So this has really got me thinking, given whats been going on around the world recently such as the implementation of the PSD2 regulation in the EU and also recently heard that a bunch of start-ups in the US joined forces to form a pressure group to get US regulators amongst other things mandate banks to be a bit more open with customer transactional data. Given how Telco services have been opened up to allow 3rd party (VAS) providers play a part, such an approach couuld be useful for banking also.
Not sure we (Nigeria) are there yet but it got me asking a few questions:
What would be the objective of un-bundling banking services?
What type of regulation would be needed to achieve this?
What are the areas (products / services) that would be un-bundled?
What would be in it for the banks / what angle would work best to get their support?
I think the problem is that Nigerian banks are not even yet at the same level of scale as foreign banks or telcos. We think they are but they are not. A typical petrol chain has more service locations than a typical Nigerian bank. They also don’t do much with their data. Retail operations are still high in demand but operational costs are high because of the nature of regulation. I don’t know why NIBSS is in the business of POS and PTSPs. They should allow truly independent ISOs and special infrastructure companies to handle those.
The central bank had promoted the idea of shared services in the past as a first step towards unbundling but were lukewarm about it. The regulator’s emphasis is much more on macroeconomic monetary policy and the banks are a tool of that, rather than a means of economic growth.
In the West, credit bureaus always had access to transactional data. The credit bureaus also served the banks as they do most of the retail lending. They want to democratise that as a lot more data now resides outside the bureaus.
We have an economy where most of the lending is informal and within value chains. The banks only serve the top of those value chains and are merely a cash management and savings mechanism for the rest. Financial intermediation is not really an active function by the banks for a majority of the customers.
We cannot start talking about unbundling banking when the banks have not even started doing banking. We can, however talk about building new types of digital banks with better regulation. India started with Payment Banks. I think we should go in that direction as well.
Precisely where for me the real crux of the matter is. There may be some issues around privacy and ownership which for me I would argue is split between the banks and the customer (not sure what the actual regulation around this is) though I agree that a similar route like licensing Payment Banks has merit, which could actually help address issues of financial inclusion.
However am much in favour of an eco-system type of approach where 3rd party service providers are encouraged to provide better diversity as there is so much more to financial services than simply payments and deposits. The banks on their own cannot have all the answers, know what customers want all the time or constantly come up with new ways of servicing them - smaller, nimbler fintechs however can.
The beauty of the eco-system is that only the fittest survive - what this implies is that customers will get to choose and not have products forced on them and only those solutions that address their needs survive and get iterated on - making those products even better.