THE ACADEMY OF BUSINESS STRATEGY
ELECTRONIC PAYMENTS BLOG
Succeeding as a Non-Bank Financial Service Provider
Akinwunmi Olubukola Akinnyi (CBS) MSc BSc
Transaction banking, especially in the retail payments segment, is increasingly becoming attractive to non-bank service providers. This trend is accentuated by banks faced with the challenge of being nimble, innovative and efficient in the provision of transactional services and as financial market infrastructure such as clearing and settlement systems get more liberalized in terms of rules for participation. Competition is also making it compelling for banks to deliver improved services at decreasing cost to customers. Banks who are the traditional providers of these services are outsourcing transactional banking activities either in part or are considering it as a major spin-off opportunity. This trend is more pronounced in the retail payments services as more non-bank providers debut with interesting and innovative products angling for a slice of the market. VISA, MASTERCARD and AMEX have proven over the years that there is a niche for non-bank service providers. More recently, Paypal, E-bay, Square, M-PESA have confirmed through the success that opportunities still exist for creative alternatives.
Opportunities abound as current operators grapple with the challenge of universal interoperability of payments systems. Another issue which providers could take advantage of, is the financial inclusion programme of many developing nations. More countries are exploring avenues of taking financial services to the bottom of the pyramid and as long as a large percentage of global population is un-banked, there exists a niche for innovative solutions. Financial service agency system or network is another exploitable challenge. Non-Bank financial service provider, however, must carefully consider their entry strategies and ensure they can put on the table innovative, efficient and universally acceptable options.
Firstly, a decision has to be taken on the model of interfacing with current operators in the field. It has to be decided if you have a compelling product that could make entry as a new scheme and hold its own, commanding market acceptance in the earliest possible time to get the attention of current players to take interest. Naturally, it seems rather easier to come into the industry as a collaborator or a strategic ally e.g. establishing symbiotic relationship with established banking entities with robust client base that can be leveraged to gain quicker access to market as well as needed acceptability. In another vein, you may annex existing entities as a provider of solutions which aid their effort at nimbleness and cost efficiency. Also worth considering, is the option of playing geographically to create products targeted at financial services initiative already identified by regulators as of interest or which the market has indicated latent demand. In which case, latent demand is identified by level of use of crude alternatives in use currently in such markets.
Providing solutions which is presented as a cooperative platform for resolving industry pain points also lends itself as an option for successful entry of a non-bank financial service provider. For example providing shared platform for meeting registration and KYC compliance for electronic payments/banking scheme for low earners towards facilitating adoption of e-payments or m-payments services provided by current operators could be an entry point for a non-bank provider of financial services.
Cost consideration is of utmost importance to successfully launch as a non-bank financial service provider in the financial services sector. Perhaps, the biggest worry of traditional bank-providers and other current operators is how they could reach a greater number with the least expensive product for customers to consummate financial or payments transactions. A new entrant will therefore do well to approach users with less costly options. This may be a challenge for innovative start-ups with plans to introduce unique and independent products. Hence, it is always advisable to take collaborative paths to introduce unique products in order to achieve efficiency. However, a proper segmentation of target clientele could also justify the go-alone introduction of an A-class innovation with a unique and compelling offering which could cause a shift in the industry demand curve e.g. a payments service product which is dynamic enough to overcome interoperability challenge in any clime with little or no adaptation.
Management of other participant in the financial services sector is also very critical. Regulators, financial institutions and other providers introduce dimensions to propositions of prospective entrants. The activities of these participants must be well reviewed and factored into consideration as early as possible. Engagement with regulators to appreciate the course regulation is taking will help in early integration of regulatory concerns into product design. Fostering relationship with traditional providers aids the understanding of pressing issues faced by current financial service providers, giving indication of opportunities and avenues for strategic alliance while also equipping you with quality information on the economics of the business.
A very important part of the matrix is the customer. The requirement for cost efficiency may be universal to all users across geography, however level of sophistication, economic strata, infrastructure, social and environmental issues are pointers to differentiating acceptability attributes which must be factored in based on the target market. An example of growing niche is the remittances segment especially between the immigrant workers and their home communities.
Provision of financial services as a business is promising for non-bank financial service providers with the right product design and go-to- market strategy that consider the sector’s dynamics. Electronic retail payments services continue to see new entrants with interesting innovations. Creativity, collaboration, cost and competition are critical considerations for successful entry of non-bank providers of financial services.
ABOUT THE AUTHOR
Akinwunmi Olubukola Akinnyi (CBS) MSc BSc is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is electronic payments. He has achieved an MSc from ESUT Business School and a BSc from Delta State University. He has been employed as Special Assistant, Payments Analyst, Accountant, Adviser and Consultant for various companies and has experience within the banking and financial services industries His clients or employers have included Central Bank of Nigeria, Metropolitan Bank Limited, Ogba Community Ltd. He has geographical working experience in Nigeria. He speaks English and Yoruba. His service skills incorporate payment systems management, systems oversight, process improvement and electronic payments.