Today, thanks to digital technology, Africa is the second largest banking market in the world in terms of growth and profitability according to a study conducted by the international consulting firm McKinsey and published in February 2018. While in most parts of the world, the banking sector is facing poor performance and sluggish growth, the African banking sector is in stark contrast as it is growing rapidly and is profitable at twice the global average. McKinsey reveals, in this context, that the number of Africans with bank accounts has increased from 170 million in 2012 to nearly 300 million in 2017. This figure is expected to reach 450 million over the next five years. The sector's revenues on a continental scale are expected to increase from $86 billion in 2017 to $129 billion in 2022. However, this performance is not fairly reflected at the level of the various regions and countries of the continent. Indeed, only five African countries (South Africa, Nigeria, Egypt, Angola and Morocco) currently account for 68% of the continent's total banking revenues. Hence the emergence of new innovative business models to overcome the many challenges facing the retail banking sector in Africa, particularly the low rate of bank-access, the massive use of cash and the weakness of branch networks and ATMs. While traditional banks are still not widely adopted by the population, Africa is increasingly relying on digital and mobile offers. The very low number of branches, at 5 branches per 100,000 inhabitants in Africa compared to 13 per 100,000 inhabitants in emerging Asian countries, partly explains the explosion of the digital banking phenomenon. Indeed, the volume of such transactions increased by 13% per year on the continent between 2014 and 2016, thanks to improved availability, reliability and security of electronic channels. This has made Africa the second fastest growing market in the world for electronic payments after Asia-Pacific. Moreover, about 40% of Africans now prefer to use digital channels for banking transactions. The Birth of The Digital Banks in Africa Previously, the evolution of an African bank was noted in relation to the number of its opened branches that was observed in Morocco for example with an average of 50 openings per year. These banks mainly managed cash, and their administration was traditional. The digital revolution began with the introduction of mobile banking in Africa by telecom operators such as Safaricom in Kenya, a subsidiary of the British group Vodafone, via its M-Pesa system, which quickly overtook the banks. In a world that had until then been very poorly banked, with an average banking rate of 5 to 15% in African countries, except Maghreb region and South Africa, mobile telecom operators have been able to use their proximity to customers and capitalize on mobile terminals, whether with basic phones called "Feature phones" using the USSD protocol or smart phones, to offer a wide range of mobile banking services. The uses of mobile money have evolved, moving from transactional operations (cash in and cash out, bill payments, salary payments, bank to mobile transfers, etc.) to advanced financial services involving an entire ecosystem (insurance, microfinance, etc.) and supported by an increasingly developed digitalization. In 2018, there were approximately 346 million mobile money accounts registered in Africa compared to 120 million bank accounts. M-PESA & Orange Money: Examples of Mobile Banking Success Stories Since its introduction in 2007, M-Pesa has fundamentally transformed Kenya's increasingly digital economy, with fast, secure and traceable transactions. A study by the Massachusetts Institute of Technology estimates that 2% of Kenyans have risen out of poverty thanks to mobile micro-credits. According to Safaricom, the platform has generated up to 2017 some 860,000 jobs, about $1 billion in economic activity (€925 million) and contributes to 6.5% of Kenya's GDP. Another example of remittances by telecom operators that has prompted African banks to review their sense of innovation to win new customers is Orange Money. Ten years after the deployment of its offer in French-speaking Africa, the service has 38.7 million customers in 17 countries and 13 million monthly users. In 2017, it generated €26 billion of transaction values. In Burkina Faso, this amounted to €5.2 billion in 2016, almost half of the country's GDP. Even better, Orange Money generated revenue of €241 million in 2017, representing 5% of Orange's revenue in Africa and the Middle East. In some countries, this service represents between 10% to 15% of the operator's revenue, as in Côte d'Ivoire, where Orange Money has 6 million subscribers, which represents more than half of the local market. As a result, some twenty leading banks on a continental scale have started the process of digital transformation, enabling all "traditional" banking services to be dematerialized (i.e. consultation, transfers, downloading bank statements, ordering checkbooks or online savings management) but also to propose new innovative services. This dematerialization has a triple objective: to facilitate customer procedures, win new customers and reduce banks' management costs. Mobile Telecom Operators and FinTech: From Competitors to Partners In parallel, the rise of fintech has disrupted the institutional banking market for several years. FinTech, new innovative players, are imposing a new form of competition on banks in a market where competition is already high. Indeed, banks already face mobile telecom operators and companies specialized in money transfer and payment. These competitors now have a significant market share through their innovative mobile money transfer and mobile payment solutions. This predominant position would not have been possible without the important work of raising awareness and educating people, especially those