The continent is moving at two speeds. With a lack of infrastructure, qualified staff and money to invest in the digital transition, the financial sector is leading the way thanks to the rapid evolution of fintech and mobile banking solutions. Alignment will be difficult…
African Banker, in collaboration with banking technology developer Backbase, recently launched the latest edition of the African Digital Banking Transformation Report.
This comprehensive 30-page document investigates the latest developments in Africa’s digital banking landscape, thoroughly monitoring the rate of progress, the main areas of focus for banks and the strategies used to establish mobile apps and internet banking functionalities.
Banking penetration rates on the rise, but with challenges
Banking access increased in 2022, with 48 per cent of the population now accessing banking services, compared to 45 per cent in 2017. This growth can be attributed to the popularity of mobile money and digital banking. Approximately 50 per cent of the continent’s population remains unbanked, indicating significant potential for further growth in the sector.
McKinsey – a global management consulting firm committed to helping organisations achieve sustainable and inclusive growth – forecasts an annual growth rate of 10% in the African financial services market, generating 230 billion dollars in annual revenues by 2025. Cash still dominates financial transactions in Africa, accounting for around 90 per cent – while electronic or digital channels account for only 5 to 7 per cent. In comparison, Asia and Latin America have a higher digital banking adoption rate, at around 50 per cent.
However, a new generation of middle-class urban customers is emerging who prefer to carry out transactions online. Younger people are more inclined to adopt digital technology than their parents and grandparents, suggesting that the use of digital banking services will continue to grow. The limited infrastructure for card payments and the low use of point-of-sale networks also contribute to the preference for digital banking.
The digitalisation of banking services has significant potential in all African economies… economies with more stable governments have made more progress in mobile money
Also contributing to this scenario is the fact that the accessibility of digital banking does not depend solely on the availability of digital platforms, but on the possession of a mobile phone. Mobile phones dominate online access in Africa, accounting for approximately 75% of all online traffic. Consequently, banks’ digital platforms are designed primarily for mobile use.
The main obstacles to accessing digital services include the high purchase prices of mobile handsets and data tariffs. According to the World Wide Web Foundation, mobile internet costs represented 5.8 per cent of the average income on the continent in 2020, making it the most expensive region in the world for digital access. The average costs of 1 GB of data and smartphones decreased significantly between 2018 and 2021. This indicates a potential increase in the number of people who can access mobile banking.
Fragmented markets
Countries such as Kenya and Ghana have been leaders in the adoption of digital payments, with mobile wallet transactions in Kenya accounting for 87 per cent of its GDP in 2021. The country has achieved one of the highest levels of fintech penetration globally, increasing access to banking services from 26 per cent of the population in 2006 to 83 per cent in 2021.
On the other side are countries like South Africa, where 84 per cent of the population had access to traditional banking services in 2021. Here, digital banks such as Bank Zero, Discovery Bank and Tyme Bank face the challenge of demonstrating the advantages of their services over physical bank branches and ATMs, rather than focusing exclusively on unbanked individuals.
Despite this fragmentation, the digitalisation of banking services has significant potential in all African economies. In Somalia, for example, 70 per cent of adults regularly use mobile money services. This popularity is driven in part by the prevalence of counterfeit notes. Generally, economies with more stable governments have made more progress in developing mobile money and digital banking services compared to more fragile nations, such as the French-speaking states of the Sahel.
Banks could invest more in digital transformation
The majority of African banks recognise the importance of digital technology, with only 4% considering it unimportant or less relevant. However, although 51 per cent see it as the most important factor, many banks still need to build their overall strategies around digital technology.
Only 28 per cent of respondents to a survey reported that their bank spends more than three million dollars annually on digital transformation and innovation. What’s more, the proportion of banks allocating less than $300,000 a year has risen from 21 per cent in 2021 to 27 per cent in the current survey.
