Could bank branches powered by next-gen technology be the future of African banking, and what would it mean for incumbents and their customers?
Mobile money taking the upper hand over banks
It’s no secret that mobile banking is a cornerstone of the African financial services industry. Given the continent’s large rural population and how far many people live from urban hubs, plenty of customers rely on mobile devices to meet their banking needs. In this respect, telecom operators and the introduction of e-money have been real game changers.
Unsurprisingly then, the value of mobile financial service transactions has increased by almost 900 percent in Africa since 2011. This growth has been enabled by the fact that 80 percent of people have a phone. And this trend is set to continue expanding as an estimated two-thirds of the population will have a smartphone by 2025.
However, this doesn’t need to be the death knell for bank branches in Africa.
The apparent ‘end’ of bank branches
There’s a widespread perception that the days of the bank branch network are over. But the reality’s more complicated than that.
Globally, financial institutions now process far more transactions digitally than in branches. In fact, since the financial crisis of the late 2000s, in the US and Europe, the number of bank branches has decreased by more than 10,000 and 50,000, respectively —an average of three and sixteen closures, per day.
Even in Africa, the number of banks branches has been declining since 2018. This trend is likely to continue and even intensify in the coming years. The Covid-19 crisis could result in African banking revenues falling by roughly 23 to 33 percent between 2019 and 2021, according to McKinsey. This could, in turn, accelerate the collapse of certain incumbents in the African banking industry.
In spite of this, however, the number of banked Africans will grow to 450 million by 2022, up from 300 million in 2017 — a growth spurred by new retail customers, and there is no shortage of those. According to a 2018 McKinsey report, “Africa’s retail banking penetration stands at just 38% of GDP”. Or to put it in other words, “half the global average for emerging markets.”
The question on everyone’s lips is how to best serve this growing customer base in these challenging times and how the traditional bank can play its part by delivering tailored services to its clients.
Bringing digital into the branch: The rise of smart branches
Most people now carry a bank in their pockets in the form of a smartphone and only visit an actual branch occasionally. However, physical presence remains an important facet for banking customers of all generations, with customers still visiting physical branches to deposit or withdraw cash, or to seek out advice and learn more about bank services, such as mortgages and retirement planning. Although most customer journeys begin online, the branch remains a crucial customer touchpoint and important sales channel.
“Smart branches” could be the solution for banks wanting to appeal to both their more traditional and digitally savvy customers.
Accenture refers to smart branches as “experience stores” and highlights how future branches can blend retail space with digital tools to create useful community spaces. Technology solutions that may be featured in a smart branch include the following:
- A self-service area with virtual terminals, open 24 hours a day
- Interactive teller machines with remote tellers
- Videoconferencing and AI-powered chatbots where customers can access specialists to help with more complex issues
- Automated self-service kiosks that provide routine transactions for simpler products
These technology solutions help to boost sales and improve customer experience. And, when executed properly, the result can be a 60 to 70 percent improvement in branch effectiveness, as measured by cost savings and increased sales. Despite its obvious advantages, this type of technology is likely to mainly be deployed in just a few flagship branches, due to the apparent complexity and cost that come with its implementation.
However, in these challenging times of global pandemic, experience stores or smart branches can also mean reformatting existing agencies to improve hygiene levels and protect clients against the threat of Covid-19. Installing sensors, protective barriers, and directions for queue management have all become priorities. Such adaptations could lay the foundations for banks to achieve the digital-human balance required to thrive in the 21st century.
Increased focus on clients
Being able to locate and identify clients in-branch, at any given time and without having to spend huge amounts of resources, could be a key advantage for banks, long after the Covid crisis.
Indeed, throughout the last decade, banks spent huge amounts of money on customer relationship management (CRM) to provide client account officers with the most accurate and refined information about their customers.
This mostly manifests itself in-branch, with customers meeting and speaking with tellers and account officers in person. And while this may be a practical approach in Europe, where the flow of clients is decreasing year on year, it is far from sufficient in areas where the majority of clients still come to the branch for most of their services. The footfall rate in such areas is simply too much.
Therefore, using an agile approach to know the number of customers who will come in-branch at a given time, as well as personal information about them, gives banks a key advantage in improving customer relations. Such a system in a smart branch could, for instance, alert branch managers when a VIP customer enters the bank, allowing the manager to ensure the customer is dealt with by the appropriate employee.
Smart branches in Africa
In terms of smart branches, Africa has an advantage over the more developed markets because it’s not weighed down by legacy infrastructure and may have less difficulty embracing change.
African banks are already proving that they may be among the pioneers in terms of next-generation solutions, such as WhatsApp banking. The same could be true regarding smart branches and by making the most of new constraints and projecting a modern and dynamic image.