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This article is sponsored by Backbase
At least half (51%) of the 153 African banks surveyed in the African Digital Banking Transformation Report 2023 consider digital transformation to be the one most important factor in their growth strategies. In total, 95.5% have it among their top three priorities. The message from Africa’s top bank executives is clear: investing in digital transformation is an imperative that banks across the continent are taking seriously.
Pan-African banking groups, or banks that operate in several African countries, face a more complex and demanding digital transformation journey than their local counterparts. They have to deal with challenges that include language and regulatory differences, diverse technology ecosystems and customer profiles, and high costs of cross-border integration.
African Banker interviewed some of the industry insiders who are leading the digital transformation in their banks, and learned how they have successfully developed and deployed their digital platforms across multiple markets, what obstacles and opportunities they encountered, and how emerging technologies such as AI will shape the future of banking in Africa.
Nvalaye Kourouma, Group Chief Digital Officer, Ecobank, noted that the Togo-headquartered lender’s digital transformation journey is moving ahead at full speed in all the 33 countries in Africa where it operates. The value of transactions on Ecobank’s digital platforms increased by $16bn year on year to $80bn in 2022, with published investor updates for the first nine months of 2023 indicating continued strong momentum.
Focus on customer experience
Ecobank has a digital transformation strategy based on three main pillars: digitising customers; digitising partners; and digitising internal processes. The bank has achieved remarkable results in digitising customers, as evidenced by the growing number of users of its award-winning mobile app, which has reached more than 13.8m users.
Kourouma explains that the bank was able to accomplish this by investing in developing its human capital and digitising internal processes: “the most important piece in digitising internal processes is our people. We need to provide them with the right tools and instil the mindset of digital-first.”
Kourouma points out that Ecobank has already laid the groundwork for its digital future and that it is now focused on accelerating digital transformation.“Growth and scale are now the focus. That’s the phase we’re in now,” he says, emphasising that the bank’s overarching objective in its continued investments in technology is to leverage digital innovation to improve customer experience: “at the end of the day, it’s not about the technology, it’s about the customer and giving them a great experience. We have to advance solutions that are empowering customers, that are intuitive, and that are opening new opportunities for them.”
Mobile-first approach is key to winning in Africa
Dennis Volemi, the Chief Technology Officer of KCB Bank Group, tells African Banker that a mobile-first approach is a core principle of the bank’s digital strategy. He says that a well-designed mobile-first strategy is crucial for attracting customers in Africa: “Africa is a mobile-first continent, and as smartphones get cheaper and internet penetration improves everything that we do – not just financial services – will revolve around the mobile.”
“the most important piece in digitising internal processes is our people. We need to provide them with the right tools and instil the mindset of digital-first.”
Nvalaye Kourouma, Group Chief Digital Officer, Ecobank
KCB’s mobile banking solutions have been a key factor in the bank’s success, according to Volemi. He says that the mobile-first digital strategy has enabled the bank to grow its business and enhance customer satisfaction across the seven countries where it operates. The bank’s transactions are almost entirely – 99% – done through mobile platforms, and its Net Promoter Score improved in 2022 compared to the previous year.
He is proud of the fact that most of the bank’s 33m customers can do more than just send and receive money digitally. They can also get access to credit when they need it most, without visiting a branch: “the majority of our growth is driven by digital loans, mobile loans like KCB-MPESA, where lending is exclusively done using technology without human intervention. All our KCB-MPESA customers have never walked into a branch, they don’t need to because they have access to credit on their phone.”
Partnerships across ecosystem can unlock scale faster
Building scale on digital platforms across multiple jurisdictions – the way Ecobank and KCB, along with other leading regional banks, have done – is no mean feat. Regulations in different markets vary, and language barriers can make it challenging to penetrate new markets. It is therefore crucial that African banks with ambitions to drive digital transformation at scale build the right kind of partnership models that fit their strategy and serve their customers.
Kourouma explains that Ecobank looks at partnerships in three ways: product partnerships; technology partnerships; and distribution partnerships. He notes that partnerships with fintechs have been a particularly exciting area – one that many banks in Africa and further afield are looking at. Fintech is the financial technology that is used to speed up, automate and otherwise improve the delivery and consumption of financial services, principally through new software and algorithms.
Fintech is a booming industry in Africa, where it accounts for almost half of the 5,200 tech start-ups that existed in 2021, according to a report by McKinsey. However, this rapid growth also creates a challenge: the market has become fragmented, which makes it difficult to build scalable partnerships.
