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A banking revolution: ‘The moving cheese’

Eben Mabunda
DIGITAL innovations over the past decade have revolutionised the financial services sector globally with interminable changes witnessed across Africa.

The continent is witnessing newfangled technologies that are accelerating banking 4.0, propelling the rapid rise of digital banks on the African continent. The past three years have witnessed the fast emergence of neo-banks and challenger banks, challenging conventional banking and indicating “traditional banking could soon expire”.

Digital banking defined

Digital banking is the computerisation of conventional banking services, allowing a bank’s clientele to access banking products and services via electronic and/or internet platforms — services that would ordinarily be found at a branch. These encompass automatic teller machines, digital wallets, internet banking and mobile apps among others.

Another key term would be “fintech;” a combination of the words “finance” and “technology”.  In the past, the term “fintech” was used to describe backend systems used by established financial institutions. However, the term has evolved toward a new user focus and is closely associated with the term “digital banking” as it is one of the many different types of financial technologies.

There are several forms of digital banks, markedly challenger banks and neo-banks. Challenger banks are essentially start-up banks, often referred to as “challengers” because they are looking to compete with established banks. Predominantly, these are fintechs that have their banking licence and leverage innovative technology to rationalise traditional retail banking processes, such as Carbon (Nigeria), Tyme Bank, and Bettr Finance (South Africa). Neo-banks are completely digital banks with no physical presence and rely on licensed partner banks as they do not hold a banking licence. Good examples are Eversend (Uganda) and 7aweshly (Egypt).

Digital banks vs traditional banks?

A tech-focused African enterprise iAfrikan.com put it so well: “The rapid migration from traditional banks to digital banks by the market is driven by the low cost of entry. Thanks to technologies like artificial intelligence, machine learning, chatbots, automation, and blockchain alike, digital banks are far more flexible than traditional banks in products and operations.

”With no costs for maintaining physical branches, online banks are very cost-efficient, especially as many transactions carried out online do not require third parties and require way fewer employees than conventional banking.” This translates to decreased banking fees for the consumer.

Approximately 57% of Africa’s 1,3 billion people do not have a traditional bank account — a number too high as it presents limited economic options for Africans.

However, a higher mobile penetration rate presents a sigh of relief as sub-Saharan Africa is the world’s fastest-growing mobile phone market. Presently, there are 747 million SIM connections in sub-Saharan Africa, representing 75% of the population — a strong case for digital banking.

What should traditional banks do?

The adoption of “coreless banking” is  vital here: coreless banking means each banking function operates as a single business function. Put differently, the functionality, products, processes, etc. can be updated or changed without having to touch the main core system — allowing banks to fully digitalise their entire bank without ever replacing the core system. The merits are far-reaching!

In the interim, banks could leverage on technology to simplify and automate infrastructure provisioning and software delivery and by taking a more granular approach to managing and prioritising demand.

A hybrid set-up of traditional banking and digital banking could also prove to be efficient, no wonder Standard Bank closed over 100 branches in South Africa in January 2020, as part of a digitisation exercise. In the medium-term, traditional banks may need to collaborate with fintechs rather than compete with them — MTN’s recent partnership with Flutterwave presents a useful template.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net

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