Banks across Africa and the rest of the world are facing a period of immense change where failure to digitise and adopt new ways of thinking will eventually lead to a loss of customers and relevance.
For many banks, rapid technological innovation leading to a shakeup of the banking industry has forced otherwise hesitant brick and mortar lenders to fundamentally reevaluate how they do business.
With one of the least developed banking industries in the world, Africa sits at the forefront of this tension between innovation and inertia.
“The disruption that banks are facing is extremely scary for them,” says Yves Eonnet, chairman and cofounder of Skaleet, a Paris-based company that provides core banking services to financial institutions in Africa and Europe.
“But it is a disruption that every bank in the world will have to face”.
Formerly known as TagPay, Skaleet helps banks to digitise by offering them core banking solutions and key services like payments platforms.
By adopting Skaleet’s digital wallets, which connect with a limitless number of payments channels and external utility providers, banks can offer an innovate service to their customers and monetise the revenue stream.
In theory, the size of the market is unlimited – relative only to the number of banks, Eonnet says.
Skaleet is currently working with 22 financial institutions in West and Central Africa, and it is looking at the Maghreb and East Africa as key areas of growth.
But the relative infancy of the sector makes it hard to quantify the true potential of the industry.
“You have to see our business as an emerging business so there is no market size,” he says.
“You cannot measure it. Every bank should be interested in looking at our technology or the technology of our competitors, but this is really early stages. We are still in the early adopter or visionary stages”.
Limits to market size
That said, the current limits to the market include hesitancy and readiness around adopting new technology – though this will change as the services are more widely understood and adopted.
Eonnet says that some banks in Africa appreciate the need to digitise while other banks try to resist the change and continue with business as normal.
“The problem we are facing today is the fact that historically banks didn’t have to change. They didn’t adapt to the evolution of technology and consumer demand” he says.
“But now they are facing threats from telecom operators and they will have to change otherwise they will lose part of their value chain. Still some banks run away from the problem rather than address it.”
The chairman says that there is no way of predicting which banks are ready to embrace change and which banks aren’t, but leadership and executive vision is key.
He adds that a large part of his workload involves explaining to banks the need and benefit of adopting digital services.
A successful partnership with one bank in a country will usually lead to a windfall of projects where more and more financial institutions become interested in Skaleet’s services.
Another limit to the market size is that some banks will prefer to create their own technology, rather than buy the software from a sub-contractor.
Eonnet says that this may end up being more costly and less secure than if the banks used a trusted third party to develop the technology.
“If they develop their own platform, I believe they are more exposed to hacking than otherwise,” he says.
“The risk is never net zero but we are experts in the field and we have infrastructure that is pretty impressive”.
Many banks also think that the costs of incorporating external software is much higher than the reality, Eonnet adds.
Despite the nascent state of Africa’s banking industry, Skaleet’s cofounder says that there is no difference between the length of time taken to agree contracts with African banks compared to European banks.
“I have customers in Europe who only sign after three years of negotiations and others after three weeks and it is the same in Africa,” he says.
“The market is moving fast and you have this situation where people don’t know what is typical. People who are aware of what is going on will be able to decide quicker and people who are learning will take a longer time”.