There are huge, untapped banking opportunities in Africa and banks in the region need to step up to succeed. Retail banking in Africa is far from straightforward. As the world’s second largest and second most inhabited continent, with over a billion people spread across 56 countries, there are a wide variety of trends that are shaping the retail financial services market in the region.
According to McKinsey and Company, 80% of Africa’s total adult population do not use formal or semi-formal financial services. This is for a variety of reasons, some of which include geographical inaccessibility and poor infrastructure, with many of the unbanked living in remote rural areas. This, combined with the high cost of banking services and a lack of financial education and understanding, creates very high barriers to banking for poor rural populations.
The continent’s middle class is growing experiencing a rapid growth fueled by demand in the retail banking segment. Stats from African Development Bank show that the continent currently has the fastest-growing middle class compared to other parts the world. Some 313 million people, 34% of Africa’s population, spend US$2.20 a day, a 100% rise in less than 20 years.
The micro small and medium-sized enterprise (MSME) sector is also critical for the economic and social development of the region but, until recently, have been deprived of the help and support they need from financial institutions in order to grow.
Banks in the continent must embrace the opportunity to reach the above three market areas and provide them with the support they need. However, it’s no easy feat and a number of challenges lie in their way.
These challenges are as follows:
- The banking environment in Africa is predominately a multi-banking one, and so banks continue to face the challenges of keeping the customer close to them. Gaining the loyalty of customers is therefore crucial in maintaining and increasing market share.
- Choosing and deploying the right technology at the right time is a significant challenge. The majority of banks in Africa have a reputation for buying technology, but not deploying it or exploiting it to its full potential.
- Risk management is an issue. African banks lag behind their peers in other countries in this regard and therefore need to work harder attain the global standard.
- Africa will have to deal with the challenges of putting in place efficient operating models, centralized operations and multichannel and multi-product capabilities with lighter and lean operating models – standardized, automated, digitized, paperless and online.
- African banks face tough challenges from non-traditional players, such as those offered and run by telecom operators. In the coming years customer centricity will continue to be the top agenda for banks in Africa. Banks in the region will continue to develop strategies to achieve sustainable growth by focusing on some key areas to hold a better ground by 2020.
Mobile will continue to be one of the most sought after channels in Africa and banks will continue to exploit this channel for customer engagement, delivery and distribution. Telco’s have already taken the lead in delivery through mobile channels and this will encourage more and more banks to partner with these organizations.
Banks will also continue to explore and arrive at the right mix of physical and digital channels. High cost branches cannot survive in their traditional form. Banks need to arrive at the right mix of various branch sizes based on location and customer requirements.
In the coming years, only those who dare to become more and more innovative will succeed in Africa. Banks in the continent need to establish a direct relationship between banking and innovation to continue to grow and remain meaningful in the heart and mind of customers.
