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Africa needs digital-native banking services

14 01 2019

How can banks contribute to social and economic development in Africa? How can banks improve financial inclusion? What are the best ways to access banking services in a continent where two-thirds of the population live in rural areas? A new type of distribution network centred on intermediaries (partnered with financial institutions) and technological solutions aims to win the vital trust of unbanked individuals. Here is how. 

Awa sells clothes in Massala, a small town 40 km away from Abidjan. She knows her customers’ clothing tastes inside out, and never holds a piece in stock for long. However, she struggles to cover the cash advances that her suppliers demand and to safeguard the cash she receives. With no bank nearby, she takes her money to the capital once a month and relies on the tontine (collective savings association for financial projects, very common in West Africa) for credit. This system works and allows her to make a living from her business, but Awa would prefer to spend more time choosing which clothes to sell! That would mean having a service nearby, so she could make payments (deposits, withdrawals, transfers) and access financing.

Despite the population’s very real needs, the rate of financial inclusion in a large part of sub-Saharan Africa is still extremely low. In Ivory Coast for example, it has risen from 7.1% in 2007 to 19.7% in 2016 according to the country’s Treasury. While this may be a significant increase, it is difficult to correlate this growth with the development of the country’s physical banking network. For example, in 2016, the country still only had 665 bank counters and 934 ATMs: nowhere near enough for a population of over 23 million!

Nonetheless, financial activity does exist, but without the use of a bank, due to its incompatibility with the lives and facilities of a population that is either too rural or little inclined to visit a physical branch. In these circumstances, how can we support economic growth without secure financial services, nor access to financing for the most remote populations (of which there are many)?

The central banks and finance ministries of emerging African markets pledge to boost financial inclusion. To play an active role in these efforts, banks must transform their distribution model, primarily based on a network of physical branches, and create an offering in tune with Africa’s specifics, such as high smartphone penetration rates.


In practice, that means redesigning the customer journey and product range to provide financial services that are accessible and distribution models suitable for the target clientele.

First question, accessibility: the services must be offered locally, using the facilities available to those excluded from the banking system. The concept of agency banking — whereby partner intermediaries are recruited to act as local bank representatives — constitutes one potential approach, but it is not the answer to every requirement.
In its predictions for Africa, Deloitte estimates that 660 million Africans will have internet access via their smartphone by 2020, quadruple the penetration rate of 336 million in 2016. Mobile phones are thus evidently the biggest entry point to the banking universe.
This is not news to mobile operators, with the majority of those active on the African continent already offering mobile payment solutions. Unlike the majority of financial institutions, whose products are based on traditional banking practices, phone operators have created services that do not replace a real bank account; instead, they directly meet the requirements of the target customers. As an alternative to complicated financial products, they have looked to offer simple and practical solutions such as mobile payments, money transfers between friends or customers and suppliers, micro-financing and bill payments.


Trust is critical to improving access to banking services. How do you entice customers come to you when they do not see any clear benefit of doing so, with your bank located thousands of kilometres away and seemingly far-removed from their daily problems? Banks are faced with the two-fold challenge of boosting their appeal and earning trust: they must explain how having a bank account is beneficial and dispel any fears surrounding the matter.

Once again, digital technology is an invaluable tool, allowing financial services to take centre stage in an environment already familiar to the large majority. Deloitte’s study on Africa highlighted that 80% of smartphone users spend more than an hour a day on their phone. Usage grows daily with a gradual increase in subscriptions and the consumption of paid content.

This large uptake is an advantage for both appeal and trust, driving banks to invent mobile-native and secure customer journeys thanks to the available technology. For example, using biometrics, included with most devices (smartphones, tablets and computers), to secure transactions or sign up customers is an argument that speaks to all potential users. Similarly, being able to monitor a transaction’s process in real time can reassure users who sometimes do not even realise that such services are possible.
Innovations in customer practices could provide a strong competitive edge and offer much reassurance in emerging markets.

This necessity to redesign and better tailor products to different needs does not just concern interfaces and the customer journey, but also the tools that underpin the financial services. Let us take for example the way credit risk is calculated. Traditional banks tend to use the historical data they possess as well as central files to evaluate a customer, but such a method cannot be used in new markets where customers have had no previous contact with the banking systems in place. Instead, they must adapt to the target population and devise other evaluation techniques based upon suitable indicators (e.g. evaluation of future customers through their social media), which is what the industry’s African specialists and FinTech companies already do.

That is the challenge banks must address: learning how to create digital-native banking services. For that, they must succeed in making concessions with their existing systems and exploiting the catalogue of technology and innovation at their disposal: paperless documents (for KYC), biometrics, blockchain, big data, business intelligence, artificial intelligence. It is now upon them to find different ways to capitalise on their potential to adapt to each country’s specifics, using the day-to-day practices and subsequent needs as a foundation.

David Lejolivet - Product Strategy Director at Sopra Banking Software

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