Future of banking in Africa
The future of banking across Africa is digital platforms. In this post, I will try to examine how various disruptive trends Africans are seeing today in areas such as artificial intelligence, blockchain technology, collaborative ecosystems, cryptocurrencies, demographics, and customer experience are coming together to influence the future of banking.This is because more economic shocks are widely anticipated by both financial institutions as well as corporations, but thanks to technology and emerging rivals, future of the continent’s financial industry is going to see transformation on how they operate. Successful banks will better engage, be more relevant and offer more customised service to their clients, and they will better harness technology to be more productive.Africa’s financial sector expects more economic shocks which is their greatest single concern in the coming years.Other issues concerning them include delivering sustainable returns to shareholders and keeping pace with tech developments.Also environmental, social and corporate governance issues are the frontline of their biggest concern over the coming years. Over the next three to five years, two main methods of servicing customer will emerge and that include high touch personalised service including for institutional clients, and indirect self-service for the wider market, with the latter enabled by technology which is both existing and yet to be developed.Technology also looms as a major concern, as well as an opportunity, for many in Africa’s finance industry. The sector realises it needs to harness technology for product delivery and distribution, as well as using data better.Another major industry concern is the impact of rising competition from IT players expanding into the financial sector like telecommunication operators, a good example being Safaricom in Kenya. In countries like South Africa and Egypt, it is not just technology that will be the ultimate disruptor. Rather, it is the engagement and relevance models that new providers offer that differentiates them from traditional financial institutions. As such, improving engagement will become more of a focus over the next few years and key to long-term success for all organisations.The main product development focus for financial institutions over the next few years is expected to be on serving the continent’s growing population and also developing products that provide income streams for retirees.A huge number of institutions expect it to be a growth area for their organisation between going forward. This reflects the demographics of the continent’s ageing population.
As an increasing number of Africans near retirement their income stream will become a priority for them and more retirees are expected to consider their assets at retirement as an investment pool that can generate ongoing income, on its own or as a supplement to any government-funded pension. Many believed that equity and retail investment products are expected to have less focus in the future and, surprisingly, residential investment property lending and small business lending is towards the bottom of the ranking of where financial institutions expect growth to come from.Another area of impactful change identified is the increasing importance of environmental, social and governance issues.Most industry insiders expect the three to be the top concern for their business in the future, while others expect it to significantly increase in importance. Accordingly, African financial institutions and their corporate clients alike will have to better consider environmental, social and governance elements, not just to meet the market, but also because it is good business risk analysis and management. The social and governance aspects of a business can have a dire, if not more so, impacts as environmental ones. This will also have implications for how financial institutions connect with and care for the communities that they operate in. How Africa financial institutions and companies adapt to what the future brings and how they remain relevant will be critical and some, large and small, entities will fail to adapt to these changes fast enough. The best solution to future-proofing a business or a financial institution appears to be having both a leadership and workforce that have a continuing sense of purpose in serving client needs, so flexible enough to meet these needs and are able to develop strong client relationships through much better engagement with clients of all types using the latest technology enablers.On the other part, many areas within banking and capital markets are experiencing serious existential threats. As the industry is being transformed, there is uncertainty around what the future of the banking industry will look like. Africa banking industry is going to look a lot different in five years time. Many traditional players now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future.
Beyond the rhetoric surrounding the topic of disruption in banking, some very fundamental challenges face the industry today.Many African banks and capital markets firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organisational complexity. There is an increasing realisation that they do not or cannot excel at every activity, and that it may be easier and cheaper to outsource noncore activities. In the new organisational paradigm, maintaining an organisational identity and creating a cohesive culture and employee loyalty when most of the talent is not in-house will be an entirely new challenge. In your blogger’s view, there’s need for African banks to necessitate greater cultural sensitivity and the willingness to be more flexible with work protocols.When it comes to brands environment in Africa, conveying a consistent brand experience will become more challenging as technology advances. Africa marketeers will be forced to be more creative in the design of service experiences. While banks will have less control over how customers experience the brand, they will, however, have access to more detailed and real-time information at an individual customer level.These new data will vastly expand the ability to tailor offerings and experiences.As someone who is directly involved in developing FinTech technology, I believe trusted intermediaries will be fundamentally necessary to facilitating payment transactions in Africa. As transactions became more complex, so do the importance of intermediaries in the payments but thanks to blockchain technologies is disrupting that order. Also, the growth of mobile payments and the push toward real-time payments are forcing traditional banks in Africa to reexamine their role in the payment ecosystem. The threat of disintermediation in the payments industry is both here and irreversible no matter what traditional banks try to do.I can unequivocally say that Africa’s payment ecosystem will look vastly different as a result of continuing technological advances in multiple domains. However, I believe blockchain innovations will be the most transformative, and the number of real-life applications of blockchain applied to payments, beyond digital currencies, will emerge in Africa going forward. The behaviour of banking customers in Africa has changed significantly, especially your blogger’s generation Y also known as millennials, who are more transaction oriented and less influenced by traditional brands and are more tech-savvy consumer base whose expectations for immediate results are at odds with what banks can deliver with their legacy systems. In my view, taking advantage of these developments, marketplace lenders like M-Shwari services in Kenya are beginning to pose a challenge to traditional players, ironically, like the M-Shwari owners, Commercial Bank of Africa.