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I ventured into a banking hall today. Needless to say it was a very bad decision. 
I have a question. Iâm sorry ahead, if it seems stupid. If you run an app-only bank, how do you handle the cash? How do you move cash around, or do you build an app-only bank to be supported by an actual bank?
P.S.: I am quite illiterate with banking operations. The most I know is, I save money, transfer and withdraw.
@akindolu - I think this is a very legitimate question when considering the environment. For part of the target audience, cash in hand is still very much king and any solution that reduces the number of steps needed to transfer that cash in hand into an electronic/online accessible format will have solved a major problem. In my opinion I donât think an app only bank would cut it just yet in Nigeria simply because of the Cash-in-hand factor. The UK and US were these app-only banks are breaking out already have strong electronic methods of storing value.
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Cash doesnât just appear in oneâs hand. You do something or know someone to get it. If you have an app-only bank, youâd do your best to make sure you donât receive cash but get the money in your bank account.
Right now you can use your normal account like an app-only account if you want. But app-only banks are built with a digital focus, you open your account online, receive your debit card via post, pay in cheques via snapshots, handle queries via email or messaging e.t.c.
In Nigeria, an app-only bank can go further and partner with some businesses to allow their customers withdraw and deposit money through them. This is usually not part of the app-only bank model as itâs a mostly a stand-alone business, app-only banks can decide to incorporate it too.
My answer is based on my understanding and knowledge so far. So Iâm not 100% accurate.
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I very much agree with what youâve outlined, as the need to access cash is not unique or surprising. So thatâs going to be encountered and solved one way or the other.
To do this, you can think of it as similar to whatsapp model - leverage existing platform i.e. Banks and ATM. For instance, letâs say you have N100k that you need to pay into your mobile app bank, you walk into GTB or Access Bank and pay it into account (could be a central designated acc or unique one theyâve created for you) - and itâs now reflected in your mobile bank app. Of course one can officially partner with a bank to make the process smoother, but can also explore a work-around. For cash withdrawals, use ATMs only.
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In other words, be crystal clear on your target market. A mobile app bank canât be all things to everyone. It could start with a narrow focus e.g salary payment and online transfers only. This probably means John who runs a shop in Idumota is not your ideal customer.
At the end of the day, no one said any of this will be easy. You would still need banking license, deposits insurance etc but you have a clean slate to approach age-old problems with
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Thanks for expanding more on the cash thing.
The last article I read on these type of bank shows that some of them donât even have banking license yet and their service offerings vary. So why they might all have a similar digital banking goal, their paths differ.
To further the discussion, do you think a banking concierge app can also find a place here in Nigeria? Users can open a new account with any bank or connect their existing bank accounts. And the app helps them perform transactions and do more digitally (Transfers, Creating disposable card numbers (see final) clearing cheques, getting smart analytics and financial advice etc.) than the bankâs allow individually.
I reckon some people would be willing to pay a monthly fee for this level of digital banking freedom.
This!
Iâm not so sure about the monthly fee. I personally wouldnât pay âto do moreâ to get stuff like âbetter analyticsâ from my bank. My gut feeling is that auxiliary services, like what you described are too esoteric for the Nigerian market, especially when there are low hanging problems, where one can make immediate impact. For instance in the U.K, way before âfintechâ was coined FirstDirect bank was established way back in 1999 as a telephone and Internet bank (parent co HSBC). The point is products like that are more suited to other markets.
However, if the approach is to build the same product and look for other means of generating revenue without asking people to pay a monthly fee, chances of success are better. Or aim to sell the product to a bank as an exit strategy.
Even then I would say itâs tricky to build a product that is like an alarm or torchlight app for iPhone. Yes, it probably has bells and whistles to make it fun and âto do moreâ, but people donât really need them enough to pay for it.
It is probably too niche a market here. But some of the app only banks have monthly fees and I think some personal finance apps have that too.
It would be difficult to monetize such a product a different way though. A bank is the most suitable promoter of such a product. But there are still many regulatory hurdles.
Well, I hope the upcoming products someone made mention of above would be exciting.
Flat monthly fees would be attractive if almost every other service offered by the bank was free (to a certain monthly limit). So transfers are free (maybe up to 15 transfers), third-party ATM withdrawals are free (maybe up to 10 withdrawals), no funny âmaintenance chargesâ, no SMS charges etc.
Importantly though, it depends on the cost structure of the bank and lots of testing with the target audience.
I agree with this. So to be clear, @Yinka I wasnât advocating that users are not charged fees in all cases. After all, development of an app wouldnât pay for itself 
. But niche use cases are weak to charge people for.
