Digital Banking is the new trend across Africa as Financial Institutions compete for the Continent’s Young and Tech-Savvy
Financial institutions in Africa are evolving at a very fast pace with the expansion of digital banking platforms targeted at the growing population of smart and tech-savvy youths. With services such as digital wallets, branchless banking, and financial transactions on mobile gadgets, customers of these institutions are enjoying a transformation never seen before on the continent.
For financial analysts, bankers, and other experts, this has led to some much-needed confidence within the industry. While speaking about Africa’s move toward digital banking, CEO of EQIBank, Jason Blick, said “Africa is benefiting from an unexpected advantage: its historically modest telco infrastructure”. He continued, “It’s a perfect storm of opportunity for forward-thinking digital banks, many of whom see Africa as the world’s No. 2 banking market in terms of growth and profitability. Africa gives us the opportunity to help address some of the continent’s historic economic challenges while also driving expansion in our digital-banking products and services.” EQIBank is a global digital-only bank serving both private and corporate clients.
The increasing acceptance of digital banking platforms across the industry is all-encompassing with digital startups and existing banks all jostling for space.
For instance, one institution that is making its way through the digital transformation is Standard Chartered Bank which launched its first fully digital bank in Côte d’Ivoire in 2018, according to Jaydeep Gupta, Chartered Bank’s Africa and Middle East head of Retail Banking. This year, the bank has rolled out more digital-only banks across Africa covering Tanzania, Botswana, Uganda, Zimbabwe, Ghana, Zambia, and Kenya. And there’s more to come.
Gupta said; “We will launch the digital bank in Nigeria” before year-end, says Gupta, “and we are keen to maintain our momentum and expand across the region with the digital-bank solution where it is needed most.”
The mobile application from Standard Chartered allows customers access to a range of banking solutions without needing to visit a physical branch. “Demand for digital banking services is coming directly from consumers,” says Gupta, “particularly in sub-Saharan Africa, because of a high mobile penetration and a digitally savvy, young population” who are hungry for digital experiences across sectors.
Another institution, WEMA Bank, a 75-year-old Nigerian bank, launched Nigeria’s first fully digital bank in 2018, offering branchless customer service. Ecobank, another front-runner, has successfully rolled out its digital banking platform known as Xpress, a platform that garnered 3 million customers all over Africa within six months.
Africa’s emerging digital models consist of fintechs, start-ups, and Telcos trying to make it into banking, according to strategy company, McKinsey. These include South Africa-based banks Tyme Bank and Bank Zero. Patrick Motsepe’s African Rainbow Capital controls Tyme Bank which became the first fully digital bank in South Africa after launching branchless operations in August. It runs mobile and online platforms in addition to kiosks inside retail outlets like Boxer stores and Pick n Pay supermarkets, which provide a kind of physical presence to customers. To open an account, customers need an ID number and a South African mobile-network number that will prompt some additional questions and confirmations.
According to McKinsey, the main business driver across these digital banking platforms is a plan to reduce costs through the use of end-to-end automation and getting rid of branches. The strategy experts also point to “increased cross-sell through advanced analytics to identify relevant offerings for customers that they can purchase directly on digital channels” as a significant business driver.
Investing in Youth
Chijioke Dozie, CEO and co-founder of the Lagos-based financial services company, Carbon, affirms that South Africa, Kenya, and Nigeria have remarkably high prospects for digital banking, especially among the youth.
According to Dozie, “Many people under 30 have largely been under served by the traditional banking system. For many of these consumers, financial inclusion is about having access to the necessary advisory and business management services to enable their businesses to thrive and expand anywhere. Africa is a mobile-first market—and in some cases mobile-only—and most people are used to accessing a wide range of services primarily via their mobile phones. Adding banking to this range of services will not be too much of a challenge.”
As well as extensive smartphone use, sub-Saharan Africa is a key market for mobile money. In 2018, the region recorded a 14% yearly growth of registered mobile wallets to 396 million, according to GSMA, a trade group. Telecoms companies are seizing the opportunity to launch digital banking services in places like Nigeria, Tanzania, Zimbabwe, and Kenya, either in collaboration with banks or as part of mobile money solutions connected to banks and available through mobile phones.
McKinsey reports that more than 40% of banking users in Africa prefer digital channels for their financial requirements. The preference is stronger at Standard Chartered Bank, where about 96% of its digital banking customers “prefer to transact outside the physical branch network.” Standard Chartered’s elite customers follow the same trend. “Today, half of our Priority Banking clients use our digital channels, and close to 40% of our Private Banking clients use their mobiles to manage their banking needs,” says Gupta. “We fully expect these numbers to grow as we continue to introduce new features to bring greater ease and convenience for our clients. Additionally, our digital banks in Africa are serving over 85,000 new registered users.”
Zimbabwe’s mobile money platform – EcoCash, now provides a service where diaspora remittances are converted into local currency. This is done in collaboration with money-transfer partners like Western Union. EcoCash also offers cross-digital financial services such as payments, microloans, and transfers with Steward Bank and other partner banks. EcoCash has relied heavily on Steward Bank, its sister bank, for a lot of support with both banks having left the aegis of Econet Wireless, the mobile telecoms giant.
McKinsey warns that despite the early success recorded with digital-only banking platforms, some countries are more open to change than others. For instance, some North African countries like Morocco and Tunisia, with deep-rooted banking infrastructure, might not be as ambitious for branchless services as low-banking-penetration countries such as Egypt.
Creating the Perfect Environment
Confidence in financial innovations can only be increased by regulations that are better and more consistent. According to a World Bank report, governments in sub-Saharan African countries have started to develop regulatory policies in response to the advances in digital banking and financial services. They are fine-tuning current legal and regulatory frameworks to tackle challenges relating to Anti-Money Laundering and Combating the Financing of Terrorism methods, consumer protection, competition, and data privacy issues. However, the World Bank warns that a lot still needs to be done.
Despite facing limitations such as regulatory hold backs, high data costs, and the dearth of skilled technologists to drive the deployment of the platforms, digital banks will introduce the much-needed competition into banking in Africa, and this should help cut fees, says Joanne Kumire, a market research analyst at 11:FS, a fintech consultancy.
According to a World Bank spokesperson, “In addition to creating an enabling legal and regulatory environment, many developing economies, including in the Africa region, can play an active role in facilitating digital financial services by supporting the development of critical financial infrastructure that would support the interoperability of payment instruments or integration of digital data into credit reporting systems.”
Unlocking the prospects of digital banking in Africa depends largely on how solutions and platforms are tailored to suit the local markets and their specific features, especially incessant power outages. However, the fast-paced adoption of these services so far suggests that there is a high level of bullishness that the industry will maintain its current momentum.