Banks and the Evolving Digital Payments Landscape

GUEST COLUMNIST By Ebenezer Onyeagwu

Around the globe, payment channels continue to evolve along with changes in digital payment technologies and consumer preferences. In many places, the acceleration of digital payment options has caused brick-and-mortar offices to give way to electronic channels like automated teller machines (ATM), point of sales (PoS) terminals, internet banking, mobile banking, unstructured supplementary service data (USSD), and contactless payments. This tracks the ongoing shift in several economies from cash-based to cashless transactions. As a PricewaterhouseCoopers analysis shows, global cashless payment volumes are set to increase by more than 80 per cent from 2020 to 2025.

This trend intensified during the COVID-19 pandemic as individuals, merchants, payment service providers, Fintechs and banks adjusted to balance the need for convenient, safe and secure transactions with the need to reduce the risk of infections. The pandemic made it pertinent for businesses to digitise or face the bleak prospect of going out of business. Nigeria mirrored global developments in payments during the period. According to data from Nigeria Interbank Settlement System Plc (NIBSS), the value of e-payment transactions surged by about 33 per cent from 2019 to 2020, reflecting an increased preference for electronic payment. This builds on the trend that the payments sector has witnessed as the adoption of digital payment options grows while payments via cheque decline.

Given banks’ unique position in the payment system, it is pertinent to explore how they are responding to this tectonic shift in the industry. The most significant point of action for banks, like other key players, is an investment in digital payment infrastructure and increasing technical capabilities. PricewaterhouseCoopers analysts posit that traditional banks face the challenge of modernising their payment products and software to meet new merchant and consumer needs or risk losing share to payment companies or new market entrants. With the relevant solutions in place, banks will have to do more about convincing customers to go digital while helping them to integrate digital payments into their services.

As incumbents in the financial services ecosystem, another key point of action for banks is defining their relationship with other players like payment processors, card issuers, and Fintechs in an ever-evolving digital payments landscape. As banks develop capacity and become tech companies of sorts with banking licences, they have to deal with the need to compete or collaborate. Many banks are choosing not to see their approach in terms of a binary of two extremes. Instead, they compete when the need arises and collaborate when they see opportunities.

Banks also have to contend with data privacy and cybersecurity risks as digital payment adoption ramps up. According to a PricewaterhouseCoopers global survey, payments generate roughly 90 per cent of banks’ useful customer data — information about who is buying what, how much, and when. This presents significant opportunities for product improvement, enhancement of the customer experience, and creation of new revenue streams. Alignment with data security frameworks such as the General Data Protection Regulation (GDPR) and the Nigerian Data Protection Regulation (NDPR) is one of many steps that banks can take to strengthen data protection efforts while reducing compliance risks. To address cybersecurity concerns, they have to invest significantly in cyber risk infrastructure, acquire relevant software, and train personnel.

Ultimately, banks have to develop the digital agility needed to seize opportunities and mitigate the risks that pop up in a rapidly changing digital payments environment.

Ebenezer Onyeagwu is the Group Managing Director/CEO of Zenith Bank Plc.

This opinion was first published in the Zenith Economic Quarterly Vol. 18 No. 3 July 2022, in his column “CEO Insight”.