21 Jul 2020 / Article

Banks in Africa: ‘go digital or die’

Facing a major drop in revenues due to the economic slowdown, banks in Africa have no other choice but to review their financial positions, on top of having to adapt to new digital habits faster than ever before. 


The Covid-19 pandemic is pushing banks to rethink their business models and redefine their strategies for the future. “Uncertainty is the biggest challenge a banker can ever have because it takes away our ability to price risk,” says Dr James Mwangi, Managing Director and CEO of Equity Group Holdings, the parent company of Equity Bank (which reported revenue of $400m in 2018), Kenya’s second-largest bank

“The crisis has indeed had a huge impact on Africa’s banking revenues,” says Mayowa Kuyoro, Associate Partner at the Lagos office of the leading consulting firm McKinsey & Company. “We have taken the four markets that represent around 50% to 60% of the total pools in Africa: South Africa, Nigeria, Kenya and Morocco. And in those markets, between 2019 and 2021, we expect banking revenues after risk cost to drop by at least 20%. This is a significant hit to the top line for banks operating in Africa.”


“People pay with what they have. If you have an entry-level phone you can pay by text message. If you have a smartphone, you can pay contactless. That’s how it works. We offer people all of these payment solutions and think that mobile payments will continue to grow at a fast rate.”

Serigne Dioum, Group Head of Fintech, MTN 


The mobile era


In its most recent post-Covid survey conducted in Africa, McKinsey & Company found that digital services are taking on an increasingly central role in banking practices. Kuyoro illustrates this point: “Consumers are expecting a shift towards digital services. If you look at Nigeria, at least 43% of consumers plan to use online banking, and 55% plan to use mobile payment services. There is a corresponding drop in the desire to use in-person banking services. The crisis has actually sped up the shift towards digital channels across Africa.” 


Group Head of Fintech at MTN, South Africa’s leading multinational mobile telecommunications operator, Serigne Dioum observes the same phenomenon: “We have seen a big increase in the number of people using mobile peer-to-peer (P2P) money transfer services in most of our countries. People are increasingly accessing their bank account via their mobile phone to transfer money to their wallet and vice versa. They are also buying airtime using mobile money channels. The mobile payments business is really booming across our mobile network. Now we have around 300,000 merchants throughout our countries, which is huge, and we want to go above and beyond this number. Our target for the end of the year is 400,000.”


At the French bank Société Générale, which has longstanding operations in 19 countries across the continent, Philippe Heim, Deputy Chief Executive Officer, is looking in the same, digitally-focused direction: “We are also developing our own digital solutions. In our case, we managed to attract two million customers in the space of two years in West Africa with a mobile payment solution. What is absolutely sure is that the future of banking in Africa will be based around mobile phones.”


“I want to add a voice that banks have woken up to the reality that technology and innovation will drive the future. I believe they will play a major role.”

Dr James Mwangi, Managing Director and CEO of Equity Group Holdings


Plans for the future 


In this context, how do banks see their future in the short term, especially when it comes to competing with telecommunications companies? “We are partners in many countries,” Heim says. “There is a convergence. For example, the Bank of Central African States has decided to increase interoperability. The reality is that all of these stakeholders have to go in the same direction.” At MTN, Dioum has the same line of thinking and downplays the incoming competition: “We don’t view banks as competitors. We see them more so as partners. We are building an ecosystem, and financial services and banks are part of that ecosystem. And if you look at some countries where mobile money is very successful, you can see that banking penetration has significantly scaled up.” 


Mwangi is not concerned. He encourages banks to develop their own strategies that focus on demographics: “We need to be asking, how can banks be innovative, how quickly can banks digitise their processes, particularly legacy systems, how quickly can we respond to environmental issues? For us, demographics has become a central question. How do we make ourselves relevant to young people on a continent where the median age is around 18?”


Mwangi recommends prudent risk mitigation and management practices in the prevailing economic slowdown. This approach was one of the reasons behind his company’s decision to discontinue talks last June regarding a deal with Atlas Mara involving Equity Bank’s acquisition of a 62% stake in Banque Populaire du Rwanda (BPR) and all of Atlas Mara’s subsidiaries in Zambia, Tanzania and Mozambique, including BancABC. “The fact of the matter is that we could not see the light at the end of the tunnel. So, we chose to not enter the tunnel,” Mwangi says. His group had a different attitude earlier this year in the Democratic Republic of Congo (DRC), because, as he recounts it, the negotiations were at a more advanced stage: “We continued the process and are completing the acquisition of the Commercial Bank of Congo (BCDC) because we also believe scale and size are important. Going forward in a digitised environment where competitors could be big platforms, banks need to grow in size so they can compete effectively.”


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