Among those who understand the significance of digitalisation, the focus is mainly on the development of mobile technology. More banks offer mobile banking apps than internet banking, reflecting the dominance of mobile technology not only in digital banking, but also in digital access across Africa.
In terms of priorities, 41.3 per cent of respondents want to build a mobile digital payment app, while 34.8 per cent are focused on an internet banking platform for 2023-2024. This is not surprising, considering that mobile phones account for around 75% of all online traffic in Africa.
in Africa.
Artificial intelligence on the horizon
Cyber security was considered a crucial trend by 74 per cent of the banks surveyed last year, a score that drops to 61 per cent in the 2023 survey – topped by Artificial Intelligence (AI).
Many believe that AI will be this year’s most important technological trend. McKinsey’s research highlighted a European bank that increased its productivity by 25% through digitisation and the adoption of AI, including cognitive agents, digital assistants, advanced analytics-driven training and robotic process automation.
The predominant side. The lack side
Recognising the urgent need for digital migration, the African Union has drawn up the Draft Digital Transformation Strategy for Africa (2020-2030), based on the decisions of the organisation’s Executive Council relating to ICT.
The Strategy should build on existing initiatives and frameworks, such as the Policy and Regulatory Initiative for Digital Africa (PRIDA), the Programme for Infrastructure Development in Africa (PIDA), the African Continental Free Trade Area (AfCFTA), the African Union Financial Institutions (AUFI), the Single African Air Transport Market (SAATM) and the Free Movement of Persons (FMP) to support the development of a Digital Single Market for Africa (DSM), within the framework of the African Union’s integration priorities.
The Project’s first finding is that almost 300 million Africans live more than 50 kilometres from a broadband connection, so the lack of widespread availability of high-speed Internet remains a significant obstacle to Africa taking full advantage of the full potential of the digital transformation. Mobile devices remain the main way in which people access the Internet, and specific Internet connections to homes and offices are practically non-existent, except in some capital cities.
Mobile devices continue to be the main way people access the Internet, and specific Internet connections to homes and offices are practically non-existent
The reliance on mobile rather than fixed broadband means that unlimited pricing or unlimited data usage is not very common in Africa. However, the mobile phone revolution opened the door to private sector investment in telecoms, and now new business models and services have significantly extended sustainable communications services.
No digital skills or research
Although the continent accounts for 13.4 per cent of the world’s population, it produces only 1.1 per cent of scientific knowledge. Africa has been slow to adapt and develop its science and technology sectors and commercialise its innovations, despite multiple agreements and the decision by heads of government and state to increase investment in Research and Development (R&D) to at least 1% of GDP and the adoption of the Science, Technology and Innovation Strategy for Africa 2024 (STISA). Only 1% of the world’s investment in R&D is spent in Africa, and the continent holds a tiny 0.1% of the world’s patents.
Also according to the Digital Transformation Strategy for Africa (2020-2030), it is necessary to consider the locally formed human potential that African countries struggle to maintain and utilise at national level. In addition, a demographic explosion in the youth population will result in 375 million young people entering the labour market by 2030.
It is crucial to ensure the widespread availability of digital skills that enable citizens and businesses to seize the opportunities and prevent the risks of the digital economy.
What can be done?
An overview of the African Union concludes that in order for the continent to realise the long-awaited digital transformation and be globally competitive, several preconditions must be met. The main one is investment and the cultivation of highly qualified people as producers, consumers and innovators of digital technologies. Investing in citizens’ digital skills, backed up by technological and human capabilities, is the soundest strategy for the future.
Likewise, as active participants in the digital ecosystem, citizens must have the digital skills to embrace and use digital advancement in everyday life.
With an appropriate and coordinated human and institutional capacity development strategy, young people, who make up 60% of the total population, can be reshaped, harnessed, empowered and transformed into a digitally adaptable, skilled and innovative workforce that not only understands, adopts and moves with global trends, but also charts its own digital paths for inclusive growth and development.
