FinTechs will take over banking

Mergers and acquisitions are a source of big and exciting news stories for business journalism. Looking at recent trends in Kenya, it is clear that we are part of a wave of mergers and acquisitions that is sweeping across Sub-Saharan Africa’s banking sector.

But the question that pops up in my mind immediately is the following: What have big Nigerian banks seen in this market?

This is a pertinent question because I don’t believe that in recently acquiring Transnational Bank, Access Bank of Nigeria — one of the largest on the continent, led by the famous Nigerian acquisition artist and continental player Herbert Wigwe — was merely interested in acquiring and taking control of this small-tier bank with just 90,000 customers and 28 branches.

Since March 2002, Mr Wigwe has led Access Bank into executing major acquisitions to become the largest bank in Nigeria and Africa’s leader by customer numbers.

I have tried to follow and track the history and the strategies of Wigwe and of Access Bank to try to understand what their advent into the Kenyan market could mean in terms of the direction the banking industry is taking.

It seems to me that he is not going to be content to be some small-time player in this market. Transnational Bank was just but his first acquisition in Kenya, mainly to get the group to acquire both a geographical footprint and banking licence in the country.

In its five-year corporate strategy to 2022, the bank talks about establishing ‘universal payments gateways’ and acquiring a dominant share of the continent’s international trade. Wigwe’s vision is to control inter African payments. It is positioning itself to strengthen Africa’s access to global financial gateways, which it has identified as India, Dubai and China.

I see major differences between the approach in Access Bank’s mergers and acquisitions playbook and recent similar deals executed by our domestic banks.

Wigwe starts by buying a bank that gives him new customer segments. From a corporate bank, he purchased a business bank — Intercontinental Bank — in 2012.

In 2019, he made an audacious and successful bid to acquire Nigeria’s largest mass market retail bank, Diamond Bank. That came with 19 million new customers, including 10 million mobile accounts, to top Africa by customer numbers.

Like-for-like acquisitions

The playbook is clear: Every major acquisition brings in a new customer segment, a new geography and, crucially, new capabilities.

When he acquired a 49 per cent stake in Grobank, which mainly serves top corporate bodies in South Africa, his target was the customers the latter was serving.

By contrast, Kenyan banks, in their domestic and regional mergers and acquisitions, tend to go for like-for-like acquisitions; they neither buy new customer segments nor do the acquisitions that bring in new capabilities.

For instance, Kenya Commercial Bank’s (KCB) acquisition of National Bank of Kenya did not bring any new customer segments or new capabilities. Similarly, Commercial Bank of Africa’s merger with NIC Bank to form NCBA Bank was about two corporate banks merging with each other. 

Where Equity Bank has done regional mergers and acquisitions, they have mainly been about like-for-like acquisitions of micro-credit operations. But to its credit, it tried last year to acquire full-service banks in five countries belonging to Atlas Mara Group in Rwanda, Tanzania, Zambia, Malawi and Mozambique. But it beat a hasty retreat to its micro-credit roots. 

The upshot is that Wigwe has been left alone to pick up banks at will. In September, he snapped up the Atlas Mara bank in Mozambique — one of the five that Equity Bank left on the table.

From Acess Bank’s playbook, I see a clear trend, where competition in the banking sector will be in building payment gateways to the rest of the world. 

Banking is evolving into a business of building trade platforms and ecosystems. Sooner or later, we will hearing of open banking. And, in this new world of platforms and open banking, our domestic giants risk being left behind because eyes are stuck to the rear view mirror.

Looking at our landscape, I can’t understand why we don’t have a diaspora bank to tap into the massive remittances from Kenyan based overseas. Yet remittances are our largest export earner. We receive more dollars in a month from remittances than we do from coffee of tea in a year.

With the volume of trade with China growing at an unprecedented rate, why isn’t a bank setting up a centre for Chinese renminbi (RMB) trading in Africa?

I read that Google Pay recently obtained a banking licence in Lithuania. I see global tech giants — the likes of Apple Pay, Google Pay, WeChat Pay and Alipay — entering Africa’s banking markets by stealth. With the local banks’ eyes still stuck to the rear view mirror, FinTechs will eat their lunch.