Digital banks expand as traditional institutions embrace new strategies

BY MOTOLANI OSENI

Nigeria’s banking landscape is undergoing a significant shift as digital-only banks continue to gain traction, challenging the longstanding dominance of traditional financial institutions.

This transformation, driven by a growing cashless economy and increasing fintech adoption, is redefining how millions of Nigerians engage with banking services.

Firms such as Kuda, ALAT by Wema, VBank, Sparkle, and Carbon are at the forefront of this evolution. Operating without physical branches, these digital banks offer app-based savings, transfers, loans, and budgeting tools—often with zero maintenance fees and free transfers—appealing to the country’s increasingly urban, mobile-first population.

The momentum is reinforced by Nigeria’s rapidly expanding digital economy. Digital banking is expected to reach a market value of $852.44 million by 2029, with a compound annual growth rate of 6.42 per cent between 2025 and 2029, according to Statista.

In parallel, e-commerce is projected to hit $33 billion by 2026, signalling broader digital integration across sectors.

Digital banks are gaining popularity among younger Nigerians. Kuda Bank, for instance, offers up to 25 free transfers monthly and convenient digital features that resonate with tech-savvy users. ALAT by Wema, one of the sector’s pioneers, continues to leverage its legacy bank infrastructure to expand its reach.

In contrast, many traditional banks remain tethered to high-cost physical infrastructure and legacy systems. While they offer a wider suite of services, such as trade finance and international transactions, they are often criticised for inefficiencies, long queues, and outdated technology.

The Central Bank of Nigeria’s cashless policy, initiated in 2012 and intensified by the 2023 naira redesign and cash withdrawal limits, has further accelerated the shift toward mobile and electronic payments. In 2023 alone, electronic transactions in Nigeria surpassed 11 billion, highlighting the scale of digital adoption.

However, the transition has not been seamless. Moses Igbrude, President of the Independent Shareholders Association of Nigeria (ISAN), noted that many rural and elderly Nigerians remain dependent on traditional banks due to low digital literacy and limited internet access. He also warned of cybersecurity risks and infrastructure gaps that digital banks must navigate.

Regulatory oversight remains a key consideration. While several digital banks operate under microfinance licences issued by the CBN, increased scrutiny on customer data protection, digital identity, and financial stability is expected as the sector grows. Trust remains a differentiator, with traditional banks often perceived as more secure due to their institutional history.

Digital banking penetration, which stood at 45 per cent in 2023, is projected to climb to 64 per cent by 2027. Smartphone usage is also expected to reach 80 per cent by 2026, reinforcing the sector’s upward trajectory.

According to Lagos-based cybersecurity expert Taiwo Ogunjobi, the future of Nigerian banking lies in convergence, not competition. “Traditional banks are upgrading their digital capabilities, while digital banks are learning that long-term success requires more than just sleek apps—it demands compliance, trust, and robust infrastructure,” he said.