The focus on digital banking in Africa should now begin with the retail sector, which was previously expanded to small and medium-sized enterprises (SMEs), businesses, businesses and investment segments. However, banking's approach to retail customers is changing as they begin to offer a wider range of products and more customer-centric services to increase average revenue per customer and generate more personalized relationships.
Sector innovation is driven by the diversity of approaches and origins of the various players involved. While traditional banks on the continent are being challenged by digital first or neobanks, communications and mobile money providers offer even more competition, with all providers benefiting from fintech developers.
Digital First Banks do not have the same legacy costs as established banks. This requires you to maintain the old system along with the newly launched platform, and you need to try to integrate the old with the new one.
Although there is considerable cost to building a digital platform, the long-term cost of this approach is thought to be significantly lower than those involved in maintaining a large branch network, including the number of staff employed.
Recent Retail Banking: Competing for the latest African customer reports produced by Banking Finance Platform Developer Backbase and African Banker Magazine, Africa's top priorities are improving operational efficiency, increasing access to financial services and increasing market share.
Governments and regulators in several countries, including South Africa and Kenya, have introduced supportive laws relatively quickly to encourage investment. While many of Africa's digital first banks, such as Tyme Bank, are based in South Africa, Kenya is an important breeding ground for digital financial services innovation.
Digital banking reduces the costs of the banks involved, but promotes the provision of previous bank-free financial services by allowing people to secure accounts without local branches.
Increased access to financial services has preceded the digital banking boom, with the density of branch networks on the continent increasing from a population of 1.6/100,000 in 2006 to 4.5/100,000 in 2015.
However, according to World Bank figures, this figure was only 4.2/100,000 in 2022. Banks of all kinds of banks are focusing their investments in banks and online technology to reach the unbanked, providing additional services and opportunities to generate more revenue for existing customers.
However, the proportion of the population with access to all types of financial services is growing, yet still only 55%. The Backbase/African Banker Survey Report found an even smaller percentage of people using digital banking services. Only 54.8% of banks participating in the survey said at least 40% of their customers currently use a mobile or online platform.
Custom-made service
Both digital-first and traditional banking players were more likely to focus on launching mobile and online banking platforms in the retail sector, attracting and retaining as many customers as possible during the early days of the digital banking boom.
Many of these platforms initially restricted their basic services ambitions, such as transferring money, paying bills, and checking balances. They are now more refined by offering other retail services such as lending. By expanding to other segments. And by refinement of relationships with digital customers.
This ultimate trend is characterized by strategies to provide custom services to individual customers as much as possible in “one segment.” While there is the risk that providing services digitally rather than face-to-face can place barriers between banks and customers, more customer-centric strategies are sought to create more personalized and meaningful relationships. This approach also has the potential to allow banks to provide more detailed data and provide more product offers to their customers.
Digital banking can revolutionize the access to credit for many less wealthy people. According to the European Investment Bank, providing very small amounts due to administrative burdens has previously been unable to provide loans commercially, with less than 10% of Africa's population having access to credit in 2024.
However, loan applications can now be automated without the need for bank staff monitoring, and the results of applications can now be communicated to customers.
Within minutes, not days or weeks like before. This rate can significantly increase the demand for small-scale finance.
Some banks are currently adopting an omnichannel strategy. This involves working to ensure that customers have the same experience, the methods they use to access financial services by integrating the operation and appearance of the service across all channels.
This allows customers to switch between device and different forms of service offering without difficulty or disruption. The survey shows that 84.4% of survey respondents are working to integrate digital and physical branch services.
Banks are beyond launching individual customer touchpoints to create seamless services integrated across physical branches, mobile apps, web platforms and contact centers.
Expanding digital literacy
Banks in Africa are also working to minimize the time it takes for customers and potential customers to access their services by making their digital platforms very intuitive. 77.3% of survey participants said limited digital literacy is a major challenge among customers, with 51.6% citing limited internet access.
If a large portion of the population cannot afford internet-connected mobile phones and data to operate them, they generally have no access to digital services and have limited opportunities to gain the necessary digital literacy.
Improvements to these numbers will be a long-term process, but a 2023 World Bank study found that it is included in all curricula in African countries. Even less teaches financial literacy, but most people probably learn the most in both areas of daily activities, such as friends, family, and online sources, although the health of the information provided on the Internet is clearly very different.
Access to digital financial services will be mitigated by a decline in mobile handsets and data prices and an increase in electrification rates so that mobile phones can be charged at home rather than at neighbors' homes or solar kiosks, for example.
Banks have a role to play here in ensuring they provide as clearly as possible. Coupled with sound security, this helps reduce 54-59% of survey participants who said they have concerns mainly about digital service use and cybersecurity.
Banks can asstodian both money and personal and financial information, and become targets of cyber attacks, leading to major losses and widespread and repeated damages.
Two main recommendations for reports published by consultants
The drive of McKinsey and the company to drive African Bank's Equity Earnings (ROE) in December 2022 will include “promoting awareness of the benefits of digital channels, adopting a broad approach to customer education and support across digital channels, providing demonstrations, web chat support,” and strengthening the customer's ability to search for support and support in their own language.
According to McKinsey, the banking sector's ROE was 1-2% below the 19th level before the age of 19 in Africa's largest banking market (excluding Kenya), but operating costs remained flat, but revenue was actually higher than the pandemic.
McKinsey has discovered that a large portion of the bank's value chain still relies on manual tasks being performed by bank employees, which generate 60-70% of the cost, so the focus on digitalization should be at the heart of increasing productivity.
In the long run, attracting more customers and serving at a lower cost will improve most bank metrics, generating more revenue and reinvestment in improving your business.
