The digital bank – delivering on Africa’s potential
Digital transformation ranks alongside changing demographics, increasing customer expectations and industry consolidation as one of the major factors that will shape the future of African banking.
While cash is still dominant, the shift to digital banking increasingly is becoming the driving force across our continent. It is no secret that Africa’s high mobile phone penetration, expected to rise to 85% by 2020 (when there will be 498m smartphones in use), is enabling banks to connect with millions of new customers, while the breakneck pace of innovation from fintech start-ups shows little sign of slowing.
The high number of unbanked and underserved customers, together with still growing economies and rising demand for more sophisticated financial services, represents a significant opportunity for Africa’s banking industry to provide new and innovative ways to access financial services beyond the reach of traditional branch and ATM networks.
Digitalisation also has the potential to alleviate some of Africa’s greatest economic and structural challenges. Digital collections, such as payments for utilities, will contribute to combining enterprise with the passion and ingenuity of the individual.
If these anticipated benefits are to be fully realised, building the capacity of end users to adopt technology, as well as creating an enabling regulatory environment, will be as important as the solutions themselves.
This presents a number of challenges, including improving financial literacy, ensuring that regulation keeps pace with innovation and maintaining trust with every digital transaction, especially in the light of growing cybersecurity threats.
Nevertheless, the rapid uptake of mobile wallets indicates that African consumers more readily accept digital technologies than their Western counterparts, so they represent a key weapon in a bank’s armoury to maintain competitive advantage.
Ecobank was in the vanguard of African banks to recognise the need to harness technology to unleash the full potential of our unparalleled pan-African platform. Utilising technology to automate internal processes, improve compliance and monitor performance, we are increasing efficiency and achieving considerable cost savings.
Our current strategic plan sees us pushing ahead with the digital transformation of all of our businesses. Two key strands underpin our digital strategy: one, our ability to identify and satisfy unmet customer needs through in-house innovation; and two, our strong alliances with global fintech providers, including Mastercard, Visa and Microsoft, enabling us to provide proven banking solutions to our retail and corporate customers alike.
Our well-publicised target of reaching 100m customers may appear audacious, but our experience to date in rolling out new digital offerings, including a number of industry firsts, gives us confidence. Foremost amongst these is our Ecobank MobileApp, the first unified, multilingual app in operation in 33 countries. The launch of this service, which provides instant access to a range of banking solutions generated more than 500,000 downloads in just five months. We are now not far off 1,000,000 downloads.
Our dual aims of promoting financial inclusion while ensuring commercial viability are not mutually exclusive. In a pilot scheme, our Ghanaian microfinance subsidiary introduced a full self-service mobile banking service last year, the first of its kind in West Africa. Developed in partnership with mobile operators, this service allows mobile phone users to open an account without visiting a branch and to carry out transactions anytime, anywhere.
Over 20,000 new clients were digitally on-boarded in three months; we are now in the process of rolling this service out to our other microfinance subsidiaries. Africa’s mobile money markets are maturing beyond the automation of traditional payments, such as utility bills and airtime top-ups, to more complex financial products, such as savings, credit and insurance.
Africa’s burgeoning middle class will increase demand for more sophisticated savings and investment products. This means that the role of the branch is fast moving away from transactions to that of an advisory centre; subject to regulatory approval, we have reached agreement with insurance companies who want to leverage our network to service their customers.
The next frontier
Cross-border payments are the next frontier, where innovative technologies are challenging existing business models. Via our Rapidtransfer service, Ecobank is already facilitating instant payments between each of the 33 African countries in our network, delivering funds digitally to bank accounts or mobile wallets. Although there are numerous money transfer companies already operating in Africa, most notably Western Union and Moneygram, with annual intra-African remittances alone estimated at $12bn, there is plenty of room for growth for all.
Africa’s diaspora pays almost double the global average in charges to send money home, which means the continent is losing around $2bn annually, which could be channelled into socio-economic development. Digitising the value chain, from the sender to the receiver, will help to reduce these transaction costs, as well as addressing “Know your customer” (KYC) and security risks.
No fee money transfer apps, where operators make their money on the foreign exchange transaction, are the future of remittances to African countries. Small and local businesses represent important engines of Africa’s future growth, accounting for around a third of the continent’s GDP and employing more than half of the labour force.
The introduction of mobile money has enabled millions of micro-entrepreneurs, previously unable to access credit, to generate a transaction history, borrow money and repay it via their mobile phone. Digital credit scoring and risk management systems will lead to more informed decisions, enabling banks to de-risk and upscale their SME lending.
As part of our vision of empowering Africa’s entrepreneurs, we are committed to providing our SME clients with innovative customer service. A good example is Ecobank Masterpass QR, a new electronic payment system that allows customers to pay for goods and services using their mobile phones.
We have on-boarded 40,000 new merchants in four months, for whom MasterPass represents a more cost-effective solution than conventional POS systems. We operate in a continent where women are more active economic agents than elsewhere in the world. Our African women need access to working capital to smooth cash flow and fund investments in new equipment and technology.
This is why we regard women an especially valued customer segment and are keen to address current barriers to gender equality in access to financial services. The same applies to the youth market, with Africa’s under-25 population expected to nearly double between now and 2050 to over 450m.
They are entrepreneurial, digitally savvy and reluctant users of bank branches. With unemployment rates amongst the young likely to rise, they will increasingly look to self-employment to fulfil their ambitions, creating significant demand for SME and consumer loans via digital channels.
On the wholesale side, African banks are investing in enhanced cash management capabilities, building e-platforms, enhancing straight-through-processing capabilities and simplifying bank-to-corporate connectivity.
The success of our own corporate online banking platform, Ecobank Omni, which, in 2016, saw a 14% and 91% year-on-year growth in the number and value of transactions respectively, demonstrates our ability to grow in a demanding business environment by providing cross-border solutions that are responsive to our clients’ needs.
This applies equally to our NGO and DFI clientele, such as the Global Fund and the United Nations, for whom our pan-African cash management platform enhances aid effectiveness. We are looking to replicate this success in the area of trade, where regionalisation and the development of intra-African corridors and enterprise zones are creating exciting finance opportunities.
Again, we are investing in technology to provide a digital backbone to support the growth of the business, aiming to become Africa’s leading trade finance bank within five years. Ultimately, the success of Africa’s banking industry will be measured by its ability to generate sustainable economic growth by extending financial inclusion, increasing capital flows within and between countries and offering customers relevant and affordable products and services, designed specifically for the African experience.