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Time for Engagement Banking: the rise of digital finance in Africa

In Southern and East Africa, a quick increase in internet access is creating a market for financial services seemingly out of thin air. While lacking South Africa’s tradition in banking, Kenya’s high-tech approach has made it the most exciting market in the region, proving that a blank canvas can be used to great effect.

Now even traditional financial institutions are eager to adopt the digital transformation that will allow them to better cater to their existing customers, as well as to expand among the hundreds of millions of unbanked Africans. A new book co-authored by banking experts aims to become a blueprint for the pro-user digital revolution taking place in banking.

Cornel Dixon

Cornel Dixon,
Head of Africa

The Silicon Savannah

A recent report released by global management consulting giant McKinsey spells good news for banking in Africa. It predicts that the African financial service market could grow as much as 10 percent each year, reaching $230 billion in revenue by 2025. But while such growth appears promising, it will not be enjoyed by everybody equally. With the exception of the Republic of South Africa, most Southern and East African nations have a very low percentage of the population with access to banking services.

But this landscape is changing fast under the auspices of a digital revolution. Amid a global push that was only accelerated by the Covid pandemic, financial services are moving more and more into the online realm. Fintech is now the fastest-growing start-up industry in Africa, with billions of dollars in investment pouring into hundreds of companies across the continent and an average rate of penetration that is in line with global leaders. The ease with which digital finance services can be accessed, its highly user-centric approach and an explosion in smartphone and computer ownership has made fintech a true phenomenon in Africa. That being said, these are still early days for African digital finance. Cash is still used in around 90 percent of transactions in Africa, underscoring the huge growth potential of the sector.

For years now, Kenya has emerged as a hub of tech innovation in East Africa, with its capital Nairobi being dubbed the “Silicon Savannah” by the international media. Its digital finance sector is central to this tech scene and boasts one of the highest levels of fintech penetration in the world. While in 2006 only 26% of Kenyans had access to banking services, that figure rose to 83% in 2021. According to the McKinsey report, fintech revenues could grow up to eight times in Africa if the rest of the continent reached Kenya’s level of digital finance adoption.

These opportunities have not gone unnoticed by the continent’s traditional banking institutions, who are beginning to embrace the changes brought about by fintech. This process has given birth to the concept of engagement banking, a ”people-first” approach to banking which places user satisfaction at the top of the priorities pyramid. By using digital solutions to offer its customers the smooth and streamlined experience they have come to expect from modern online services, engagement banking reaches a higher level of user retention, creating a satisfied and loyal user base.

A Call to Action

As digital services mature, there is a risk of an emerging divide between the new, customer-focused businesses which are native to the online world and older companies which are struggling to adapt to contemporary expectations. The question is not simply one of technology, but of how to best use digital tools to create a business model which places the client at its centre. Consequently, a transition to the engagement banking model should not be a leap in the dark, but should rather be facilitated by shared resources, best practice tools and the accumulated wisdom of the field.

In response to this need, Backbase, took advantage of its status as category-leader in engagement banking by releasing “The Engagement Banking Revolution” in June of this year, a book co-authored with almost a dozen banking experts specialised in the subject. The volume was conceived as part training manual and part call to action for financial professionals who wish to embark on the paradigm shift which re-architects banking around the customer. Some of the leading minds in the field share their experiences in shifting to a platform operating model, making the right tech investments, creating new revenue streams and fostering a culture that embraces innovation.

In chapters written by such financial celebrities as Sangeet Paul Choudary or Eric Berridge, The Engagement Banking Revolution details how banks can embrace the holistic approach of fintechs and create a unified digital presence that is thoroughly built around the user. The book is also part of a charitable drive, with all proceeds going to the Financial Literacy and Inclusion Campaign, a Financial Times campaign striving to democratise financial education with a focus on young people, women, minority ethnic communities, migrants and disenfranchised groups.

Connecting the World

For decades if not more, techno-pessimists have warned about the isolating potential of technology, seeing it as a barrier in the way of personal interaction and fearing its power to reduce the human experience to a simple algorithm. But as the digital century rolls on, we begin to see the opposite of that vision coming to the fore, with digital technology connecting the world, breaking down geographic and cultural barriers, and allowing for human connections when there previously were none.

Engagement banking can push that approach even further, allowing bespoke, efficient services to redefine the rather impersonal relation between financial institutions and their clients. With younger generations of digital natives coming to expect such services from the outset, the next few years will prove crucial in determining the way banks interact with their customers. The engagement banking blueprint might just be the answer.