Covid accelerates Africa’s digital revolution

Amid the economic panic and falling trade volumes, it is easy to overlook the structural changes that are taking place in the African banking sector and these are far from negative.

The pandemic and its associated lockdowns have highlighted the take-up of mobile banking services and other digital platforms. Indeed, it is possible that the pandemic has speeded up the adoption of digital banking technology and services by a couple of years. 

Across the continent, it appears that traditional banks have lost out to mobile money providers in terms of payment fees because of lockdown restrictions but also because of fears over infection via physical transactions. Customers themselves simply preferred not to handle cash where possible.

A recent survey of Kenyan banks reveals more rapid uptake of all digital platforms, even in a country where they were already as far embedded as Kenya – a market in which Safaricom’s M-Pesa had 20.5m users at the start of 2021. The trend was given a big boost by the decision of Kenyan banks and telecoms operators to lift mobile transaction charges during the course of the pandemic. 

The CBK increased mobile money transaction limits and suspended all charges on moving money between bank accounts and mobile money wallets, while M-Pesa announced at the start of the pandemic that it would waive all fees on transactions of less than KSh1,000. Uganda’s biggest commercial lender, Stanbic Bank, has also encouraged customers to switch to its digital banking platforms by suspending digital transaction charges.

CBK survey data showed that there have been fewer transactions overall during the pandemic, but those that did take place occurred more often online or on mobile platforms and less through more traditional forms of transaction. 

While there was a 44% rise in the volume of mobile money transactions in the nine months to November 2020, the number of card payments declined by 8%. The value of mobile transactions totalled KSh5.21trn ($47bn) for Kenya in the whole of 2020. 

Although Kenya is likely to have led the way in this regard, the same trend has undoubtedly occurred across the continent as a whole. Where bank branches are closed for many weeks at a time, customers have little choice but to embrace new technologies.

Research by digital banking developer Backbase shows that lockdown closures were particularly effective at persuading those customers who were previously unwilling to adopt new technology, to finally access digital banking services for the first time. 

Focusing on the positives

Taken as a whole, Sub-Saharan Africa is the second fastest-growing, and the second most profitable banking market in the world, partly because of the rapid adoption of new technology. 

Although most customers have yet to try banking apps, 80% of African banks now offer them and almost all the rest plan to roll them out in the near future. 

Just 12% of African banks regard themselves as digital-first banks, although another 48% say they are transitioning towards becoming digital-first banks, so the landscape of the African banking industry may look very different in the near future. 

Backbase’s research showed just how far African banks have embraced digital technology. With the suspension of digital transaction charges encouraging the process, the most popular reasons given by banks for promoting digital services are to provide a better service and to increase bank revenues. 

Banks that persuade more customers into the digital space are able to cut costs. Digitisation reduces the cost of back office functions through automation. An incredible 80% of African banks now see fintech and challenger banks as partners for growth or directly invest in them, with just 8% deciding not to work with them because they regard them as competitors. This suggests that cooperation and integration are more likely than banks adopting a defensive position. 

The number of physical bank branches used to be an indication of the penetration of banking services within any particular society, but that link has been eroded and there is little doubt that it will be broken in the longer term. The process is being speeded up by the Covid-19 pandemic, which has encouraged more people to bank online or via mobile phone because of branch lockdown closures. Banks have also supported this trend in order to continue providing much-needed banking services. 

Some fear that the temporary closure of branches could encourage banks to close them permanently. There is obviously a balance to be struck between ensuring that customers are still able to access services and driving a wholesale switch to digital banking that will leave some customers behind. 

Yet there seems little doubt that the crisis will accelerate the transformation, not least in the minds of those bank executives who had previously been more firmly wedded to traditional bank strategies. 

It will be interesting to see how banks are able to integrate physical and digital banking provision, including by retaining some face-to-face contact when it is really needed.

Digital banking services are generally very easy to use for anyone with experience of any type of online or mobile service and so it will be interesting to see how much of a long-term increase in digital banking users is generated. Once customers have discovered how easy they are to use, they may not want to revert to visiting their local branch.

Changing working practices

Lockdown measures have even brought about cultural changes that could cut banking costs in the long term. Many more now plan to offer employees the opportunity to work from home, even once the pandemic is over. This can allow staff the ability to integrate work with caring responsibilities, for instance, while reducing office overheads for the banks themselves.

Andrew Baker, the Chief Technology Officer of Absa Group, said: “In fact, productivity probably went up as a result of Covid. It pushed our strategy… all we were doing was draining the swamp.” 

He said that there have been some efficiency gains as people no longer waste time driving between meetings and teams are given more freedom to organise themselves.

Christine Wu, Absa’s Managing Executive for Customer Value Management, said that Covid had forced the bank to accelerate its digitisation programme. She said that the bank had realised how rarely customers really needed to go into a branch, as the crisis “highlighted how stupid some of those business rules were and the important imperative was to remove them and completely digitise the process”. 

The bank plans to integrate its online and offline operations in 2021, to make sure that its services are as digital as they can be, but human empathy is available when required. 

Rapid technological and social change often occurs during times of crisis, such as during wartime. So while the bank industry is under pressure now, it is entirely plausible that it will benefit from its current difficult challenges. Yet this does not mean that all banks will prosper, as those that fail to change may also fail to compete.