How many of you have visited your local banks in Nigerian to perform a transaction to find out that their ‘server is down’ as the bankers put it. Therefore, a transaction that should take you 10 minutes now turns into 30 minutes.
A 2015 KPMG report states that banking penetration is as low as 36% in some of the larger African economies. The solution proposed is that Digital Transformation can drive adoption of banking services by enabling banks to develop and deploy tailored, customer-focused products and solutions. In the age of disruption in almost all the sectors happening globally, digital cannot be excluded as a very important disruptive power.
For the banking sector, this has meant radical changes in how services are offered and how technology is used to enable rapid deployment of new customer-centric innovations. A recent SAP-sponsored study of 250 banks in the EMEA region by IDC offers key insights into how banks have adapted their business models and operations to reap the benefits of Digital Transformation, and what African banks can learn from their success – and how they can avoid some of the pitfalls.
Africa at a glance
According to the United Nations, Africa’s population is expected to surge to 2.4 billion by 2050. Due to Africa’s largely youthful population and the aging population in most developed countries, forecasters expect that much of the world’s labour will be supplied by the African continent. This increase in economic activity is expected to drastically increase the uptake in banking services among African workers. However, despite encouraging economic growth, most of Africa remains unbanked due to insufficient banking infrastructure, the perceived high cost of banking fees, and a disconnect between banking services and the needs of the customers they are meant to meet.
In Sub-Saharan Africa, bank branches are generally concentrated in high-population urban areas. Despite this, the European Investment Bank notes that these banks are typically high-cost operations that result in high service fees and a wide spread of interest rates. A 2014 World Bank paper showed that the average per-capita income in Sub-Saharan Africa is a mere $762. Banking products and services need to be carefully tailored to suit a diverse set of customer needs or risk losing traction in a market currently being disrupted by innovative start-ups.
New fintech companies are bringing a much more customer-centric innovation at a pace never seen before disrupting the traditional and formal banking sector. While banks in Africa should focus on capitalising on their market share, they also need to consider using technology as a tool to create new opportunities across the entire value chain. This would allow them to emerge strong and fit for the future as new fintech companies emerge.
Despite the rapid change that we’re experiencing, most customers will still remain the same and will have the same needs over the next five or even 10 years. Saving for retirement, buying a house, paying for education, accessing medical services, tax and payroll – these needs are unlikely to change in any meaningful way. What is likely to change, however, is the role of the banking sector in providing such services, both for consumers as well as corporate clients.
A bank that sets out to be smart, forward-thinking banks will embrace Digital Transformation by adopting cloud technologies to reduce costs, analysing data to create more personalized services, and using customer-focused channels such as mobile and social to deploy services. Despite the threat posed by fintech start-ups, traditional banks have an enormous advantage: the vast amounts of customer data created by multiple customer touch-points.
Banks should use this data to customise products and services at an individual level to deliver a truly personalized experience. This cal happen if they can start mining this customer data, moving beyond pure banking into more of a ‘lifestyle partner’ role, something the insurance industry has achieved with tremendous success.
According to IDC, an enterprise approach to Digital Transformation is likely to become a better option for banks as it prepares them to change the way they currently use technology and allows them to build a technology platform that can meet present-day and as-yet unknown future business challenges.
But for that to be truly effective, leadership structures driving Digital Transformation need to focus on three key aspects:
1) A strong commitment at an executive level, encouraging collaboration;
2) A solid digital core to the business that includes in-depth analytics and enable agile technologies; and
3) Openness to partner and collaborate with other players in the financial and banking ecosystem, including fintech start-ups and other disruptors.