Similar to other emerging markets in Asia and the Middle East, the banking industry in Africa is opting to go mobile-first, leveraging the advantage of not having to re-tool legacy telecommunication infrastructure.
Although over 800 million people across sub-Saharan Africa don’t have access to mobile internet, mobile broadband networks cover more than 70 percent of the population, signalling huge opportunities for digital banking to succeed.
Since digital accounts can reduce the cost of transactions as much as 90 percent, financial institutions could make considerable profits while still keeping expenses low for customers.
British multinational bank Standard Chartered sees the African banking market as the second-fastest growing and second-most profitable globally. Behind this trend is a retail banking sector booming with new business models emerging in response to low levels of banking penetration and heavy dependence on cash in sub-Saharan Africa.
But according to Thairu Ndungu, Deputy Managing Director at the Consolidated Bank of Ghana, the greatest push for digital banking comes from a young and tech-savvy population, who would rather use a smartphone to check their balance instead of visiting an ATM or bank branch sometimes located hundreds of miles away, particularly in rural areas.
“The biggest opportunity [for digital baking] is the young demography across Africa,” Ndungu said at the Temenos Community Forum 2019 in The Hague. “People between the age of 20 to 35, who are very technologically conscious, are looking at ways of banking like it’s social media… and as such, banks have now the opportunity to attract those kind of clients by moving more and more to the digital side of banking.”
This new profile of young customer expects to have access to services 24/7, whether that’s checking Facebook or sending an international transfer to family members abroad.
According to a report published by Swiss financial software company Temenos, although banks across Africa have historically been slow to respond to demographic and technological change, today over two-thirds of African bankers, well above the global average, say that “adapting to new demands will have the biggest impact on their businesses”.
Nevertheless, this emphasis on digital transformation does not imply killing investment in the banking physical infrastructure. It rather implies a shift from an operations-based strategy to a customer-centric one, where reaching the widest possible amount of clients and being able to offer them practical products takes prevalence over daily processes.
“A digital delivery model can bring affordable banking to many more people than a traditional physical branches-only model,” Michael Gorriz, Group Chief Information Officer of Standard Chartered Bank, told CIO Africa.
“This does not mean we are downplaying the importance of our physical network. Our branches still have a role to play, but it is moving away from being transactions-focused and instead used as a means for us to educate our clients on digital, as well as advising them on more complex wealth and investment matters.”
Pioneers of the use of mobile money
A payment system particularly popular across sub-Saharan Africa is what’s known as ‘mobile money’. Using a mobile phone, and without the need of dealing with banks or opening a bank account, people are able to receive, store, send, and spend money using their devices. It can also be used to pay for products or services at shops or restaurants in a fast and secure way.
In rural or less-developed areas, where traditional banks and financial services are not present or the service cost is out of reach for low-income households and small businesses, mobile money has emerged as a convenient and inexpensive solution.
A paper by the European Investment Bank on banking in sub-Saharan Africa reports that in 2014, the share of the population with mobile accounts reached 11 percent in the region – the highest in the world. In 2017, this area of the continent retained its position as the global leader in the use of mobile money, with 21 percent of adults in sub-Saharan Africa reporting that they had a mobile money account compared to 14 percent in 2014.
Sub-Saharan Africa remains the global leader in the use of mobile money, with most of the countries where mobile money accounts surpass the number of traditional bank accounts located there, according to financial markets commentator and author Chris Skinner.
The most famous provider of mobile money is Kenya’s M-Pesa (M for mobile and ‘pesa’ for money in Swahili). It was introduced by Safaricom, a Kenyan telecommunications company associated with Vodafone, which in 2007 launched this phone-based payment scheme where users can transform messages into cash at authorised shops and agents across the country.
Currently 22 million people in Kenya (around three quarters of the adult population) are using M-Pesa to transfer money, and the company has expanded its remit to include other African, Asian and Eastern European markets.
This digital trend is not being ignored by traditional banks in the finance industry, which after witnessing the unprecedented demand that mobile network operators are enjoying with initiatives such as mobile money, are deciding to bet on digital banking solutions to avoid becoming obsolete in the market.
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Earlier this year, Standard Chartered started rolling out the second phase of its digital-only retail bank across key African markets after the success experienced in 2018 in Côte d’Ivoire (CDI).
Now, on top of CDI, Standard Chartered customers in Uganda, Tanzania, Ghana, Kenya, Botswana, Zimbabwe and Zambia can use over 70 banking services, including opening accounts, without the need to visit a physical bank.
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“The demographics of the clients sourced to date are also good indicators that our digital proposition is truly meeting the needs of the customers,” explained Gorriz, “71 percent of our clients are under the age of 35; 96 percent of their transactions are conducted outside of our branches; the accounts are also highly transactional with usage of up to four times a week.”
Economists and analysts at the Institute of Africa and BMCE Bank of Africa agree that the promotion of digitalised services for transferring, withdrawing and depositing money and making loan applications, are essential to overcome the financial inclusion challenges present in West and Central Africa. These two regions enjoy high levels of mobile penetration, which is likely to facilitate the adoption of digital banking.
Gorriz said that Standard Chartered upcoming plans in Africa include the introduction of straight through processing and approval for asset products, building strategic alliances to offer lifestyle capabilities across shopping, travel and dining, and also boosting the bank’s payment capabilities with P2P and PayKey (social banking) later this year.
“We are also progressing with initiatives that would help our business banking clients with specific product offerings that would help their day to day business needs,” he added.
If the digitalisation of banking services continues its current trajectory in sub-Saharan Africa, countries in the continent where banking penetration rates are among the lowest in the world will most likely benefit from an improved and more widespread access to banking services, advancing financial inclusion among rural and underbanked populations.
Digital banking might also present an opportunity for financial institutions which in the past have been unable to attract these markets.
Credit: Cristina Lago, CIO.com