Disclaimer
While reading this, you'll come across names of banks and some of their activities. The purpose is not to promote or malign them, but simply to drive home the point of this article.
For a starter, banking system started in Nigeria during the colonial era with the main purpose of meeting the commercial needs of he Colonial Government. Currently, the apex bank in Nigeria, the Central Bank of Nigeria (CBN), which commenced operations from July 1st, 1959, is charged with the responsibility of regulating every other bank and banking industry in Nigeria.
Traditional banks, otherwise called commercial banks, have long taken roots in Nigeria over the decades; they are no babies in the banking industry, and from every available actions and regulations, they are here to stay and are not leaving, at least not any time soon.
Digital banking in Nigeria has been around for awhile; however, the COVID19 and the cashless policy of the government have combined to shoot up the digital banks and digital banking up to an unprecedented height.They are mostly used by the Millennials and Generation Z, two generations that are highly technologically driven and with little patience for the downside(s) of the traditional or commercial banks in Nigeria.
So, the question remains: Have the traditional banks come to stay or are digital banks the future? In the context of Nigeria that we are dealing with, the answer is that both are essential to socioeconomic and national building and the development of Nigeria with their different strength areas. The combination of their strengths is a pointer that both are here to stay and as well as being the future.
We shall highlight and explore some of the key things (strengths) these banks offer that make them indispensable for the present as well as in the future.
FOR THE TRADITIONAL BANKS
Having established their authority over the years, traditional banks have solidified their presence through historical affiliations with colonial and indigenous governments as well as strong relationships with governments, business conglomerates, and citizens. Their impact is far-reaching, permeating every aspect of the economy. As long as people live, interact, conduct business and engage in various monetary transactions in Nigeria, traditional banks will continue to play vital roles:
Revenue Collection
Traditional banks, leveraging their close relationship with the government, collaborate in various ways, including revenue collection. Federal revenue-generating agencies such as Federal Inland Revenue Service (FIRS),
Nigeria Customs Service (NCS), Department of Petroleum Resources (DPR) etc. utilize traditional banks to discharge their revenue generation responsibilities for the Nigerian Government. This significant role underscores the vital contribution of traditional banks to Nigeria's economy, solidifying their importance today and into the future.
Large-scale Lending Capacity
Traditional banks remain indispensable due to their ability to provide large volumes of loans to governments, corporate bodies, and individuals. Their substantial resources enable them to disburse significant funds, supporting economic growth and stability. Digital banks currently lack the capacity to shoulder such massive financial responsibilities, making traditional banks the primary lenders for large-scale loans. This capability ensures traditional banks will continue to play a vital role in the financial landscape, both now and in the future.
Corporate Social Responsibility
Peter Drucker, a leading name in the field of management sciences, and a scholar, believes that businesses should be socially accountable and contribute to the well-being of society. This is one aspect the traditional banks have really brought it to the big party. We can talk of the pedestrian bridge built by the UBA Foundation at the valued cost of N13 million for the students of Usman Dan Fodio University, Sokoto, in January 2020. The students of the institution were said to have struggled with that path for over four decades, especially during the rainy seasons. We can talk about other social responsibilities done by other commercial banks like Access Bank partnering with the Coalition Against COVID-19 (CACOVID) to combat the health and socioeconomic challenges caused by the COVID-19 pandemic, GTBank's promotion of the environment through their GTBank Environmental Sustainability Initiative, aimed at reducing carbon footprint and enhance eco-friendly practices, Zenith Bank's Youth Empowerment Programmes, launched to train and mentor young entrepreneurs in Nigeria for entrepreneurial development.
With the above and more, it is evident that the traditional banks are for everyone and every season given that they are not neglecting their corporate social responsibility to the society — Nigeria and Nigerians in this context.
Securing Valuable Items
Traditional banks offer a unique service beyond managing monetary deposits. They accept and secure valuable items such as important documents (e.g., wills, deeds, passports, certificates), jewelry, gold, diamonds, and other precious and sensitive items. Customers can store these items in traditional bank deposit boxes, providing a secure and reliable storage solution. This service gives traditional banks an edge over digital banks as it offers a tangible, secure space for valuable possessions. As long as traditional banks continue to provide this essential service, securing people's high-value properties, they will maintain their relevance in the financial sector.
Customers’ Deposits Protection
The frequent collapse of banks in the past posed a significant threat to traditional banks. Loss of confidence due to risk of collapse and potential loss of hard-earned money would force customers to withdraw their funds and seek alternatives. The collapse of Savannah Bank, for instance, resulted in customers losing their money, with some suffering depression and business losses. This incident severely impacted the banking industry, eroding public confidence.
