This article is sponsored by Backbase
African Banker magazine’s African Digital Banking Transformation Report 2024, produced in collaboration with Backbase, provides insights on the operations of 150 banks across 35 different African countries. It assesses current trends in the realm of digital banking, identifies key innovations, and measures the extent to which the African banking space is making progress on digital transformation. Respondents to the survey on which the report is based included Ecobank, Absa, Standard Bank, and many more leading banks from across the continent.
The report delivers several important findings – not least the importance that Africa’s banks are ascribing to digital transformation: 76% of banks rank digital transformation as either their top priority or as one of their top three. The remaining 24% all said that it was an important consideration, with no institutions saying that it was not a significant issue for them.
African Banker brought together a panel of experts to discuss the report’s findings and analyse the future trajectory of Africa’s digital transformation journey.
Surprises in store
The panel identified some of the findings that surprised them in the report. Heidi Custers noted that while it is clear that African banks are continuing to prioritise digital transformation, there are some reasons to suspect that their interest could be declining. “In our previous report, 51% of banks said that it was their top priority but this year that fell to 36%,” she said.
This is concerning in Custers’ opinion because demand for digital banking services is still extremely strong in Africa – potentially meaning that there is a mismatch between consumers’ expectations and the priority banks are attaching to digital transformation.
If we look at South Africa, she said: “90% of South Africa’s population say that they want to carry out all their banking digitally if they can. Anybody who says that it is not the top priority of a bank to digitally transform – there must be something going on there. It should still be their top priority.”
Eunice Gatama said that what struck her is that the report found 90% of Africans still rely on cash to complete their financial transactions, despite the digitalisation that has taken place on the continent. She suggested that the industry needs to work out why this remains the case before it can adequately put forward some solutions.
“We must start to think through the ‘why’. There’s a lot of mobile penetration. We’re getting a lot of deep financial inclusion in parts of Africa. Therefore, we must take a back seat and ask, why are we still using cash? Is it the cost of these services? Are we looking to deploy fancy things that are not speaking to the real pressure points that the African people have?” Gatama asked.
That said, there are signs that banks are making progress on this and making digital services more easily accessible. Nvalaye Kourouma noted that Ecobank is trying to take advantage of the high penetration rates for mobile phones in Africa.
“Having the mobile phone prevalent and available across the continent and in the customer’s hand allows us to offer more digitally innovative products,” he said. “There are digital products and digital capabilities that we’re building up that allows customers, for example, to open an account from their mobile phone.”
But Kourouma argued that banks need to be more ambitious than simply aiming for financial inclusion – instead they should be striving for what he called “financial empowerment”.
“The difference is that technology allows us now to give more tools and more capabilities for our customers to [be able to] better understand their finances, get some advice about how to protect their assets, and maybe get some suggestions on how to better utilise or invest their money,” he explained. “At the end of the day, it doesn’t matter about the size of the investment, it is really about the habit of having a disciplined approach to financial management.”
As well as financial inclusion, one of the key issues raised by the Digital Banking Transformation Report was that of personalisation. Respondents were asked what tangible outcomes and improvements they had observed or anticipate observing as a result of their digital transformation efforts. The top answer was increased customer satisfaction and loyalty, with the next most common answer being better customer engagement.
Custers argued that while a lot of banks are looking to leverage artificial intelligence to enhance personalisation, there are some “really great quick wins that banks can deploy on the continent to drive better personalisation.
“This can start simply with just having joined-up data models. There’s nothing more frustrating for a banking client than having to give information over and over again,” she said.
Gatama pointed out that another way for banks to drive digital transformation would be to collaborate with other organisations that are active in the space, such as fintechs. “Partnerships are definitely the way to go because we all have strengths in the different fields that we are in. Bankers are good at banking. Then there are people in the fintech space who are specialising in their particular areas – be it agritech, edutech, retail tech.”
AI is a game-changer
In terms of partnering with tech firms and leveraging next-generation technology, Kourouma is particularly bullish about the potential of AI to drive better outcomes for consumers. He called the technology a game-changer.
“We are just touching the surface when it comes to AI. Today we’re using AI for lending services and trying to get better predictions when extending credit. We’re looking at fraud, from a monitoring point of view, [using AI] to identify potentially fraudulent transactions from non-fraudulent transactions,” he explained.
This is a particularly valuable function for AI-powered technology because, as Custers added: “Last year alone, $55m was lost just in South Africa to fraud, and that’s after the recovery efforts of the banks.”
Kourouma expressed significant optimism about the potential of AI but also offered some practical steps that banks and governments need to take in order to harness its full potential.
“We need to have the right infrastructure. We need to have the right data. We need to have the right people. We need to have the right governance. And we need to have the right regulatory framework to be able to achieve all of that. But it’s very promising.”
The wide-ranging conversation ended with some reflections on how banks will seek to progress the digital transformation agenda in the months and years ahead. Custers perhaps summed it up best when she said, “what the next few years will
see is progressive modernisation happening.”
“We’ll then see a big shift that will move us to a period of industry convergence. We’ve seen green shoots in industry convergence already. Having those partnerships create financial services is really the next frontier for us on this continent.”