The Future of African Banks in the Cloud
By Jananda Moothoo, Country General Manager, IBM Mauritius
Banks are the nervous systems of any economy. As economic intermediaries in the commercial space, they represent the health and wealth of nations. Across sub-Sahara Africa as well as in the Indian Ocean Island nations of Mauritius and Madagascar for instance, banks have long been amongst the largest and most sophisticated consumers of technology.
Examples of technology trend setters across the continent abound, namely, Mauritius Commercial Bank (MCB), Banco Mais in Mozambique, Banco Nacional de Angola, Kenya-based Sidian Bank, Ghana’s Fidelity Bank, Nigeria’s First Bank Group and the pan-African Ecobank Group, just to list a few. These financial institutions have one thing in common: the growing relevance of their franchise to their respective target markets and their quest for excellent customer service delivery driven by modern business management principles and advanced technology systems.
To support their large and secure networks, banks generally (not only banks in Africa) employ an army of programmers, analysts and engineers to write code and maintain their hardware and software programs. This technology management model is however increasingly a hindrance rather an advantage, especially as they need to create and deploy new products and services in today’s fast-changing world of borderless financial transactions. Increasingly, financial services firm will be driven by secure mobile, cloud-based solutions and cognitive systems. And as they rely on cloud and cognitive solutions to fuel their digital transformation goals, they will invariably meet their market share and social impact goals, even as they help to reduce Africa’s share of the world’s unbaked population.
The positive news for Africa’s banks is that they are relatively unfettered by legacy fixed-premise IT infrastructure, while experiencing substantial and fast-growing market share – for now. However nimble players from across Africa and outside it are already introducing cloud-based solutions that offer integrated risk management, predictive real-time analytics, core banking transformation, mobile money systems, and more.
The African financial services industry can play to its unique strengths by leap-frogging competitors – including rivalries from global technology firms – with a “cloud-first” approach to services and technology innovation. But they must act now if they’re to provide the flexible, mobile, and pervasive transaction touch-points that will win the hearts and minds of customers.
Competing in the Cloud: a window for first-movers
Banks in Africa have a unique greenfield opportunity at their disposal. Most of them are only now starting to ramp up their investments in IT infrastructure: they can, and should, skip the traditional servers and networks for far more flexible cloud-based architectures. A cloud-first approach helps banks avoid getting fixated on hardware ROI, and start focusing on how to establish and maintain access to the customer. And cloud-based services can be scaled, tailored, and rolled out to meet customers’ preferences in real time – or even anticipate them.
So, why is persistent, pervasive customer access suddenly so important? The mobile device, that’s why.
As mobile transaction values in Africa passed the US$160bn mark in 2016, African banks must now focus and build their technology systems and go-to market strategies around the mobile devices ecosystem. The cloud, as most Chief Information Officers (CIOs) will know, is a fundamental part of mobile service delivery: it not only powers the back-end processes of any mobile app, but stores the rich customer data which will increasingly inform banking services innovation. And if Africa’s financial industry can master mobile financial services, even greater opportunity awaits beyond Africa’s shores – namely the over 3 billion mobile devices currently in play worldwide.
Global opportunity does not come without global competition. Consumer technology giants and service providers – like Google, Amazon, and Samsung – have major technical advantages when it comes to accessing customers via mobile and mining their data. The cloud removes entry-level barriers for smaller African banks, too: just take Capitec’s meteoric rise to unseat incumbent Nedbank as one of South Africa’s “Big 5” banks. Four competitors last year could well be twenty the next – and market share will only come to those banks nimble enough to keep up with the customer.
Enabling “customer activation”
Over the next two to three years, banks across Africa must start shifting from customer-centricity to what IBM refers to as “customer activated” business models. They need to develop products and services that intuitively fit with customers’ preference of touch-points and access patterns – to the point that they can anticipate user trends by analyzing volumes of transactional and behavioral data. Any bank’s success will hinge on two factors: how accurately they can pinpoint these trends, and how quickly they can roll out and scale new services tailored to them.
Cloud infrastructure underpins efforts in both respects: it offers the only cost-effective platform for analyzing so-called “Big Data”, and allows banks to provision, test, and deploy service innovations far faster than traditional IT systems. At one major multinational bank, it took up to 45 days to provision their 20,000 developers to code and test a new application. An IBM private cloud architecture, offering developers shared resources and a common platform from the get-go of any project, helped that bank cut that time down to just 20 minutes.
If African banks are to take full advantage of the cloud’s agility, however, they need to dispel the unfounded fears that often hinder its application. For the financial services industry, the most critical security concerns revolve around customer data, not the cloud-based operating environments or touch-points via which transactions take place. Hybrid Cloud is the new norm. IDC predicts that over 80% of enterprise IT organizations will commit to hybrid cloud architectures by the end of 2017.
More and more banks globally have started using hybrid cloud effectively by applying the most stringent security measures to data instead of the platform. And the global financial services industry is increasingly acknowledging that data sovereignty has become less relevant in a world where our banking activities regularly make international individuals of all of us.
As recent surveys show that 9 in every 10 Africans say they trust cloud environments, it would be safe to conclude that the future of banking on the African continent will be in the cloud.