Association for Free Research and International Cooperation

The future of African Banks at risk as mobile telecoms invade the space

Article from AFRIC Editorial
Banking has been a sacred industry mainly dominated by established and renowned brands. It has relatively remained so because of the high investment cost required and the difficulty in getting a reasonable clientele base to maximise both interest and non- interest income to make a profit.

However, the rapidly changing technological landscape has seen mobile telecoms joining the fray to compete with banks in their traditional roles of sending and receiving money, cash withdrawals, payments for salaries, bills, school fees, online purchases, structured savings, short term and long-term investments, insurance and life assurance services to name but a few. Mobile telecoms have gone the extend of giving out consumer loans, a market largely considered the territory and mainstay of Banks and mainstream financial institutions. According to Michael Jordaan, Africa has more than half of the world’s mobile money transfer services. Jordaan is the CEO of Bank Zero, another mobile money transfer in South Africa. He said banking should be like WhatsApp, Facebook and Twitter which does not require branch infrastructure. This only shows one thing, mobile money is becoming more convenient than the traditional banking of visiting branches and banking halls.

According to McKinsey Global Banking Report, 40% of Africans prefer to use digital channels for transactions. As if in support of that notion, Kenya’s M-Pesa has 28.5 million users in East Africa while Ecocash has more than 10.5 million users in Zimbabwe relative to banks that have a combined customer base of less than 7 million. Ecocash was only launched in 2011 while many banks have been operating for the previous twenty or so years. In another report, the World Bank’s Findex Database highlighted that 21% of adults in Sab-Saharan Africa have mobile money accounts and the market share is rapidly increasing. MTN, one of Africa’s giant mobile telecoms announced that it would soon allow money users to interact across networks.

What worries banks is the fact that mobile telecoms take advantage of their established IT infrastructure to outcompete them. When juxtaposed against each other, mobile telecoms are generally faster and instant than banks. Their services are simple to use and there is less need for human intervention in their processes. For these reasons, mobile telecoms financial services have penetrated the largely unbanked rural populace of Africa, tapping into a market that traditional banks have struggled to penetrate. In view of this paradox, banks are finding it difficult to operate and navigate the suffocating terrain of African banking. To show that its no longer business as usual in the Africa banking domain, the big banks namely Barclays, Standard Chartered and Stanbic Bank are mulling exiting the African market. Barclays has made several steps in that direction by selling a number of their operations in African countries the latest being in Zimbabwe where Barclays Zimbabwe was sold to the First Capital Bank of Malawi.

The way forward for banks

Reality is banks have no option but to invest heavily in fintech systems if they are to pace up with the aggressive mobile telecoms. They also need to be agile and execute with tenacity. Banks have generally been slow to adapt to changing market settings but now they must dump that outdated script and be swift not only to respond to change but to be change initiators in their operating domain. African banks must wake up and decisively deal with the big elephant in the room! If they cannot beat them, they must find ways of integrating banking services into mobile telecoms operations to mutually co-exist otherwise they will be overtaken by mobile telecoms invasion of the financial sector.

African banks must improve their product mix if they are to survive the new digital banking landscape driven by the new fintech era that has stormed the market. One way is to play the agency game and be a one stop shop for mobile money cash withdrawals and deposits, bancassurance services, nostro withdrawals for players like Western Union, World Remit, Mukuru and Senditoo.

Lastly African banks must consider focusing on merchant banking territory which mobile telecoms seem not very keen to invade given the specialised nature of services. By its nature, merchant banking is a low volume high value business presenting high scope of profiteering from a well serviced niche. African banks may also ride on the increase in SMEs that have high prospects of growth and capture that market by offering tailor made financial solutions peculiar to that sector.

Article from AFRIC Editorial

Photo Credit : google image/illustration

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