with limited bank access, who are aware of the advantages of dematerialized money compared to a traditional bank account. Faced with the innovations of operators and new players, and in a context of a booming market, traditional banks must adapt to remain competitive. As a result, new partnerships have been established between banks and telecom operators on one side and fintech on the other side to provide mobile/online financial services to their customers while benefiting from a lower cost than the bank branch network. This is the example of M-Shwari in Kenya, a mobile lending application developed through a partnership between the Commercial Bank of Africa and Safaricom. The platform provides 80,000 consumer loans per month with only 1.9% of non-performing loans in its portfolio. Another option is to enter into a partnership with Fintech such as Jumo, which brings together data and algorithms to enable its partners, such as Barclays Africa and Old Mutual, to provide 50,000 loans per day, or Société Générale, which has called on TagPay, the world leader in digital security, to design its digital process. Digital banking: What about Morocco? Several years after the launch of the M-Pesa application, the digital fever has seized the banking groups, which are multiplying their investments to catch up in the field of mobile payment and online financial services. In Morocco, for example, and like its Maghreb neighbors, where central banks' regulations are more restrictive, banks have become aware of the importance of digital technology in ensuring the sustainability of their activities. In 2016, BMCE Bank launched Morocco's first online banking site "BMCE DIRECT" and two years later, the bank has launched its digital think tank and its mobile payment solution DabaPay as part of its digital transformation program. In 2016, "L'Banka Lik", the mobile bank of the Attijariwafa Bank group, was also launched. In 2018, "L'Banka lik" was able to capture nearly 7 million connections per month, positioning the group as the leader in this field with 31% of market share. In partnership with ScreenDy, CIH Bank organized its first Hackaton (28 and 29 January 2017) as part of its "CIH Open Innovation" program, aiming at developing innovative mobile applications to reinvent the bank's business. In May 2018, the bank launched its mobile payment solution Wepay. In 2019, CIH partnered with CFG Bank for instant interbank transfer. The bank hopes to have the concept generalized to all banks by the end of the year. Recently, Inwi launched its mobile payment solution, called "inwi money", on September 3, 2019, and became the first telecom operator in Morocco to offer this type of solution to the public after obtaining approval from Bank Al-Maghrib, the country's central bank to create its perfectly autonomous payment institution. Like the existing solutions already unveiled by other operators, inwi money will allow each holder of a mobile phone, regardless of his telecom operator, to have a mobile wallet, attached to his phone number. The customer can now fund or withdraw money from his wallet in the points of sale approved by the telephone operator, or through other means such as bank transfer. Digital banking: The Solution for Africa's Financial Inclusion The enthusiasm for digital banking solutions in sub-Saharan Africa is making the region a source of inspiration for the rest of the world. In this region, the low level of banking coverage associated with the rise of mobile phones has created a powerful leverage effect, while in Europe or other developed regions, the market is mature, and the population is largely banked. The banking offer is denser and more qualitative, with extensive banking networks that do not give operators the same opportunities to replace banks. The development of 3G and the explosion in the number of smartphones users in Africa (smartphone adoption is expected to increase to 463 million by 2020, or 167 million more than at the end of 2016 - according to GSMA) are opening new opportunities and democratizing access to banking services. End customers in Africa do not have the same apprehensions as European customers about banking and are much less conservative about banking products. In terms of disruptive innovation, the weight of the systems installed is an obstacle that is always difficult for banks to overcome. The absence of existing systems in Africa frees it from these constraints and allows it to carry out its financial inclusion projects. It is taking a technological leap forward by deploying digital banking to serve these new populations. Therefore, digital banking is the solution to traditional banking that makes it possible to overcome the shortcomings in banking infrastructures and thus accelerate financial inclusion like fintech Is transforming financial inclusion in Mexico. Safae Laghmari – Research analyst at Infomineo References: https://www.forbesafrica.com/interview/2018/11/28/why-digital-banking-is-unique-in-africa/ https://www.bearingpoint.com/fr-ma/notre-succes/publications/le-digital-banking-en-afrique/ https://afrique.latribune.fr/think-tank/2018-11-05/le-digital-banking-en-afrique-tribune-796331.html http://innovafrica.net/banque-digitale-lafrique-subsaharienne-terre-dinvention-de-la-banque-du-futur-auteurs/# https://lematin.ma/journal/2019/digitalisation-enjeux-decisifs-banques-2019/311209.html https://mck.co/338QIq1 https://banque.meilleurtaux.com/ouvrir-un-compte-bancaire/actualites/2017-juin/banques-africaines-pleine-evolution-grace-a-digitalisation.html https://www.ovh.sn/news/articles/al206.afrique-tagpay-invente-banque-du-futur https://afrique.latribune.fr/finances/2018-04-12/mobile-banking-ecobank-et-mtn-scellent-un-partenariat-strategique-en-afrique-775080.html https://www.bankobserver-wavestone.com/le-mobile-banking-en-afrique-une-source-dinspiration-pour-les-marches-europeens/ https://www.jeuneafrique.com/mag/589438/economie/mobile-banking-orange-money-sur-tous-les-fronts/ https://www.jeuneafrique.com/mag/489420/economie/bancarisation-la-rentabilite-ne-se-mesure-pas-a-court-terme/ https://www.jeuneafrique.com/mag/421063/economie/mobile-banking-success-story-nommee-m-pesa/ https://www.jeuneafrique.com/mag/589451/economie/le-mobile-money-en-chiffres/ http://leboursier.ma/Actus/3940/2019/02/23/Services-bancaires-la-revolution-Ahmed-Rahhou.html https://lnt.ma/evenement-premiere-edition-cih-open-innovation-hackathon-experience-humaine-unique-partie-1/ http://www.leboursier.ma/Actus/1777/2018/05/11/CIH-Bank-lance-officiellement-sa-solution-de-paiement-mobile-WEPAY.html https://www.challenge.ma/bmce-bank-lance-le-think-tank-digital-95893/ http://fr.le360.ma/economie/paiement-mobile-bmce-bank-lance-la-solution-dabapay-167124 https://www.medias24.com/inwi-lance-sa-solution-de-paiement-mobile-inwi-money-4160.html https://www.medias24.com/MAROC/ECONOMIE/ENTREPRISES/169227-Coup-d-envoi-de-L-Bankalik-la-banque-mobile-d-Attijariwafa-Bank.html http://fr.le360.ma/economie/banque-digitale-attijariwafa-bank-revendique-plus-de-30-de-parts-de-marche-186402
Africa's path to technological advancement presents a unique opportunity for Blockchain in Africa to leapfrog traditional barriers and catalyze a new era of innovation. With its vast potential for disruption, blockchain technology stands not just as a digital marvel but as a beacon for progress across the continent, from enhancing mobile payment systems to revolutionizing infrastructure development. With the Internet of Things (IoT) and Artificial Intelligence (AI), low banking rates and booming mobile services, blockchain technology represents a real opportunity for Africa. In fact, beyond crypto-currency (virtual currency not guaranteed by the central bank such as Bitcoin), the blockchain consists of a decentralized and non-falsifiable register, allowing transactions to be validated almost instantly and without a central control unit. Called a trust machine, the blockchain technology will provide the confidence that the continent still lacks today and will contribute to its development by streamlining its financial circuit. In addition to its "secure" and "transparent" nature, the attractiveness of the blockchain lies in the diversity of its applications, including agriculture, public administration, finance etc. This disruptive technology, which first appeared in 2008 in the aftermath of the global financial crisis, can be used in all areas where a trusted intermediary is required. Although it is difficult at the moment to assess the long-term effects of the use of blockchain, the paradigm shift that this technology induces will impact many areas. Emerging countries, particularly in Africa, are an exceptional field of exploration. In the next session, we will present some examples of the use of this technology in a number of African countries. Tunisia: Since 2017, the Central Bank of Tunisia has been seeking innovative decashing solutions to stem the culture of cash transactions that hinders banking development and promotes illegal trade. Tunisian institutions became a driving force in the use of blockchain technology. Thus, the National Post office, in collaboration with DigitUS (Tunisian startup specialized in crypto-finance) and Monetas (Swiss software company) offers DigiCash, a virtual portfolio that allows the user to send and receive money, pay bills, etc. This is an example of a successful public private partnership that helped Tunisia become the first country in the world to issue its national currency via an application that operates through blockchain. Ghana: In Ghana, until recently, the majority of landowners was unregistered and did not hold property ownership titles. Thanks to Bitland, a startup specializing in blockchain technology, it has become possible to register lands and real property rights and store information in a transparent, public and secure manner. In the Kumasi metropolitan region of southern Ghana, Bitland registered land titles in a public blockchain for 28 communities. The startup now hopes to expand its project to a national or even continental scale in order to eradicate corruption and unlock billions in fixed capital for infrastructure development. Kenya: Headquartered in Nairobi, Kenya, BitHub Africa is a blockchain accelerator company founded in December 2015 to boost the development of blockchain solutions in Africa through providing consulting services to organizations interested in deploying blockchain solutions across Africa and Middle East and hosting training developers for this purpose. The company aims to play a significant role in helping the country to reach its Vision 2030 goals and become a world leader in adopting the blockchain technology. In fact, BitHub Africa is working with local regulators to foster Kenya’s blockchain-related technology policies and actively promote regulatory policies that are conducive to ICO (Initial Coin Offering) and crypto-currencies. South Africa: In South Africa, the Blockchain Academy in Cape Town offers training in crypto-currencies and blockchain technology to local entrepreneurs and startups. Established in 2015, the academy’s main focus is on capacity building in the digital currencies and blockchain technology industry by providing specialized training and consulting services in Africa and Middle East. Besides, the South African Reserve Bank has chosen to experiment an accounting system based on Ethereum for bank transfers. The principle of the Ethereum blockchain allows decentralized applications to have a database, without a centralized server, which lists all transactions and exchanges in a secure way. Tanzania: In 2018, the Tanzanian government had weeded out thousands of “ghost workers” in the public sector through the implementation of the blockchain technology. This audit work has been beneficial to the State allowing the government to achieve substantial savings. In fact, the Tanzanian state lost no less than 430 billion Tanzanian shillings every month in the payment of fictitious wages. This means that the equivalent of 195 million dollars can now be distributed properly, which will undoubtedly have a positive social impact on the country. Ethiopia: Ethiopia is the fifth largest coffee producer in the world. 