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Essential resources for banking executives:Enter ‘Banking Reinvented’

African SMEs can not afford to miss the digitalization trend

The 21st century saw a remarkable push towards digitalization in virtually every aspect of daily life, not least of which banking. Across the world millions of small and medium enterprises (SME) have massively streamlined their administrative tasks through the use of digital banking, which allows them to engage in complex financial operations without leaving the office.

by Cornel Dixon


Unfortunately, that is not true everywhere, with Africa somewhat trailing in the digitalization race. Despite the crucial role of SMEs in the African economy and the advantages brought by digital banking, a recent study by African Banker and Backbase shows that only a portion of small businesses in Africa are making use of such services. African businesses might soon find it more and more difficult to operate in an increasingly digital world.

Digital Present, Digital Future

Several important computing milestones are turning 50 this year. The C programming language, floppy disks, the first international ARPANET connections and the seminal video game Pong all came about in 1972, which means that we are now comfortably half a century into the digital age. Claiming today that the future will be digital might not lend you the same reputation as a prophet as making the same prediction in the early 1970s, but the statement is no less important in 2022.

The ever-increasing digitalization of every aspect of daily life has created wonders beyond even the imagination of those computing pioneers. Entire industries have risen to dominate the world’s economy, while others crumbled in only a few short decades. The global coronavirus pandemic has only accelerated this process, turning digital services from a convenience to a necessity. But the process has been far from homogeneous across the globe, with many parts of Africa still absent from the digital conversation.

This is a worrying sign for the continent’s future, as the trend of digitalization and industry shift shows no sign of slowing down. A report by the International Funding Corporation shows that by 2030 more than 230 million jobs in Sub-Saharan Africa will require digital skills. To truly understand how fast the world’s economy is changing under the digital push, that same study estimates that two thirds of children now entering primary school “will end up working in a job that doesn’t yet exist”.

No Rush on Digital Banks

The study conducted jointly by the African Banker and banking platform Backbase showed the stark realities of African digitalization among independent businesses. Small and medium companies are the very backbone of Africa’s economy, making up 40% of the continent’s GDP and offering 60% of the employment. Despite this central role, less than half of SMEs use any sort of digital banking service, which is, perhaps surprisingly, even lower than the rate of digitalization among individual clients.

African SMEs should embrace digital banking services and the benefits they bring. Digital banking appears particularly appealing for businesses operating out of rural or isolated areas which lack access to physical banks. Authorities as well should encourage this, as digital infrastructure is infinitely faster and cheaper to build than physical one. Some encouraging developments came earlier this year, when the African Union launched its African Smart Finance and Digital Banking Initiative, which is meant to use digitalization as a way of building the African SME market and bolstering investor confidence.

Digital banking is more than just a tool for efficiency, it is also a gateway to an entire digital market. The coronavirus pandemic has accelerated a process already underway, with 70% of the world’s SMEs having intensified their use of digital technologies on account of the pandemic. As the marketplace is becoming more and more online, businesses without an online presence will likely struggle. Adopting digital banking is the first step towards an entire constellation of online opportunities.

Private and Public

Independent companies are not solely responsible for the underwhelming rate of digitalization among African businesses. Historically, SMEs have often been ignored by banks in favour of larger clients and retail customers, a trend that extends to the matter of digital access. In addition, the banking sector also does a poor job at communicating the benefits and the costs of digital services, leading many SME owners to believe them either useless or prohibitively expensive.

Some of those who show an interest in digital banking services are no doubt put off by the sometimes convoluted process that banks require clients to go through in order to open a corporate account. Convenience and efficiency are two of digital banking’s most appealing features, and requiring clients to jump through bureaucratic hoops in order to enjoy them is not only counterintuitive, but also serves as a major gatekeeper for digital services.

State actors should also do more to digitise Africa. Building better digital infrastructure and cutting red tape would no doubt facilitate the penetration of digital banking in the region. Some places are improving in these regards, with the South African government recently announcing plans to increase the ease of doing business, while private pan-African companies like Cassava Technologies are improving internet access across the continent, but obvious setbacks still remain.

A Complex Issue

The digital divide that hampers SMEs in Africa is a complex issue, which stems from consumer hesitancy, faulty communication on the part of the banks and insufficient facilitation offered by authorities.

This is not a problem which can be solved overnight. But work must start today. All stakeholders must do more in order to better prepare the African economy for its digital present and its even more digital future.