#Digital Transformation

The future of financial services: WhatsApp banking

May 14, 2020 - 8 min read
Youssef Koun, Country Director and MEA Innovation Leader at Sopra Banking Software

The rise in digital banking has opened up new ways for banks to engage with and provide services to their customers, including through social media channels such as WhatsApp. But how can banks harness this new opportunity, both safely and effectively?

Financial networks are decentralizing. Regulations, such as PSD2, are creating open ecosystems, technology multipliers like blockchain are unlocking new efficiencies, and customers increasingly expect money to flow the same way other information does in their lives — effortlessly.

Driven by these forces, financial functionality is becoming a native component of the technology stack. Which means there’s a growing opportunity for embedded fintech rather than pure fintech. WhatsApp banking is a symptom of this, and forward-thinking banks realize it’s best to embrace rather than fight an inevitable trend.

What is WhatsApp banking?

Initially developed by South Africa’s Absa Group in 2018, the combination of a banking chatbot and the WhatsApp Business API is what’s referred to as “WhatsApp Banking.”

How it works

The WhatsApp Business API allows developers to connect third-party systems with the app. The chatbot layer manages the communication between the user and the banking system, thus providing two basic types of interaction:

  • Simple: selecting a preset option during the chat
  • Complex: using AI to understand the conversation
A poll conducted on LinkedIn by Sopra Banking Software

In terms of security, WhatsApp requires a unique phone number and encrypts the communication. On the bank side, sensitive information is protected with passwords. The technology is easy to use, and it expands the number of people who can carry out banking functions like payments, transfers, statement queries and many others.

WhatsApp banking also reduces customer acquisition costs. It simplifies customer journeys and is likely to boost customer loyalty and engagement due to the convenience and pre-existing familiarity with the app.

WhatsApp banking in Africa

Africa is a leader in WhatsApp banking due to several key factors. Historically, the continent has had limited formal banking services and, as a result, experienced greater financial exclusion. According to the World Bank, 66 percent of African adults remain unbanked.

On the other hand, mobile penetration numbers are relatively high. Per GSMA’s Mobile Economy Report, 84 percent of the population (around 1 billion people) will have access to a SIM connection by 2025, a 3.7 percent increase from 2017. Mobile technology has allowed many Africans to leapfrog into the digital future. So far, this future has primarily meant mobile money using the USSD protocol to transact via SMS. Mobile money is extremely popular and has made companies like M-Pesa famous.

Despite investing heavily in mobile banking applications, banks haven’t been able to match the simplicity of SMS. The main reason: downloading a new app and forming a new habit is harder than continuing with an existing one.

WhatsApp banking solves this problem by letting banks reach their customers via a familiar channel – SMS. It matches mobile money’s ease of use but offers more functionality. The WhatsApp user experience also lets banks interact with their customers in new ways. By pushing into video and voice messages, they can break the written language barrier. An important step as in many parts of Africa, literacy rates are still a major problem.

Following in Absa’s footsteps are Zambian bank ZB Financial Holdings and Nigeria’s United Bank Africa, which has an AI chatbot named “Leo” that interacts with customers via Facebook Messenger.

WhatsApp banking is growing

While African banks may be ahead of the curve, they’re not alone. Clients of Brazilian bank Banco Bradesco used WhatsApp to consult the bank’s artificial intelligence-powered chatbot 88.5 million times last year, a 16-fold increase in interactions compared to the previous year.

In the UAE, Emirates NBD has rolled out WhatsApp Banking services similar to Absa’s, and Icici Bank of India recently announced that they’re doing the same. Icici’s service is set to capitalize on the fact that over 400 million Indians already use the app.

There’s also a looming challenge from technology providers. WhatsApp pay, an in-chat payment feature, is about six months from a more substantial rollout in India. WhatsApp pay is another stab by Facebook at entering financial services in a meaningful way, an attempt to emulate Alipay’s success.

Incumbents are finding themselves competing with not only fintechs, telecoms and neo-banks, but with tech giants, too.

Preparing for the future

The banking front-end of the future is a marketplace, and the future consumer has expectations that go beyond simple payments.

To transform the market, banks must offer services that exceed the level of those currently on offer. They need to build on existing relationships with customers and offer frictionless experiences accompanied by complementary services. As further differentials, services like loan origination and insurance products can be tested via WhatsApp.

Banks need to embrace innovations like WhatsApp banking while respecting prerequisites such as security and confidentiality. In this digital age, the best approach is to deploy in agile mode and to focus heavily on user experience.

This new channel must be combined with the right AI technology in order to provide personally targeted offers, greater efficiency in customer service support and secure digital identity for smarter onboarding. In doing so, banks can grow customer relationships and reap downstream benefits like revenue uplift, lower customer service costs and fraud reduction.

Looking forward

We’re approaching a milestone where fintech is less a business model unto itself and more a basic ingredient in technology. Incorporating financial services directly into social media apps that millions of people already use is part of a bigger shift that’s reshaping the banking landscape.

The consumer relationship is migrating to the next layer of protocols and services. Institutions are increasingly having to let go of their own customer portals and focus on being the facilitator of next-generation services.

Using social media channels for banking is a sea change. It is not only a critical growth opportunity for banks, but also a chance to help underserved economies and accelerate financial inclusion around the world.

Sopra Banking Software is working with 250 customers in Africa to better learn how to democratize WhatsApp Banking. Early adopters – such as Mansa bank in the Ivory Coast and Société Générale Maroc and CIH Bank in Morocco – are looking to deploy WhatsApp banking services to their customers for different use cases.