The Digital Banking Report is an initiative by African Banker magazine and Backbase that aims to provide a clear roadmap for digital transformation across the banking sector in Africa. The speed at which banks are embracing the potential offered by technological change varies considerably but there appears to be only one direction of travel. It is inconceivable to imagine a bank in a decade’s time where the lion’s share of transactions are not carried out on a digital platform, with time and money savings for both the bank and customer involved.
The number of Africans with bank accounts increased from 170m in 2012 to nearly 300m in 2017 and is forecast to reach 450m by 2022, according to consultants McKinsey. However, most Africans do not have access to traditional banks and the number of bank branches has not changed on the continent over the past five years, so access to physical branches is not improving.
Mobile and online banking are the solutions to these problems because they are cheaper for banks to provide and reach more potential customers. Digital services are helping to fill the huge gaps in inclusion by providing access where it is most needed. While 80% of African banks now have mobile apps, only 36% of them said that the majority of their customers had tried digital banking. Yet most banks are investing in the architecture for the digital transformation now and should benefit from higher customer numbers in the longer term. The boom in mobile money in East Africa in particular, where there are 102m active mobile money users, highlights the technology’s potential. As we discuss on page 6 of the Digital Banking Report, growing access to smartphones is driving uptake.
The banking sector’s revenues in Africa as a whole are expected to increase from $86bn in 2017 to $129bn in 2022 but 68% of this income comes from just five markets: South Africa, Nigeria, Egypt, Angola and Morocco. As our interviews with Angolan bank executives revealed, state regulation – or perhaps deregulation – may be needed in the phone and telecoms markets to bring both handsets and services within the economic reach of far more people in other countries. Nevertheless, the growing prevalence of cheaper smartphones and feature phones across Africa should allow more people to open bank accounts.
Africa is the second largest banking market in the world today in terms of growth and profitability, generating twice the rates of return of other regions, according to a study published in 2018 by McKinsey. This is partly because of the uptake of digital technology, while the banking sector in most other parts of the world is facing poor performance and sluggish growth.
The Covid-19 pandemic has speeded up the pace of the digital transformation in Africa, possibly by a couple of years, as many people have been forced to try digital services for the first time. Some banks have suspended digital transaction charges to encourage the process, but the most popular reasons given by banks for promoting digital services are to provide a better service and to increase bank revenues.
The crisis has highlighted another benefit of digitisation, in that it has allowed bank staff to work from home. There is a very real prospect that home working could become a long-term feature of the banking industry and many other sectors, particularly if the crisis is prolonged. It suits some workers better, as they save time commuting and so can devote more time to their families, although others prefer to work in an office environment. It seems likely that many will work from home part of the time, visiting their office when necessary.
A wide variety of research methods were used to compile this report. We used all the knowledge accrued in researching and writing many issues of African Banker to produce the State of the Sector section in the report, which provides the context within which the digital banking revolution is taking place. It explains why banks have to embrace the technology on offer, putting digital platforms at the heart of their corporate strategies, rather than something ringfenced from their wider operations.
Anxious to undertake some primary research to provide hard data to inform our report, we completed a detailed survey of the current state of play and plans for development of African banks through a detailed survey, the results of which highlight general trends in how African banks are developing their own client-first digital transformation strategies.
One bank was selected for particularly intensive examination in the report Case Study section. We chose to focus on Mauritius Commercial Bank because of the way that it based its entire support for small and medium sized enterprises (SMEs) on the launch of its new SME banking app, JuicePro. SMEs are widely regarded as vital to long-term economic development in Africa but have often been overlooked by African banks keen to focus on high net worth individuals and big corporations.
In the report, we present the results of our interviews with chief executives, managing directors, chief technology officers, digital directors and heads of software development at some of Africa’s biggest banks. There was a surprising level of agreement among them on the importance of digital development and on which services it was most important to promote.
Finally, we draw all the conclusions from the various sections together to present our findings. Throughout the entire process, we interviewed, surveyed and consulted banks in all parts of Sub-Saharan Africa to ensure that our analysis was truly representative and Pan-African in nature.