Digital transformation is the future of African banking. However, concerns over the speed of transformation and the nature of the changes being implemented have been on the minds of experts, a recent report on African Banking Digital Transformation by African Banker magazine and Backbase shows.
According to the report, about 60 percent of banks surveyed described it as the single most important factor and another 34 percent stated that it was among their top three priorities.
Also, there has also been a significant change in the size of budgets allocated by banks to digital development since its last survey. A total of 39 percent of respondent banks now invest at least three million dollars yearly for digital transformation and innovation.
On the effect of COVID-19, the report shows that the pandemic accelerated the shift in the banks’ model as it highlighted the many limitations they were facing.
Out of the African banks who participated in the survey, 49 percent said that they had greatly increased the speed of implementation because 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 pure digital players.
While 81 percent described themselves as being open to change. “In this context, it is no surprise that the need to transform banking practices seems widely accepted,” the report stated.
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However, one of the challenges is the lack of inclusion of African small and medium enterprises (SMEs) in the new digital platforms and the banking system in general.
The report stated that Indeed, SMEs are often afraid of the huge fees that 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.
While some lenders have adopted strategies to address these issues, experts say their efforts could be an inspiration to the industry.
Regarding challenges faced by the banking industry, the lack of a skilled workforce is viewed as the biggest threat. This is cited by 46 percent of participants in the survey.
Telecom companies entering the industry to provide financial services are considered a bigger threat to banks’ market share than the rise of fintechs and challenger banks.
The report stated that it is widely accepted that digitalization can solve many of the structural problems that exist in access to finance in Africa and banks still have a huge role to play to spread financial inclusion, including in the business-to-business segment.
