In 2020, Africa was the fastest growing region for digital adoption in banking, accompanied by a shift in consumer behavior that was triggered by the coronavirus pandemic. However, despite the challenges caused by the current realities, the crisis also presents an opportunity to rethink the trajectory of African finance.
According to a report by McKinsey & Company, digital banking channels across Africa experienced a 20 percent year-on-year growth from June 2019 to June 2020 – which is by far the fastest growth out of all the regions in the world. In some countries like South Africa, where digital banking activity was slow before 2019, there has been nearly a fivefold acceleration in digital adoption.
The Covid-19 crisis also unlocked real acceleration in electronic payments as the lockdown forced a lot of SMEs to move online, while banks and fintech companies like Paystack were quick to offer solutions to businesses who only accepted cash as payment.
“2020 was a year when everything we had put forward as solutions for the banking sector became imperative, particularly the conversation around digitization,” said Ade Ayeyemi Chief Executive Officer, Ecobank Group.
“Now that we’ve demonstrated that those technologies actually work, as we go forward, scaling them in partnership with others across fintech and other sectors is what is going to enable sufficient financial deepening so that we can create wealth on the continent,” he said.
The insurance industry has also proven more resilient during this time, with a lot of companies working to revolutionize the way customers buy insurance and access these services digitally.
“Some companies like BIMA, a shareholder of Allianz have made it possible for people to buy insurance for as little as 30 cents a month for coverage,” Delphine Traoré, Chief Operating Officer, Allianz Africa explained.
“What we also did as a company was to invest 10 percent of our annual revenue into digitization. We needed to make sure that our infrastructure and internal system were solid enough so that we could also start offering that to our partners, while providing insurance to our customers all over the world,” she added.
Also, in addition to cooperation between mobile money operators and the regulators, global financial companies have been tasked with ensuring that everybody who is participating in the economy can easily access financial services. With this, savings can be channelled towards projects that will boost economic activity, enable the government to better participate and create an enabling environment for big companies to invest in Africa.
Paul de Leusse, Chief Executive Officer of Orange Bank, emphasized the importance of digitizing customer relationships through access to data. “Many customers come from the informal sector – they use our loan to buy hardware to sell. We digitized our relationship not only via USSD technology, but also by using the data which allows us to understand our customers’ needs and access to liquidity,” he said.
Economic reforms to back the financial sector
Despite the impact of the pandemic, Ethiopia remains strongly committed to liberalizing its telecommunications and financial sector. According to the Ethiopian Minister of Finance and Economic Development, Ahmed Shide, this is part of both Ethiopia’s 10 year plan and a core aspect of its broader economic reform program.
“To liberalize the telecommunications sector, we have decided to issue 2 new telecom licenses and also provide 40 percent of Ethio telecom which was a government monopoly. Meanwhile, in terms of financial sector liberalization, there are still steps which need to be taken to consolidate our reform, but we are now very pragmatic and open minded,” he explained.
“By opening up our market to additional telecom operators, new technology and a stronger network will improve the connectivity and allow for maximized opportunities presented by the digital economy,” he added.
With the likely deterioration in portfolio quality expected to impact profitability, it is crucial that the most agile and digitally-ready operators take the lead in tackling emerging challenges.Many also hope that the financial sector remains resilient as more governments introduce reforms that are mindful of the finance and banking sectors.