However, the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) have implemented regulations and policies to safeguard customer deposits. One key measure is the Cash Reserve Ratio (CRR), which requires commercial banks to maintain a 45% ratio of customer deposits with the CBN. This mandatory reserve ensures the security of customers’ deposits. The CBN and NDIC’s efforts have restored stability, ensuring traditional banks remain a secure and reliable choice for customers.
Salary Payment of Civil And Public Servants
In Nigeria, the civil service plays a vital role in the country's administration and economy. Civil servants make up a significant portion of the middle class, and their salaries help keep the economic wheel running smoothly. The government pays civil servants, including military personnel, the president, vice president, governors, and deputy governors, through traditional banks. This payment system highlights the strong relationship between the government and traditional banks, ensuring their continued relevance.
Job Creation.
Traditional banks significantly contribute to the economy through job creation, employing a substantial workforce that surpasses that of digital banks. Although conventional banks have experienced layoffs in recent years due to unfavorable economic conditions, they still maintain an impressive workforce. The significant workforce in traditional banks underscores their enduring presence in the financial landscape.
Financing Projects
Traditional banks play a vital role in financing projects worldwide. With their extensive reach and access to funds, they act as intermediaries, channeling funds from depositors to borrowers and supporting businesses and projects in meeting their financing needs. For instance, the Lekki Deep Sea Port project, valued at $1.5 billion, was financed by a consortium of banks, including Stanbic IBTC and Standard Chartered Bank. This exemplifies the significant projects undertaken by governments and corporate bodies that rely on traditional banks for financing, underscoring their indispensability.
The indispensability of traditional banks in our economy cannot be overstated. They serve as vital financial advisors to government institutions, corporate entities and individuals.
Additionally, traditional banks facilitate international transactions by providing
international money transfer services, foreign exchange services, enabling the exchange of foreign currencies for local ones. Their expertise and services make traditional banks an essential component of our financial landscape.
FOR THE DIGITAL BANKS
Digital banks or online banks offer financial services chiefly through digital channels such as mobile apps and websites. In Nigeria, different digital banks are seen and used. Some of them are: Kuda, Moniepoint, Opay, Palmpay, etc. They are licensed by the Central Bank of Nigeria, and insured by the Nigeria Deposit Insurance Corporation (NDIC), to offer digital financial services to Nigerians. Though, for obvious reasons, they do not command the number of customers as their traditional counterparts, their numbers are soaring on a daily basis.
Digital banks can best be described as complementary banks to the commercial banks. The two can competitively coexist and complement each other with their different areas of strengths and, fortunately, they are very much on that promising path.
Digital banks, on their part, have “convenience” as one of their strengths. It is more convenient to transact using any of the digital banks because they are embraced more by the younger generations. Making successful transactions at any time and place is a feature in favour of the digital banks more than the traditional banks.
In a third world country such as Nigeria, where the gap between the rich and the poor is wide, digital banks act as a bridging gap between the two extreme classes by offering financial inclusion to young users and not-so-buoyant users, something the traditional banks are not particularly known for.
Digital banks are cost-effective in transactions, making them easily identifiable with the younger generations and business people of medium and small scale.
They also offer microloans which are not cumbersome in accessing, unlike the traditional banks' loans. These microloans are usually used by students, small business owners to solve pressing issues as they come without the hassle of going to the traditional banks.
By being fast, and funds getting to the intended destinations in secure manner, digital banks are go-to banks and will be even in the future. It can only get better.
Digital banks have equally provided the opportunity upon which people are leveraging to make ends meet by being their agents or merchants. Their agents are scattered across the country, with lots of people preferring to withdraw and also deposit their money from and with these agents, and not necessarily going to banking halls to deposit money or withdraw money. By bridging such gap, time is saved and life is made a little bit easier.
CONCLUSION
Traditional Banks and Digital Banks have all come to stay, their relevance is telling, and such suggests that while they serve the populace presently, they will also do so in the future. While the traditional banks are clearly dominant, especially with large scale and corporate businesses, the digital banks are upping their ante and making waves on their own paths with the younger generations and small and medium scale business owners. With the traditional banks providing the direction and regulations and also working in tandem with the government, and the digital banks leveraging on the opportunity provided and adhering to laid down regulations, the two banks will continue to serve the economic and social needs of the people now and also in the future together.
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