The continued growth of mobile phone usage provides a huge opportunity for banks to embrace a digital-first approach for young populations – if they make the right moves now, writes Roy Zakka.
The appetite for innovation in Africa is huge. Digital adoption is rapid and nowhere is this being seen more than in the banking sector.
Around half of all banks in Africa have stated an ambition to become digital-first banks, so the banking landscape on the continent is set to change irrevocably over the coming years. I believe that Africa’s willingness to embrace new technologies originates from a strong entrepreneurial spirit, particularly in sub-Saharan Africa.
Challenges remain in Africa, not least in terms of paper-based processes that are still highly prevalent, but the ability of mobile banking to liberate customers and allow them to do business on their own terms is seen as very appealing in a continent which features a large young population base (60% of the African population is under the age of 25).
Such a high consumer interest in digital presents the banking industry in Africa with a major challenge – but also opportunity. Banks are quickly waking up to the fact that they cannot afford to ignore the growth of digital or they risk being left behind.
Banking in Africa is at a tipping point and ready for a major leapfrog in terms of digital technology and customer interaction. Technological infrastructure and adoption is now at a level that is accelerating the digital switch in Africa.
This change has been driven by really strong customer demand, with customers looking to bank primarily through the mobile channel. We’re also seeing a real desire by banks to transform their operational structures and processes and at the same time provide a better service, cut costs and increase revenues.
Importantly, African banks are waking up to the fact that partnering with Fintech companies is a logical step in speeding up their move to digital, with the latest research indicating that 80% of African banks now see fintech and challenger banks as partners for growth, with just 8% deciding not to work with them because they regard them as competitors.
- What’s Driving Africa’s Digital Transformation?
The root of the digital banking push that’s picking up the pace across Africa is the proliferation of mobile phones.
Around half of the population in Sub-Saharan Africa now have a mobile phone subscription. Currently, just 1 in 6 of these users have access to 4G, but that number is forecast to double to 28% of the population by 2025. Nigeria has roughly 170 million mobile phone users.
However, only 10 to 20 percent of the population uses smartphones while the rest rely on more traditional mobile phones.
The Covid pandemic has ushered in a rising demand for digital services and, as economies recover, mobile technology is set to become integral to the way people live and to how businesses function.
When it comes to banking, digital solutions offer the potential for enthusiastic mobile adopters to bypass off-putting traditional banking processes – such as rigid and onerous account creation requirements and the need to visit a branch – in order to access financial services and make frictionless regional and international payments.
- Overcoming Africa’s Banking Challenges
While there is plenty of cause for celebration, there are concerns too that progress is not being shared equally in Africa. Banks are often accused of focusing too heavily on their wealthier customers, with only 41% of Africans considered to be financially included, according to research by Orange Business Services.
Part of the problem is that mobile technology is evolving at two speeds. Sometimes it can be easier for banks to extend services to smartphone users, but there are also a lot of customers who still rely on legacy feature phones. The fear is that digital banking will leave those non-smartphone users behind, once again excluding customers who have long suffered from being unbanked.
I believe that a dual approach is required to negate the threat of a two-tier banking system in Africa.
Banking via USSD sounds very basic, but it’s much more sophisticated than might be expected. Through USSD, users can check their balance, make payments, block cards, and send or receive money from their handset. Dual systems enabled traditional mobile phone users and smartphone users, supporting the transition across Africa to smartphones over the next few years
- Services in Action
An example of how these types of services are helping to transform the digital progress of Africa’s banks is our successful partnership with United Bank for Africa in Nigeria – a bank that serves 22 million customers across 20 countries.
By delivering a feature-rich smartphone package and fully functioning USSD solution, we were able to build out an ecosystem that distributed a variety of services through different channels for UBA customers. This gave the bank’s customers the ability to access both traditional and neobank services through a single platform.
With demand for digital banking rising (mobile transactions in Nigeria alone grew by 83% in 2020), banks in Africa find themselves in a race to position themselves as innovative and frictionless and to secure market share.
In October this year, Nigeria became the first African nation to launch a digital currency – the eNaira – a move to expand access to banking, enable more remittances and grow the economy by billions of dollars. In response to this government initiative, Layer quickly deployed the eNaira wallet for Zenith, and because the Layer platform is built on Open architecture, the UBA team was able to add eNaira capability in record time.
Nigeria’s young, tech-savvy population has eagerly adopted digital currencies. Cryptocurrency use has grown quickly despite a Central Bank ban in February on banks and financial institutions dealing in or facilitating transactions in them.
Banks such as UBA are realising that innovation doesn’t always require a complex solution. Instead, what they are finding is a suite of intuitive and easy-to- rollout solutions that can eliminate problems and frustrations for customers and provide them with a modern banking service that is fit-for-purpose in the modern world.
NB: Roy Zakka is CEO and Co-founder of Layer.
