While digitisation is completely transforming the African banking sector, various barriers remain a hindrance to the speed of that transformation.
These obstacles include regulation, the lack of a skilled workforce and citizens in some regions not being able to afford the high smartphone prices.
This is according to the African Digital Banking Transformation Report 2022, compiled by engagement banking platformBackbase, in collaboration with African Banker magazine.
The report is based on a survey conducted by the organisations across 115 African banks, combined with additional research focused on the pandemic’s impact on the African banking sector.
The research shows the pandemic has largely accelerated the shift in banking models, with 49% of African banks saying they had greatly increased the speed of implementation of digital initiatives since the onset of COVID-19.
Some banks were already trying to transition from the traditional model before the pandemic, due to the emergence of new competition on the part of African fintech and digital-only players.
About 60% of respondents described digital transformation as the single most important factor in their bank’s strategy, and another 34% stated it was among their top three priorities.
“Regarding challenges faced by the banking industry, the lack of a skilled workforce is viewed as the biggest threat and is cited by 46% of participants in the survey. Perhaps surprisingly, telecoms companies entering the industry to provide financial services are considered a significantly bigger threat to banks’ market share than the rise of fintechs and challenger banks.
“Other hindrances to banks accelerating their adoption of digital include regulation, the price of mobile phones, the high cost of internet access in most parts of Africa, digital illiteracy and fear of the unknown,” notes the study.
While the price of smartphones is falling quickly in most of Africa, it remains stubbornly high in some markets. As the number of citizens who own mobile phones increases steadily, this should encourage some to use mobile banking, according to the research.
According to the GMS Association, by the end of 2020, 495 million people were subscribed to mobile services in Sub-Saharan Africa, representing 46% of the region's total population. The current population of Africa is 1.4 billion people. It predicts there will be over one billion SIM connections in the region by 2024.
Another challenge highlighted in the report is the lack of inclusion of African small and medium enterprises (SMEs) in the new digital platforms and the banking system in general.This is mainly due to the fact that SMEs are often afraid of the huge fees banks usually charge. Being unable to address these potential customers represents a missed opportunity for banks, even more so in the digital era where SMEs are being lured by the new fintech players, it warns.
“The ability to personalise banking experiences is a key expectation among bank customers today and banks have understood that. At Backbase, we reckon that while barriers to digital banking are falling, traditional lenders are still left behind by extremely nimble and agile fintech competitors,” says Matthijs Eijpe, regional VP EMEA at Backbase.
In terms of regulation-based obstacles, the study references Namibia as an example of how regulation and red tape pose a threat to the sector’s digital transformation endeavours.
“Several banking laws prohibit Namibia’s banking institutions from sharing client data with third-parties without the authorisation of the Bank of Namibia. However, the bank is further looking into the open banking landscape to issue and provide the necessary regulatory guidance later in the year.
“Also, Namibia’s legal framework does not make provision for banks specialising in micro-finance, but if proposed changes to the banking laws are passed, the new policy will allow for the micro-finance banks to operate for the first time,” according to the report.
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