments business, June will be quite the month for Access.
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MultiChoice and the FG’s battle to keep cable tv prices down
Last week, I predicted the intervention of the Nigerian government following Multichoice’s decision to raise prices for its two cable tv offerings: DStv and GOtv. My comments were largely tongue in cheek, but as Nigeria has shown time and time again, the boundaries of the absurd have an infinite elastic limit.
The serious matter of the cable tv company raising its prices got to the floor of the National Assembly. The debate on the matter was so intense, that you could have thought the issue was our dizzying food inflation or our worrying unemployment figures. Here’s Senator Abba Moro’s impassioned speech:
“Without recourse to the economic situation of the country, MultiChoice has again raised the cost of DStv and GOtv bundles. Nigerians are demanding that, rather than paying fixed rates for packages monthly, pay-tv service providers should introduce a subscription model which allows subscribers pay-per-view to enable them to match their TV consumption to subscription as it is with the case of electricity metering and mobile telephony.”
Another Senator, Yusuf Yusuf, brought even more theatrics; “This is high time we stand up firmly and face this MultiChoice to make sure we protect Nigerians. I support that their rates are scaled downward."
Apart from scaling the rates downward, the Senate suggested a pay-as-you-view or pay per view pricing for DStv, and it became a focal point of the arguments that followed on Twitter. Why, one user asked, did he have to pay a monthly subscription when his electricity supply prevents him from enjoying his monthly bouquet? Implicit in these questions is the assumption that the “per second” billing with which Globacom disrupted telecoms can be applied to cable TV.
Instead of making a fresh argument on why the Nigerian Senate needs to be more knowledgeable on cable TV models, here’s a brilliant excerpt from a 2020 ThisDay article:
“The spark for the demand of PAYG is the telecommunications sector, which is assumed to be the same as pay television. Clearly ignored when making comparisons is the fact that television companies, more often than not, buy the content they redistribute. The programmes, on account of the fierce competition among pay TV companies, are bought at near-extortionate sums and contracts for them are renewed at a king’s ransom. Telcos, on the other hand, do a one-off payment for spectrum. Also, on the technological front, both fields are dissimilar. While telecoms is two-way, satellite broadcasting is one-way, leaving broadcasters unable to know if a subscriber is watching or not, as the signal is sent to the decoder, which sends no feedback. Thus, for PAYG to be possible, a complete overhaul of the broadcast architecture and billing model is required. This, if it happens at all, would cost an arm and a few legs, which will certainly make services far more expensive.
Equally ignored in the discussions-and the Internet can always help- is the fact that content redistribution contracts are not signed on a pay-as-you-watch basis.
This means they cannot be sold as such except in Video-on-Demand services, which pay television-strictly speaking-is not. In most parts of the world, the content aggregation/ bundling model remains dominant in the pay television ecosystem because it is the most cost-effective.”
What I’ve been reading
The Longest Running Blockchain has Existed on NYT Pages Since 1995
How south London became a talent factory for Black British footballers
This delightful essay, written in 2019 and is really about food says: There is no way to truly express the long, drawn-out, and torturous heartbreak of wishing back electricity in Nigeria.
This week, TechCabal launched DealFlow, a way of checking out Africa’s funding data in real-time. It’s super nifty.
TechCabal Daily -👨🏿🚀The biggest tech moves in March
This week, news about the one-click checkout startup, Fast, which burned through $100m of funding in one year while only generating $600k has dominated the news cycle. This Twitter thread explores the founder’s sketchy background.
[Paywalled] Stripe-Backed ‘Fast’ Seeks Buyer After Struggling to Raise Capital
The complete travel guide for Nigerians moving to the U.K in 2022
See you on Sunday!
Edited by: Abubakar Idris
The play by the banks to become holding companies, at the surface, makes a whole lot of sense. The market is quite unforgiving with the valuation of banks – they are treated as legacy and there is nothing exoteric about what a bank can do – so the valuation is harsh.
Startups, on the other hand, are a pandora's box: it could turn out to be a banger or a banger; whichever banger you want to throw.
Hive out payments out of a typical bank, the valuation of the existing mothership wouldn’t budge but the new PayCo may become a unicorn.
Well, that’s what the theory looks like. Until you discover that what makes startups successful has nothing to do with the structure but more with the DNA of those running these companies.
Do the Nigerian banks’ leaderships have the DNA to run these companies like startups? My guess is just as good as yours – nope. So most of them will struggle to get what they are looking for:
They won’t be able to attract or hold smart talent
They won’t know how to create a creative and enduring culture that drives ownership
They won’t be able to compensate well, especially young but fast-growing talent
They won’t be able to make decisions quickly
They won’t be able to take risks
They won’t know how to partner
They would be overburdened by board members that don’t know what the business is about
And they would be regulated to death