By Darrel Orsmond
According to the United Nations, Africa’s population is expected to surge to 2.4 billion by 2050. Due to Africa’s largely youthful population and the aging population in most developed countries, forecasters expect that much of the world’s labour will be supplied by the African continent. This increase in economic activity is expected to drastically increase the uptake in banking services among African workers.
However, despite encouraging economic growth, most of Africa remains unbanked due to insufficient banking infrastructure, the perceived high cost of banking fees, and a disconnect between banking services and the needs of the customers they are meant to meet.
In Sub-Saharan Africa, bank branches are generally concentrated in high-population urban areas. Despite this, the European Investment Bank notes that these banks are typically high-cost operations that result in high service fees and a wide spread of interest rates. A 2014 World Bank paper showed that the average per-capita income in Sub-Saharan Africa is a mere US$762. Therefore banking products and services need to be carefully tailored to suit a diverse set of customer needs or risk losing traction in a market currently being disrupted by innovative start-ups.
These upstart fintech companies are introducing new customer-centric innovation at a pace unmatched by the formal, traditional banking sector. While this clearly represents a threat to the incumbent banks, they should be wary of focusing on maintaining their traditional advantages and rather focus on utilising technology to create new opportunities across the entire value chain.
The ability to embrace disruptive fintech products and services will allow banks to ride the wave of uncertainty and emerge strong and future fit to change in any meaningful way. What is likely to change, however, is the role of the banking sector in providing such services, both for consumers as well as corporate clients.
Smart, forward-thinking banks will embrace Digital Transformation by adopting cloud technologies to reduce costs, analysing data to create more personalized services, and using customer-focused channels such as mobile and social to deploy services.
Despite the threat posed by fintech start-ups, traditional banks have an enormous advantage, and that is the vast amounts of customer data created by multiple customer touch-points. Banks should use this data to customize products and services at an individual level to deliver a truly personalized experience. By mining this customer data, banks can start moving beyond pure banking into more of a ‘lifestyle partner’ role, something the insurance industry has achieved with tremendous success.
For African banks, the advantages of Digital Transformation are immense. Considering that many banks on the continent are only at early stages of evolving their core IT enterprise, there is an opportunity for them to leapfrog their peers from more developed markets.
According to IDC, an enterprise approach to Digital Transformation presents a better option for banks as it prepares them to fundamentally change the way it uses technology and allows them to build a technology platform that can meet present-day and as-yet unknown future business challenges.
But for that to be truly effective, leadership structures driving Digital Transformation need to focus on three key aspects. First, have a strong commitment at an executive level, encouraging collaboration. Second, build a solid digital core to the business that includes in-depth analytics and enable agile technologies; and third is openness to partner and collaborate with other players in the financial and banking ecosystem, including fintech start-ups and other disruptors.
African banks have a golden opportunity to adopt Digital Transformation and revolutionise the way they offer banking services by using technology to build customer-centric solutions.
More importantly, by partnering with a skilled Digital Transformation leader, banks can build market-leading tech platforms that enable rapid deployment of new services and products tailored to the unique needs of the African market.
The Writer is Head of Financial Services at SAP Africa