In the last decade, we have seen incredible advances in digital banking and payments across Africa. Foreign direct investment into the tech startup ecosystem has grown rapidly to over $5.1 billion in 2021 and Fintech firms have built innovative digital payment solutions with some achieving unicorn status. Banks have not been left out in the digitisation revolution and their customers are now spoiled with choices of mobile banking applications.
At Ecobank, our digital transformation is a key pillar in our Roadmap to Leadership strategy where we aim to quickly scale up our customer base, leveraging digital and agency banking channels. In late October 2016, we launched Ecobank Mobile, a unified mobile banking app across all 33 countries in Africa where we operate. The app includes state-of-the-art features including digital account opening, virtual card issuance, e-tokens for cardless withdrawals, QR merchant payments, domestic, regional, and international funds transfers plus a lot more.
Between 2016 and 2021, we saw the number of customers grow from 10 million to over 32 million. Last year our mobile banking users increased to 13.9 million and we processed $5 billion of transactions via this channel alone. We expanded our agency banking footprint to 109,748 Xpress Point agents who processed $3.1 billion in transactions.
A pan African digital transformation requires attention to several key drivers. For example, clear data strategy, strong customer support leveraging both human and artificial intelligence, and a shift in marketing towards digital channels. While we are still on our digital transformation journey at Ecobank, some key learnings can be highlighted:;.
The real competition is cash
Cash remains king and its reign is not going to end anytime soon. According to McKinsey & Company, the use of cash will reduce to 79% of transactions in Africa by 2025 while electronic transactions will continue to grow. Cash has hidden costs which unbanked consumers are often oblivious to; such as the need to travel longer distances to access financial services and higher lending premiums. There is also the risk of theft without any trace. A concerted effort including marketing incentives, education and consistent communication is required to get customers to see the benefits of switching away from cash and convert to digital payments.
Digital transformation needs to include agency banking solutions that enable consumers to digitise cash conveniently, conducting transactions like cash deposits and withdrawals, in the neighborhoods where they live or work. We hired a dedicated team in each country where we offer the service, to build our Xpress Point agency banking network with full responsibility for recruiting, onboarding, and training agents and ensuring that their locations were adequately branded for market visibility. These teams also need to ensure compliance with local regulations which vary from country to country. We ended 2021 with almost 110,000 agent locations across the continent.
Digitising cash alone does not resolve all payments challenges. Interoperability between banks, mobile money and Fintech wallets is crucial for the population to transact as seamlessly as possible with cash.
The future is here, and it is mobile
The GSMA estimated 495 million active subscribers to mobile services in sub–Saharan Africa in 2020. The ubiquity of mobile devices makes digital financial services inevitable. The Ecobank Mobile App aims to serve customers better from the comfort of their mobile devices. Since consumers primarily use banking apps for funds transfers, we provided options to send money locally (intra and interbank), regionally across the 33 countries where Ecobank operates via our proprietary money transfer service, Rapidtransfer, and internationally via SWIFT. Our Xpress Cash (e-token redeemable at Ecobank ATMs and agent locations) provides an option for sending money to individuals who do not have bank accounts.
Mobile apps are very versatile, however, not everyone has a smartphone or can afford a data plan, and internet penetration varies by country. When seeking to serve customers at scale in Africa, the USSD channel is quite important. Telco-led mobile money is very popular in sub-Saharan Africa with about $700 billion in transactions processed last year and this was largely built on USSD, hence the population is familiar with the channel.
Regulatory matters
It is important to liaise with regulators when digitising processes and launching innovative products and services. Local regulators must have comfort with KYC, AML/CFT, foreign currency controls and other risk factors important to the nation. While there are some common themes amongst regulators on the continent, as they seek to protect their countries and citizens from fraud and losses, the rules vary by jurisdiction.
Aligned with governments on the need to expand financial inclusion, we launched the Ecobank Xpress Account, a digital bank account opened and operated exclusively on mobile devices with no paperwork, no minimum balance requirements and zero account servicing fees. Prior to launching, we received regulatory approvals in all our countries of operation. We found that although there were different requirements, regulators generally favored the expansion of financial inclusion.. Today, there are over 11 million Xpress Account holders.
The strength of partnerships
To quickly achieve scale, the value of mutually beneficial partnerships cannot be overemphasised. Business models are evolving, service models are changing, and the importance of strategic alliances has increased such that having a dedicated partnerships function is a competitive advantage. Banks need to develop their partnering capabilities and build different types of alliances such as innovation partnerships with Fintech firms, distribution partnerships with mobile network operators and much more. For example, Ecobank partnered with MTN Ghana to offer our digital loan product, Xpress Loan to MTN Mobile Money wallet holders. We disbursed almost 3 million loans worth $150 million in the first six months of launching this service.
Building a payment ecosystem
A digital transformation is an ecosystem play. There are synergies and dependencies between individuals, MSMEs, corporations and governments. Likewise, the digitisation of these payment flows between players interacting with each other, needs to be done in concert. While creating agent locations to digitise cash and mobile applications for consumers to transact, it is important to also consider how to digitise merchant collections at scale.
The potential for offline payments is quite large with almost 100 million micro, small and medium sized enterprises on the continent. Interoperability plays a critical role for companies trying to capture the full value of this opportunity. Ecobank pioneered the introduction of an interoperable QR code in our countries of operation with acceptance on the Visa and Mastercard networks. We also integrate with local schemes such as NQR in Nigeria and our users have a choice of which scheme rails are used for a transaction. We have registered over 400,000 merchants on our EcobankPay QR solution and each of them can receive instant payments from customers in 33 African countries.
No doubt the COVID-19 pandemic accelerated the adoption of digital payments amongst consumers. Early indications are that this will continue to grow in select markets, for example according to the Nigerian Interbank Settlement System, mobile payments had risen by over 3450% within the first four months of 2022 compared to the same period in 2019. However, the introduction of taxes on electronic transactions in some countries threatens this progress as it disincentivises consumers.
Cross border payments
The need for individuals and businesses to make payments across borders within and outside of Africa continues to increase. On 1 January 2021, the African Continental Free Trade Area went into effect with countries opening their markets up and this has spurred further interest in intra Africa trade and corresponding cross border payments. Afreximbank has launched the Pan African Payment and Settlement System (PAPSS) which in collaboration with Africa’s central banks, aims to revolutionise interregional payments, bypassing a third currency when converting from one African currency to another.
One of the key reasons for the establishment of Ecobank was to reduce friction in cross-border trade between African businesses. We built a pan African switch which enables instant funds transfers across our 33 African country networks, subject to local regulation. A key product we introduced leveraging this platform is Rapidtransfer, our proprietary money transfer service which is licensed in all our countries of operation. Transfers to other African countries via our mobile banking app are powered by Rapidtransfer. We also released a standalone Rapidtransfer app to service customers who are not Ecobank account holders and would like to enjoy cost-effective remittances within Africa.
Conclusion
The digital financial services space in Africa remains dynamic and competitive. There are real problems to solve to meet the needs of individuals, businesses, and governments on the continent. As traditional banks seek to serve their customers efficiently and remain relevant to them in today’s environment, digital transformation is crucial. Those who do not disrupt themselves will be disrupted by others.
