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Raj Singh

Raj Singh

Raj Singh - Finova360

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Untapped Banking Opportunities In Africa

07 November 2016  |  4628 views  |  1

There are huge, untapped banking opportunities in Africa and banks in the region need to step up to succeed. Retail banking in Africa is far from straightforward. As the world’s second largest and second most inhabited continent, with over a billion people spread across 56 countries, there are a wide variety of trends that are shaping the retail financial services market in the region. Broadly speaking, there are three main market areas which are requiring banks’ attention.

The first is the huge unbanked population. According to McKinsey and Company, 80% of Africa’s total adult population do not use formal or semi-formal financial services. This is for a variety of reasons, some of which include geographical inaccessibility and poor infrastructure, with many of the unbanked living in remote rural areas. This, combined with the high cost of banking services and a lack of financial education and understanding, creates very high barriers to banking for poor rural populations.

The second area is the region’s middle class, which is experiencing a fast and rapid growth, fueling demand in the retail banking segment. According to the African Development Bank, Africa now has the fastest-growing middle class in the world. Some 313 million people, 34% of Africa’s population, spend US$2.20 a day, a 100% rise in less than 20 years.

The micro small and medium-sized enterprise (MSME) sector is the third market area. MSMEs are critical for the economic and social development of the region but, until recently, have been deprived of the help and support they need from financial institutions in order to grow.

Banks in the continent must embrace the opportunity to reach these three market areas and provide them with the support they need. However, it’s no easy feat and a number of challenges lie in their way. 

These challenges are as follows:

  • The banking environment in Africa is predominately a multi-banking one, and so banks continue to face the challenges of keeping the customer close to them. Gaining the loyalty of customers is therefore crucial in maintaining and increasing market share.
  • Choosing and deploying the right technology at the right time is a significant challenge. The majority of banks in Africa have a reputation for buying technology, but not deploying it or exploiting it to its full potential.
  • Risk management is an issue. African banks lag behind their peers in other countries in this regard and therefore need to work harder attain the global standard.
  • Africa will have to deal with the challenges of putting in place efficient operating models, centralized operations and multichannel and multiproduct capabilities with lighter and lean operating models – standardized, automated, digitized, paperless and online.
  • Last but not the least, African banks face tough challenges from non-traditional players, such as those offered and run by telecom operators. In the coming years customer centricity will continue to be the top agenda for banks in Africa. Banks in the region will continue to develop strategies to achieve sustainable growth by focusing on some key areas to hold a better ground by 2020. These are;
    • Exploiting digital and social media
    • Increasing customer loyalty and trust
    • Creating a cost-effective and efficient operating model
    • Carefully thought through branch expansion
    • Managing risk and bringing it up to global standard
    • Leveraging mobile and online banking
    • Technology enabled customer engagement and continuous innovation

Mobile will continue to be one of the most sought after channels in Africa and banks will continue to exploit this channel for customer engagement, delivery and distribution. Telco’s have already taken the lead in delivery through mobile channels and this will encourage more and more banks to partner with these organizations.

It is worth noting that there are more mobile subscribers than bank accounts in Africa, so the opportunity is clear.

Banks will also continue to explore and arrive at the right mix of physical and digital channels. High cost branches cannot survive in their traditional form. Banks need to arrive at the right mix of various branch sizes based on location and customer requirements. Branch design will play a key role in driving the right customer behavior as well as business growth through new as well as cross sell. 

Since the banking sector in Africa is mostly multi-banked, banks in the region will continue to strive for the breakfast, lunch or dinner of each other and hence more and more banks will continue to adopt multi-country strategies. There is clearly a trend indicating a race for size and regional coverage. 

To conclude, in the coming years only those who dare to become more and more innovative will succeed in Africa. Banks in the continent need to establish a direct relationship between banking and innovation (both technical and non-technical) to continue to grow and remain meaningful in the heart and mind of customers. The time is ripe to give banking in the region an overhaul and to offer something new and different that will change the lives of citizens.

TagsRetail bankingFinancial inclusion

Comments: (2)

Raj Singh
Raj Singh - Finova360 - India I Kenya I Nigeria I Ghana I Vietnam I | 08 November, 2016, 02:46

Hey readers .... looking forward to your valuable commets.

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A Finextra member
A Finextra member | 08 November, 2016, 08:47

Hi Raj, great article that nicely summarizes the issue. Even though a lot has happened in the last years with regards to financial access in SSA...I think this article could have also been written 10 years ago as the same problems across the continent persist.

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AUTHOR OF AMAZON No 1 BEST SELLER DIGITAL THE NEW NORMAL FOR BANKS 20 Years of hands on experience in the domain of Banking and Financial Services in multiple geographies in Asia and Africa

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