African Banker magazine, the best-selling publication dedicated to banking and finance in Africa, and Backbase, the leading Engagement Banking Platform, have partnered to produce the 2nd edition of their comprehensive report about the ongoing African digital banking revolution by exploring the major trends shaping the future of the banking industry and financial inclusion on the continent.
To understand the trends, African Banker’s editorial team surveyed more than 100 banks through as many interviews asking about how they rank digitization among their main priorities, their expenditure on digital development, the impact of Covid, their digital offerings for SME customers and their priorities within the digital space. In the recent year, we have seen a growing trend in the digitalization of banking services. This is no surprise considering the cost-saving and efficiency effect induced by digital platforms.
The report shows that the pandemic has largely accelerated the shift in the banks’ model as it has highlighted the many limitations they were facing. A massive 49% of African banks told that they had greatly increased the speed of implementation because of Covid-19. Some banks were already trying to transition from the traditional model before the pandemic, due to the emergence of new competition on the part of African fintech and pure digital players. In this context, it is no surprise that the need to transform banking practices seems widely accepted. Almost 81% of respondents described themselves as being open to change.
There’s now an overwhelming consensus over how crucial digital transformation is to the future of African banking. About 60% described it as the single most important factor and another 34% stated that it was among their top three priorities. There has also been a big change in the size of budgets allocated by banks to digital development since our last survey. A total of 39% of respondent banks now ringfence at least $3m/year for digital transformation and innovation.
Another challenge highlighted in this report is the lack of inclusion of African small and medium enterprises in the new digital platforms and the banking system in general. Indeed, SMEs are often afraid of the huge fees that banks usually charge. Being unable to address these potential customers represents a missed opportunity for banks, even more so in the digital era where SMEs are being lured by the new fintech players. Fortunately, some lenders have adopted strategies to address these issues, and their efforts could be an inspiration to the industry.
Regarding challenges faced by the banking industry, the lack of a skilled workforce is viewed as the biggest threat and is cited by 46% of participants in the survey. Perhaps surprisingly, telecoms companies entering the industry to provide financial services are considered a significantly bigger threat to banks’ market share than the rise of fintechs and challenger banks.
It is widely accepted that digitalization can solve many of the structural problems that exist in access to finance in Africa and banks still have a huge role to play to spread financial inclusion, including in the B-to-B segment. Which is why it is essential to create an optimal legal and technological environment to carry out this crucial mission.
The full research report, accessible here, offers a clear perspective on market trends, challenges, detailed analysis of the survey results and recommendations.
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IC Publications has over 50 years’ experience in publishing magazines, newsletters, country supplements, industry reports and market intelligence on Africa. With over 2.6 million readers across its portfolio in more than 100 countries, our publications are the region’s undisputed market leaders. Our readers and clients represent the elite from business, political and academic circles and are people who have influence over the direction of their countries and companies.
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IC Publications is the publishers of African Banker, African Business and New African magazines.