Why banks in Africa must embrace digital transformation

By Amr Kamel, Microsoft General Manager for West, East, Central Africa and Indian Ocean Islands (WECA)

No sector or region is immune to the disruption of digital transformation. For the banking sector, pressure to incorporate new technology isn’t just coming from customer expectations, but also from the rise in competition from financial technology companies (fintechs). But the question is, are banks in Africa ready to embrace digital transformation, and are they keeping up with consumer demands?

A population ready for a new way of banking

According to the United Nations, Africa’s population is expected to surge to 2.4 billion by 2050, supplying much of the world’s labour. With this increase in economic activity, banking services will become more important than ever.

However, a 2015 KPMG report said up to 64 percent of the continent remains unbanked. This is largely due to insufficient banking infrastructure and access (especially in rural areas), the perceived high cost of banking fees, and a disconnect between banking services and customers’ needs.

Digital transformation can help drive adoption of banking services. Banks need to think about how to use technology to create new opportunities and drive customer growth. Forward-thinking banks should be adopting cloud technologies to reduce costs, analysing data to create more personalised services, and using customer-focused channels to effectively reach their customers.

Banks vs fintechs

In many cases banks are losing traction as innovative fintech start-ups overtake them. Rather than digitally transforming, they are practising digital enablement. In other words, simply using digital technologies to do what they are already doing, just slightly better.

On the other hand, fintech start-ups are rapidly introducing new customer-centric innovation. An international example of this is Stripe, which allows businesses to quickly begin accepting digital customer payments online.

Closer to home, M-PESA has been praised for increasing the number of Kenyan adults with access to formal or semi-formal financial services from 26.4 percent in 2006 to 40.5 percent by 2009. While the 2015 World Bank Findex report found that only two percent of people worldwide have a mobile money account, Sub-Saharan Africa is the global leader with 12 percent of adults having access to one.

With that said, M-PESA is a prime example of a new product tailored to the specific needs of a largely unbanked population, as opposed to attempting to adapt an existing international product aimed at a population with very different needs.

Jumping on the digital transformation bandwagon

Innovation in mobile payments and financial inclusion are among the key drivers of sustainable and profitable growth in the Sub-Saharan African banking industry.

So how, then, can banks jump on the innovation bandwagon thus far lead by fintechs?

Firstly, it must be said that traditional banks already have a significant advantage in the form of the vast amounts of customer data they have access to thanks to multiple customer touch-points and their legacy in the customer-services space. Banks should use this data to help them customise products and services to create a personalised experience and become more of a “lifestyle partner”.

If they lack the expertise or resources to take these insights and digitally transform, the most effective way is for banks to acquire or partner with a successful Fintech to expand their services without developing the underlying IT infrastructure themselves.

B2B international payments engine, Currency Cloud, is already adding value to banks globally. It embeds the payments engine directly into banks’ systems so that they can accept payments and pay suppliers and salaries in multiple currencies.

And then, of course, there are the banks that are already seeing the value of investing in their own innovation. First National Bank (FNB) in South Africa is considered one of the world’s most innovative financial institutions for implementing solutions such as a mobile banking app and web banking portal, as well as offering basic online services to customers without smart phones through SMS and WAP services.

FNB is not alone – the other major banks in the country are reported to be investing significantly to upgrade their IT platforms over the next few years.

Not a question of if, but when?

Changes in the way we do business with banks are not often initiated by the banks themselves, but rather because of technological advancements shifting customer expectations. Despite the rapid pace of evolution in the banking sector, most customer needs will remain fundamentally the same. What is set to change, and is changing already, is the role of the banking sector in meeting these needs in ways that speak to the customer and allow banks to remain competitive.

The advantages of digital transformation for African banks are significant, especially because they have the potential to leapfrog their counterparts in more developed markets, to create truly innovative, relevant solutions.

It is not as much a question of whether banks in Africa are ready to embrace digital transformation, as it is whether they can afford not to.

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