Even before the Covid-19 pandemic hit, African banks desired to digitize as much of their operations and services as possible. “African banks’ focus on digitalisation started well before the Coronavirus pandemic, reflecting its need to deepen financial inclusion and reach the unbanked”, Constantinos Kypreos, senior vice president and banking analyst at Moody’s tells me.
In a business environment where physical structures, paper trails and cold cash are highly valued, digital banking adoption rates across the continent are mixed. Visits to bank branches still tend to be the norm. But these are increasingly reserved for transactions that could not be done otherwise. Customers increasingly find the use of automated teller machines (ATMs) more than suffices barring limitations on cash withdrawals and deposits and the occasional technical mishap.
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Paper-based documentation has been hard to shake off, however. Almost every activity by a bank customer inside a bank branch across the continent still requires a paper trigger. This is despite the fact that almost all the activities in a bank branch could easily be done on a mobile phone app. Even the acquisition and renewal of debit and credit cards may not require much ado if banks were determined to automate the process.
Central banks have been urging more cashless transactions to prevent the transmission of the coronavirus. Restrictions on movement by authorities through lockdowns have also made the idea of banking from the comfort of homes more attractive
Less cash, less paper, less branches
Much of the hesitation about bolder digitization by banks hitherto can be traced to cultural and regulatory factors. In other words, African digital banking has evolved to the extent that has been optimal or feasible within subsisting cultural and regulatory constraints. With the Covid-19 pandemic, however, the push towards greater digitization has come from regulators, staff and customers themselves. That is, what were hitherto sources of constraints have become digitization enablers.
Central banks have been urging more cashless transactions to prevent the transmission of the coronavirus. Restrictions on movement by authorities through lockdowns have also made the idea of banking from the comfort of homes more attractive. Necessity has similarly forced paper-based activities, that hitherto faced barriers to digitization owing to cultural and regulatory proclivities, to be similarly streamlined.
The experience varies across the continent. In Kenya, mobile money was already mainstream before the pandemic, making the transition to Covid-19 related protocols almost entirely seamless.
That is, Kenyans did not need to change their behaviour materially. According to Adesoji Solanke, director, frontier/SSA banks equity research, at Renaissance Capital in London, “Kenya is the best case in point where the adoption of mobile and agency banking that took off in the early part of the preceding decade led to reductions in the growth of branches and employees over the next decade but gave the banks new revenue pools as they explored new channels to serve the customer.”
Nigerians, on the other hand, besieged bank branches at the earliest opportunity they got. Probably owing to the caution of the authorities and obvious exigencies, Nigerian banks adapted quite swiftly, moving more of their services online. GCR Ratings senior analyst Funmilayo AbdulRahman in Lagos says that “banks had no choice but to service their customers remotely through digital platforms”, with “volume of transactions across digital platforms [jumping] significantly by an average of about 40 percent within Q2.”
The Central Bank of Nigeria was also an enabler. With more people making payments using debit cards or bank transfers, there is increasingly less need for cash deposits at bank branches. Foreign currency transactions that required a visit to bank branches and offices of FX dealers have also been made less tasking.
In this regard, the CBN announced regulations to force almost all FX transactions to be done via bank transfers. In the past, a customer would typically withdraw hard currency at a bank branch in cash for onward exchange for the local currency and vice versa at a bureau de change. Now, bank customers can no longer withdraw hard currency in cash for that purpose. Instead, the entire exchange is done online via transfers.
In South Africa, the continent’s most advanced country, it is in the supposedly face-to-face loan-making process that digital progress is reportedly being made. The pandemic has forced the process to go online, from applying for a loan to disbursement. While it would not be surprising if there is a temptation to revert to the old paper-based process post-pandemic, bank executives increasingly opine that this is unlikely to be the case.
An edited version was first published in the Q4-2020 issue of African Banker magazine
