An Assessment of the Influence of Digital-Only Banks on Traditional Retail Banking: A Case Study of Kuda Bank, Lagos State.
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Background of the Study:
The advent of digital-only banks has ushered in a new era in the financial services industry, challenging the long-standing dominance of traditional retail banking institutions. Kuda Bank, a prominent digital-only bank in Lagos State, exemplifies this disruptive trend by offering a fully digital banking experience devoid of physical branches. This paradigm shift is driven by rapid advancements in technology, changes in consumer behavior, and the growing demand for convenience and efficiency in banking transactions (Adewale, 2023). Digital-only banks leverage cutting-edge technology to streamline operations, reduce overhead costs, and offer competitive financial products, thereby attracting a tech-savvy customer base that values transparency and innovation.
Traditional retail banks, with their extensive branch networks and legacy systems, are now compelled to re-evaluate their business models in response to the agile and cost-effective operations of digital-only banks. Kuda Bank’s operations, characterized by minimal physical infrastructure and a strong digital presence, have redefined customer expectations by providing real-time services, lower transaction fees, and intuitive user interfaces. This transformation has significant implications for the competitive landscape of the banking industry in Lagos State and beyond (Oluwaseun, 2024).
Despite the advantages offered by digital-only banks, traditional banks face challenges in adapting to the new digital environment. Resistance to change, legacy technology systems, and a reliance on conventional customer service methods hinder their ability to compete effectively. Furthermore, the customer-centric approach of digital-only banks, which emphasizes personalized service through data analytics and artificial intelligence, has set new standards for customer engagement (Chisom, 2025). The study seeks to explore the extent to which digital-only banks like Kuda Bank are influencing traditional retail banking operations. It will analyze the competitive strategies, customer perceptions, and operational efficiencies that differentiate digital-only banks from their traditional counterparts, thereby providing insights into the evolving dynamics of the Nigerian banking industry (Babatunde, 2023).
Statement of the Problem:
Traditional retail banks in Nigeria are encountering significant competitive pressure from digital-only banks. Kuda Bank’s innovative, fully digital model presents challenges to conventional banks that continue to rely on physical branches and outdated systems. Customers increasingly favor the convenience, lower fees, and real-time service offered by digital-only banks, leading to a gradual erosion of the market share of traditional banks. Despite efforts by traditional institutions to integrate digital solutions, many still struggle with legacy systems and resistance to change within their organizational cultures (Olufemi, 2024).
This competitive pressure raises critical questions regarding the sustainability of traditional retail banking models in the face of disruptive digital competitors. Traditional banks are forced to balance the demands of long-established customers with the need to attract a younger, more digitally inclined demographic. Moreover, the rapid evolution of technology means that traditional banks must continuously invest in innovation, which may not be feasible given their operational constraints and risk-averse cultures. The problem is further exacerbated by the lack of a cohesive digital strategy, resulting in fragmented service offerings that fail to meet modern consumer expectations. This study will examine these issues by investigating the influence of digital-only banks on the operational, strategic, and customer service aspects of traditional retail banking, using Kuda Bank as a benchmark for digital innovation (Akinola, 2025).
Objectives of the Study:
• To evaluate the competitive impact of digital-only banks on traditional retail banking operations.
• To analyze the strategic adaptations of traditional banks in response to digital-only banking models.
• To recommend strategies for traditional banks to enhance their digital transformation and competitiveness.
Research Questions:
• How have digital-only banks influenced the competitive landscape of traditional retail banking in Lagos State?
• What challenges do traditional banks face in adapting to digital banking trends?
• What strategic measures can traditional banks adopt to effectively compete with digital-only banks?
Research Hypotheses:
• H₁: The rise of digital-only banks significantly reduces the customer base of traditional retail banks.
• H₂: Traditional banks with integrated digital strategies experience higher customer retention compared to those relying solely on legacy systems.
• H₃: Strategic digital transformation initiatives can mitigate the competitive disadvantage faced by traditional retail banks.
Scope and Limitations of the Study:
The study focuses on Kuda Bank as a representative of digital-only banking and its impact on traditional retail banks in Lagos State. The research is limited to competitive strategies and customer service dynamics, with potential limitations arising from rapidly changing technology trends and proprietary data constraints.
Definitions of Terms:
• Digital-Only Banks: Financial institutions that operate entirely online without physical branch networks.
• Traditional Retail Banking: Conventional banking services provided through physical branches and legacy systems.
• Digital Transformation: The integration of digital technology into all areas of business to fundamentally change operations and deliver value to customers.
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