95% of the country's coffee is produced in small rural farms, which suffer from a lack of organization. This situation increases their vulnerability to pressure from intermediaries who are not always reliable. The lack of traceability does not provide buyers with information on the supply chain of agricultural products. To overcome this lack of organization, the Ethiopian government has signed a memorandum of understanding with the Hong Kong-based blockchain company IOHK. This partnership aims to explore new possibilities for the use of blockchain in the agricultural sector. Thus, all the steps of the process are recorded in an eBook that serves as an online agricultural register where users can trace data on the origin and process of the production. After presenting some key illustrations of the use of the blockchain technology in different African countries, we will focus in the following on the current situation of the use of blockchain in Morocco before discussing the challenges facing the implementation of blockchain solutions in Africa. Blockchain in Morocco: Where does the Kingdom stand today? While Bitcoin was quickly banned in Morocco, the technology behind it (the blockchain) is at the heart of many concerns both in the public and the private sectors. Morocco is indeed at the awareness stage of the great potential of this technology. Aware of the great potential of this technology, Morocco has recently launched an initiative that is led by the National Telecommunications Regulatory Agency (ANRT) through its "Soft Center" R&D unit. In 2018, ANRT has also set up a think tank on the subject comprising the Soft Centre, the Sayarh and Menjra Cabinet, Numa Casablanca (current "Impact Lab" which is a Moroccan start-up working on improving the start-up ecosystem in Morocco) and Adalia School of Business (Digital Training and Innovation School). The final goal of the reflection is to create a national blockchain, as part of an Open Innovation approach, aiming to facilitate the creation and deployment of fintech services and smart contracts for individuals and startups. For stakeholders, the establishment of this technological infrastructure will foster the emergence of a national IT industry. In addition to this project, another important initiative is expected to be launched in the Dakhla region in 2019. The project is about the installation of a 900 MW wind farm, equipped with a datacenter for mining to produce clean energy that will be used for running servers for the blockchain. Brookstone Partners, a US private equity fund is behind this initiative with a budget allocation up to $3 billion over a period of 5 years. Blockchain in Africa: What are the challenges for Blockchain solutions? Energy consumption: The most important challenge to the adoption of the blockchain is energy. The mining activity to validate transactions and register them is particularly energy-intensive. For example, the blockchain of the bitcoin would today consume between 300 MW and 10 GW, or more or less the electricity consumption of Ireland (3 GW). The bitcoin blockchain alone would consume 100 times the power used by all of Google's servers that is difficult to ensure given the energy situation in Africa. In fact, according to the 2018 World Energy Outlook issued by International Energy Agency (IEA), the population without access to electricity remains at 600 million in sub-Saharan Africa, totaling 57% of population with 15 countries in the region having access rates below 25%. Hence, technological developments, particularly those related to blockchain, could overcome this challenge. This is the case for micro-grids, local networks where both residents and companies are consumers and producers of renewable energy. Technological issue: In addition to the energy challenge, the blockchain also faces technical challenges. It is about the complexity of this tool and its data processing capacity, which is quite limited. For example, the bitcoin blockchain can process 600,000 to 700,000 transactions per day, far behind the 2000 transactions per second processed by the VISA transaction network. Moreover, some risks are related to the network security and resilience of the system against potential cyber attacks as well as protection of data privacy even though the probability of its occurrence is low given the complexity of the blockchain technology. Regulation: Finally, and in order to ensure a better deployment of this technology, African governments must commit themselves to defining a legal and regulatory framework that remains not formalized so far in most of the countries. In this respect, we can mention the experience of Estonia, which has made great progress in this area and remains a very good example from which Africa can draw lessons. Blockchain technology: Way to achieve "leapfrogging" for Africa Last but not least, the introduction of blockchain technology is not an epiphenomenon. It is a technology with real transformative potential that is of interest to many African countries. From this point of view, the blockchain can help countries to overcome technological transitions and enable the continent to achieve another "leapfrogging”, similar to what has happened with mobile phones. However, it is necessary to overcome the challenges related to blockchain technology in order to turn it into the driver of the next digital revolution in Africa! 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