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Eben Mabunda
DIGITAL innovations over the past decade have revolutionized the financial services industry globally with endless changes seen across Africa.
The continent is witnessing cutting edge technologies that are accelerating banking 4.0, propelling the rapid rise of digital banking on the African continent. The past three years have seen the rapid emergence of neo-banks and challenger banks, challenging conventional banking and indicating that “traditional banking may soon expireâ€.
Digital bank set
Digital banking is the computerization of conventional banking services, allowing a bank’s customer base to access banking products and services through electronic platforms and / or the Internet – services that would normally be available in a branch. These include ATMs, digital wallets, online banking, and mobile apps, among others.
Another key term would be “fintechâ€; a combination of the words “finance†and “technologyâ€. In the past, the term “fintech†was used to describe the backend systems used by established financial institutions. However, the term has evolved into a new user orientation and is closely associated with the term ‘digital banking’ as it is one of many types of financial technology.
There are several forms of digital banking, including challenger banks and neobanks. Challenger banks are essentially start-ups, often referred to as “challengers†because they seek to compete with established banks. These are mainly fintechs who are licensed to bank and take advantage of innovative technologies to streamline traditional retail banking processes, such as Carbon (Nigeria), Tyme Bank and Bettr Finance (South Africa). Neo-banks are fully digital banks with no physical presence and rely on licensed partner banks because they do not hold a banking license. Good examples are Eversend (Uganda) and 7aweshly (Egypt).
Digital banks vs traditional banks?
A tech-driven African company, iAfrikan.com put it so well: “The rapid migration from traditional banks to digital banks through the market is driven by low cost of entry. Thanks to technologies such as artificial intelligence, machine learning, chatbots, automation and blockchain, digital banks are much more flexible than traditional banks in terms of products and operations.
“With no maintenance fees for physical branches, online banking is very profitable, especially since many online transactions do not require third parties and require significantly fewer employees than conventional banks. This translates into lower bank charges for the consumer.
About 57% of the 1.3 billion Africans do not have a traditional bank account – too high a figure because it presents limited economic options for Africans.
However, a higher mobile penetration rate is a relief, as sub-Saharan Africa is the fastest growing mobile phone market in the world. Currently, there are 747 million SIM connections in sub-Saharan Africa, representing 75% of the population – a strong case for digital banking.
What should traditional banks do?
The adoption of “coreless banking†is vital here: coreless banking means that each banking function functions as a single commercial function. In other words, features, products, processes, etc. can be updated or changed without having to touch the main central system, allowing banks to fully digitize their entire bank without ever replacing the central system. The merits go far!
In the meantime, banks could take advantage of technology to simplify and automate infrastructure provisioning and software delivery and taking a more granular approach to manage and prioritize demand.
A hybrid setup of traditional banking and digital banking could also prove to be effective, no wonder Standard Bank closed more than 100 branches in South Africa in January 2020, as part of a digitization exercise. In the medium term, traditional banks might need to collaborate with fintechs rather than compete with them – MTN’s recent partnership with Flutterwave presents a useful model.
Mabunda is an analyst and TV presenter at Equity Axis, a leading financial research firm in Zimbabwe. – ebenm@equityaxis.net
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