Microfinance Banks (MFBs) have trimmed their innovation departments by nearly half to cut costs as major players in the financial sector invent strategies to scale them in the digital market.
A Central Bank survey shows that MFBs reduced their innovation teams by 43 percent last year, revealing their hurdles in sustaining top talent needed to curate tech products that will set them at the fore of the digital credit market.
The loss of talent the lenders depend on for the invention of financial products to suit varied clients could hinder MFBs' speed of growth in a lending market that has been evolving toward the digital space at a fast pace, leaving major players eating deeper into their cake.
“The decrease in institutions with a dedicated innovation function was attributed to a decrease in dedicated innovation teams in MFBs from 100 percent in 2023 to 57 percent in 2024. The decrease was largely due to the cost of maintaining manpower dedicated to the innovation function,” the Innovation Survey 2024 reads.
The reduction saw the number of institutions with dedicated innovation functions across the banking sector drop from 87 percent in 2023 to 65 percent last year, CBK said in the survey conducted in February.
The survey compared trends in the adoption of different innovations across the banking sector between 2024 and previous years, and the regulator collected present and forward-looking information on fintech developments, engaging 37 commercial banks, a mortgage firm, and 14 MFBs.
Close to two-thirds of the MFBs sustaining innovation functions last year focused on strategies around credit, deposit, and capital raising services, similar to banks.
“Credit, deposit, and capital-raising services was the functional area where most commercial banks and MFBs introduced an innovative product in the period January 1 to December 31, 2024, with 58 percent of commercial banks and 64 percent of MFBs innovating in this area in 2024, compared with 74 percent of banks and 64 percent of MFBs in 2023, respectively,” the CBK says.
CBK reckons that even last year, the banking sector continued to enhance tech growth in data science and analytics.
Many banks are using their innovation units to modernize banking platforms, enhance customer experience through digital channels, and improve operational efficiency, an edge MFBs could be losing by trimming the units.
“Most banks noted that the main role of the innovation function is to modernize banking platforms, enhance customer experience through digital channels and improve operational efficiency,” the survey says.
It notes that the banking sector is evolving to offer a wide array of services through leveraging fintechs to digitize and modernise operations, as other players offer embedded and customised services through partnership with fintech start-ups.
The survey, however, notes that even as the lenders focus on innovating products to scale their services, they are having to deal with cybersecurity risks that come with tech products.
At least 89 percent of commercial banks and 91 percent of MFBs consider the risk to be among the top three innovation-related risks facing their institutions, it says.