Kourouma notes that Ecobank’s Sandbox, which went live in 2020, is helping to “address fragmentation” in the fintech ecosystem by “simplifying and standardising” its partnership model. “The Sandbox allows Fintechs to access Ecobank’s Application Programming Interface (APIs) for the development of innovative solutions.” He argues that many of the creative fintechs, start-ups, product developers and technology partners that have been accepted into the sandbox have achieved remarkable success in Africa’s fintech sector.
AI overtakes cybersecurity as the most important trend
In 2022, 74% of the banks surveyed in the African Digital Banking Transformation Report named cyber security as one of the most important trends. That has fallen to 61% in the 2023 survey, overtaken by artificial intelligence (AI).
“I really see AI as a game-changer, both internally and externally” says Kourouma, giving the example of how language and literacy are no longer a challenge, thanks to AI-powered tools for engaging customers in different countries. “We now have the capability to build local natural languages into our AI interactions, so that language and writing are not barriers any more. Speech and image can be used to communicate more effectively. AI opens the door for a different level of engagement with our customers, so it’s encouraging.”
Volemi points out that KCB is ahead of the curve because it already uses advanced data analytics for key processes such as credit scoring. He adds that AI will further enhance this capability and create more efficiencies for the bank.
“We have already been doing credit scoring using the data analytics capabilities we have in place. That preceded the AI trend, but increasingly we see as adoption advances, AI has the ability to improve our precision,” Volemi notes, adding that that KCB is exploring multiple use cases for AI. “Besides credit scoring, we are exploring use cases that allow us to use AI to review and structure contracts and customise them based on the customer’s profiles.”
We now have the capability to build local natural languages into our AI interactions, so that language and writing are not barriers any more. Speech and image can be used to communicate more effectively. AI opens the door for a different level of engagement with our customers, so it’s encouraging.
Nvalaye Kourouma, Group Chief Digital Officer, Ecobank
Opportunities abound as banks lean on regional expansion
The African Digital Banking Transformation Report 2023 reveals that digital banking has a lot of room for growth in Africa, where about 50% of the people are unbanked. This figure varies across different markets, but it shows the potential for banks to reach more customers through digital channels.
Among the banks that are taking advantage of this opportunity are KCB and Ecobank, which operate in multiple African countries. Other regional players that are expanding their digital banking services include Equity Bank from Kenya, Vista Bank from Guinea and Bank of Africa from Morocco.
Equity Bank has been aggressively expanding across the region, with its latest entry, to the Democratic Republic of Congo, being of particular strategic importance for the lender. DR Congo is one of the biggest countries on the continent by land area and has more than 100m people, making it appealing to ambitious banks in neighbouring states that are looking for growth Equity has put more focus on the DRC unit, with group CEO James Mwangi tipping it to be the first foreign business to beat the Kenyan unit on profitability.
Vista Bank has also been rapidly expanding across the continent. Through its acquisition of Oragroup it gained a presence in 16 countries, compared to three prior to the deal going through. The deal took the firm’s banking assets from $2bn to over $12bn. It also affords the group a presence across the West African Economic and Monetary Union and the Central African market.
On the heels of this, Vista struck a deal in December 2023 with France’s Société Générale, that country’s third-largest bank, to acquire the French lender’s 52.6% stake in Société Générale Burkina Faso and its 65% stake in Banco Société Générale Moçambique. “Our agreement confirms our expansion strategy, which aims to make Vista Bank a pan-African group present in 25 countries,” Simon Tiemtore, President of Vista, said in a statement. This acquisition comes at a strategic moment, as several French banks have withdrawn from West Africa amid rising diplomatic tensions, leaving a vacuum that Vista is filling.
The consolidation of African banks through mergers and acquisitions is a strategic move to expand their regional footprint and enhance their competitiveness. It also poses significant challenges, however, in terms of integrating different systems, processes and cultures.
Our agreement confirms our expansion strategy, which aims to make Vista Bank a pan-African group present in 25 countries
Simon Tiemtore, President of Vista
To overcome these hurdles, digital transformation is essential. It enables banks to streamline their operations, optimise their resources and deliver value-added products and services to their customers. This underlines the likelihood that investments in technology and digital capabilities will continue growing robustly across Africa’s banking sector in 2024 and beyond.