@philiprohv I believe itâs all about how much value is being created. If users find it valuable they will pay. What youâve outlined is certainly valuable but wouldnât be easy to implement. But if such an app is bringing in new customers for the bank (via in-app account opening), Iâm sure the banks can agree to such a deal.
@PapaOlabode Like youâve said the app makers would certainly need to make money. Most app only banks or fintech apps in the market arenât after short-term profits. Theyâre raising outside money for growth. If a banking concierge app like I described can strike good deals with banks, they can find ways to make money later on by charging users or charging someone else that values the users (banks).
@akindolu Oga well done oh. You just drop question run commot for thread.
Chief! You are on the right path. But let me help reduce the number of IFs in your proposition.
Correct theoretically but difficult to implement. Reasons:
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Nigerian banks are already on guard (howbeit shabbily so) for âdigital banking disruptorsâ so this may be seen as a threat even before the idea is reviewed. Every bank seems to think they are digital these days.
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Compliance can be a royal pain! Depending on the bank, Compliance can kill this idea before it is even reviewed for opportunities. While there are obvious questions about KYC to be answered operating the model you propose, there are equally creative AND legal answers to those questions. But trust traditional Compliance. They are not interested in creative solutions. The fear of CBN and fines is the beginning of wisdom for them. Not all banks are this backward by the way but the vast majority are. My banker colleagues here can call me out if iâm blaspheming
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Riding on number 2, the account opening process varies across banks. There are some banks where you receive an account number AND a debit card instantly (or within 24 hours on particularly bad days) and there are others where you need to wait a few days. This disparity will in turn affect the USP of this service and may end up having the unintended consequence of having users favour a few banks over others. The upside of this is that it could make the laggard banks sit up. The downside is that their (the banks) unreliability becomes YOUR unreliability which you must creatively manage.
Please see answers 1, 2, and 3. Now depending on the value prop to the banks (that doesnât appear like a threat to their âdigitalâ business) a provider of this service will definitely find a few banks to strike deals with but not the majority.
And therein lies the gold. Its all about the cost structure. I could write multiple blog posts on banking costs and cost structures. Suffice to say, a non-traditional app-only bank carries non-traditional costs. There will be some sunk costs that canât be wished away but a non-traditional value prop can be built in such a way that these are covered. You are right in saying that it is a long term play.
By the way ânon-traditionalâ doesnât mean creating some esoteric value prop that lacks relevance in our local environment or doing a blind copy and paste of some bank elsewhere. It just means approaching the problems (both the existing and the unrecognized) of the target audience in a non-traditional way.
Lemme stop here first. Radar is telling me that I have contributed over 22% of the conversations on this thread
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The major selling points of an app only bank are free banking and/or saving interest rates that are higher than traditional banks.
I totally agree with this: [quote=âPapaOlabode, post:49, topic:7215â]
build the same product and look for other means of generating revenue without asking people to pay a monthly fee, chances of success are better.
[/quote]
To answer the question of how a no monthly fee app only bank will make money. Simple: lend money.
If an app bank offers 12 month fixed deposit rate of 10% 
. They will lend money to others for 19% APR. This 9% difference is how traditional banks make money. Some banks will even invest your money in something that gives them higher returns.
A value added service for the bank can be forex, but this will have itâs own challenges.
Although it looks simple, itâs definitely not easy because the app bank will have other expenses such as payment processing, agent/affiliate fees etc. and enforce specific criteria for fixed deposits and loans.
The bottom line will be to provide free banking with attractive interest rates. That will get people to move from their traditional banks.
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Truth is you are a Bank, you will have Banking License but your distribution model/ channel is via app.
Hence to get the CBN License they must meet requirements for Nationwide license which means 25 billion naira in assets bla bla bla⌠but the way to move cash will be to their vault and Partner distributors that they adopt, Alternatively they partner a Big Bank as a way of new customer acquisition.
So the app as a bank startup should raise N25 billion to get started, right? OK
I meant they look at 2 options.
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Become a Bank with all legal requirements and regulations with a future facing model for channel, distribution, customer touchpoint, innovation in process and delivery of basic financial services
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Partner a big bank and act as an Arm or better touch points with customers.
Remember the Digital Bank concept can fly in other countries whose society quickly adapt to change but here Regulations alone will eat you alive, Even with the Marketing force of MTN and Banks it took almost 8 years to get a lax on Mobile money Laws from CBN upon the much publicized cashless policy.
So if a digital bank can arm itself with an Army of lobbiers, big businessmen, politicians, lawmakers they can succeed but knowing my country, to survive they have to go with option 2 first.
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Thatâs how I think about it too. Partner with a bank(or banks) to become a new kind of bank.
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But you know how Archaic thinking current banks are, behemoths of everything slow, the bureaucracy is killing.