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
Mobile Banking and Why It’s Growing in Africa Mobile banking allows its users to conduct financial transactions through mobile devices such as mobile phones and tablets. It is a service offered by banks and other financial institutions that allow users to obtain account balances, pay bills and transfer funds on their mobiles. However, mobile banking is different from mobile payment. Indeed, the latter is a service that allows users to pay for a product or service using a mobile device. Paying for purchases doesn’t require having a bank account. It is more often added to the phone bill or paid by cash to specific agents. Before digging into mobile banking and payment in Africa, it is important to remember that the continent is the fastest growing and second largest mobile phone market in the world[1]. In 2016, there were over 1 billion mobile subscribers in Sub-Saharan Africa[2] alone. Also, 80% of Africans have mobile phones while only 20% of them had access to the internet as of 2015[3]. Fig. 1 - African Mobile Phone Market[4] On the other hand, barely 34% of adults in Sub-Saharan Africa had a bank account in 2014[5]. This account penetration was mainly driven by mobile money accounts. In East Africa, where mobile money penetration is more important, the penetration of financial institution accounts remained steady at 24% whilst mobile money account penetration increased to 35%[6]. Fig. 2 – Account Penetration (2011 and 2014)[7] Fig.3 – Mobile Money Account Penetration in Sub-Saharan Africa[8] In the light of these figures, it becomes obvious that Africans have higher access to mobile money than to mobile banking since a majority of them do not have bank accounts, to begin with. Has mobile money replaced banking in some parts of Africa? Bill Gates once said, “Banking is essential, banks are not.” It seems like Eastern Africa, mainly led by Kenya, has found a way around financial institutions. In fact, almost 60% of the population in Kenya holds mobile money accounts[9]. With over 74% of the population living in rural areas[10], mobile money has made it possible for them to benefit from the perks of banking at lower costs. Moreover, this population doesn’t have fixed salaries since their main source of income is traditional agriculture. Therefore, banking to them is more of a luxury they cannot afford than a necessity for their day to day life. Since it was first launched in 2007 by Safaricom, Kenya’s largest mobile-network operator, mobile money has helped address social challenges while supporting the UN’s Sustainable Development Goals (SDGs). One of the first SDGs directly impacted there is financial inclusion (end poverty in all its forms everywhere). Mobile banking undoubtedly facilitated access to financial services for its 400 million registered users throughout the world[11]. All in all, even though mobile payment does not perfectly meet the definition of financial institution services, it provides those who can’t afford banks with a wide range of financial services including microcredits and money transfers. The growing demand in East Africa mainly might, however, trigger the need for stricter regulations to protect the consumers. Sarah Nassiri, Analyst Intern at Infomineo. [1] Source: African Development Bank, Tracking Africa’s progress in figures report, 2014, [2] Source: The Mobile Economy 2017, GSMA Intelligence, [3] Source: ICT Data and Statistics Division, May 2015, https://www.itu.int/en/ITU-D/Statistics/Documents/facts/ICTFactsFigures2015.pdf [4] Source: African Development Bank, Tracking Africa’s progress in figures report, 2014. [5] Source: The Global Findex Database 2014, World Bank Group, Development Research Group, Finance and Private Sector Development Team - April 2015. [6] Source: The Global Findex Database 2014, World Bank Group, Development Research Group, Finance and Private Sector Development Team - April 2015. [7] Source: The Global Findex Database 2014, World Bank Group, Development Research Group, Finance and Private Sector Development Team - April 2015. [8] Source: The Global Findex Database 2014, World Bank Group, Development Research Group, Finance and Private Sector Development Team - April 2015. [9] Source: Financial Development in Sub-Saharan Africa – Promoting Inclusive and Sustainable Growth, IMF (2016), team led by Montfort Mlachila. [10] Source: World Bank. [11] The Mobile Economy 2017, GSM Association.
With a growing middle class and a population that is moving into the cities, Africa is on a positive growth trajectory. According to the African Development Bank, African consumers will spend about US$2.2tr annually by 2030. Africa is ushering in positive indicators across the board. The challenge is how to reach this growing demand in a continent where not everyone has access to financial services, rural areas are still highly populated and the costs of expanding ATMs and bank branches to remote rural areas are prohibitive. (more…)