Africa has a clear advantage in mobile money
According to the mobile phone industry body the GSMA, 157 of the world’s 310 mobile money services in 2021 were in Sub-Saharan Africa. Moreover, Africa had a $495bn share of the $767bn handled by mobile money worldwide in 2020. The continent leads the rest of the world in the sector, underlining the progress made in driving financial inclusion. The mobile-first route-to-market strategy that KCB’s Volemi highlighted therefore becomes key in driving financial inclusion. However, barriers to financial inclusion in Africa remain, particularly for women.
Dr. Robert Ochola, CEO of AfricaNenda, notes that women make up 60% of the 400m financially-excluded Africans. To address the gender gap in access to financial products, it is important to design and build solutions specifically tailored to women’s needs and to ensure that data is collected and disaggregated to track and inform policy decisions.
The vast majority of African banks consider digital transformation to be important for their growth strategies; yet just half regard it as the most important factor. This is likely because many banks are still investing considerably in physical branches and hiring more customer-facing staff.
Physical networks remain important for the foreseeable future, given the current extent of digital exclusion in much of Africa. “Even in the longer term, legacy banks need to be careful to bring customers with them on the digital transformation, by providing support and retaining some face-to-face contact where it is most needed,” recommends the African Digital Banking Transformation Report 2023.
Digitisation budgets likely to increase
The Survey shows that African lenders are implementing digital transformation in stages, beginning with basic services to attract customers and then adding more features along the way to increase the average revenue per user. For example, almost all banking apps across the continent allow customers to check their balance, make transfers and pay bills. The number of banks that offer digital loans has increased from 29% in 2022 to 48% in 2023.
This presents a major challenge, as well as an opportunity, for regional banks. Some of these are forming strategic partnerships with telecom companies to launch digital lending products at scale and to fend off competition from local peers and challengers such as fintech companies. KCB-MPESA, a mobile savings and lending service that is jointly offered by Kenya’s KCB and Safaricom, is a prime example. It has in the past few years emerged as one of the leading digital lending platforms in Kenya, highlighting the important role of partnerships in helping regional banks speed up digitisation.
The outlook for digital banking in Africa is optimistic. The share of African banks where the digital strategy and budget are decided by the CEO, chair, managing director, vice president or other director has risen from 15% in 2022 to 35% in 2023, indicating that more resources will likely be allocated to digitisation in the near future. This is being driven by a mix of factors, including stronger customer demand for digital access, the fear of falling behind competitors, and the strategic imperative to leverage digital technology to improve customer satisfaction, increase efficiency, expand profits and grow market share. For regional banks eager to maintain their competitive edge over their local peers, sustained investments in digital technology will be key in differentiating their offerings and cementing their market leadership on the continent.
Nohaila Ibn El Farouk, account executive, EMEA, Backbase
Banks now find themselves at a pivotal time, presented with an opportunity to break free from the constraints of the past and embrace a new-generation engagement banking model. As my esteemed colleagues have articulated, Pan-African banking groups encounter numerous challenges, including cross-border integration complexities arising from regulatory disparities, infrastructural differences, fragmentation within the fintech ecosystem and barriers to financial inclusion, particularly for women.
To overcome these obstacles and to alleviate the substantial costs involved, strategic approaches are imperative. Standardisation of processes emerges as a priority tactic, entailing the harmonisation of digital solutions. Additionally, there is a need for collaborative endeavours with central banks to align regulatory frameworks, alongside forging strategic alliances with local and international fintech entities, which can mitigate financial strains while fostering access to expertise. Finally, banks need to collaborate with women’s organisations to tailor financial interventions and effectively reach underserved female populations, to focus on financial inclusion for women.
By reallocating IT investments, banks can create more value for both customers and employees, thereby positively impacting their cost-income ratio. This transformative shift enables banks to innovate at the speed of digital, keeping pace with the dynamic digital landscape and delivering cutting-edge solutions to their customers.
The Sandbox allows Fintechs to access Ecobank’s Application Programming Interface (APIs) for the development of innovative solutions.
Nvalaye Kourouma, Group Chief Digital Officer, Ecobank
At Backbase, we assist banks in overcoming the limitations of legacy IT systems and embracing a new-generation engagement banking platform. Our white-label platform enables banks to gradually replace or decompose disparate legacy systems and construct a modern journey orchestration architecture around customer needs. These incremental changes allow banks to streamline business-critical customer journeys across all touchpoints, while eliminating silos and empowering both customers and employees at their unique pace and priority.
For instance, we recently worked with Mauritius Commercial Bank (MCB), the largest commercial bank in Mauritius, to help them streamline their operations and improve customer experience. By leveraging our platform, MCB Group was able to unify their banking channels, enhance their digital offerings, and scale these innovations across multiple markets.
