Banks in many African countries still favour lending to governments and large companies, resulting in less finance for small and medium-sized enterprises (SMEs), according to Banking in Africa, published by the European Investment Bank on February 27.
How digital banking can backfire for African banks
African banks are competing to be the first to offer their customers fully digital banking services. In the race to get there, however, they need to understand that copy-and-paste solutions will not work and service complaints can be amplified.
Standard Chartered in February launched what it billed as Uganda’s first fully digital bank. Customers, the bank says, can open an account in 15 minutes by phone or computer without going near a branch. That was followed in March by the announcement by Kenya’s Safaricom that it had reached an agreement to use its M-Pesa mobile payment service for online shopping on an Alibaba platform.
Kenya is an acknowledged leader in digital banking due to its development of mobile money. Can African banks more generally look forward to the prospect of improving the efficiency of domestic banking through digitalisation, while at the same time opening new corridors of direct trade with markets such as China?
According to Esther Chibesa, head of treasury and trade solutions for Kenya and East Africa at Citi, the challenge for banks is to create a “shared user experience” that can bridge cultures.
- Digitalisation, she believes, has the potential to do this. “The technology is transformative and has great potential to drive new forms of trade. If there is a legitimate flow, it can take off,” Chibesa says.
Tawanda Sibanda, a partner at McKinsey in Johannesburg, argues that African partnerships with Chinese companies “have not been wildly successful so far”. Sibanda points to the complex cultural dynamics at work.
- The cost of data in Africa remains stubbornly high, he notes, and smartphone penetration still has a long way to go. “Digital banking in Africa is going to be different to other markets,” he says, and models that have worked elsewhere can’t simply be copied and pasted. Even within Africa this approach will not necessarily work, he says, pointing out that M-Pesa did not succeed in South Africa.
- Sibanda sees South Africa as the most advanced digital market, due to higher mobile-phone penetration rates, a more developed skill base and long-term IT investment. He cautions that it’s important to look at the percentage of a bank’s customer base that is actively using digital banking, rather than numbers of downloads. What percentage of product sales are actually being made through digital channels? In South Africa, the answer is “not enough”.
In its South Africa Banking Sentiment Index for 2018, BrandsEye retrieved 1.72m public social-media posts about South African banks. A random sample of more than 500,000 of these posts was evaluated for sentiment.
The results should be a wake-up call to banks embarking on digitalisation. Customer irritation with poor service does not go away if moved into the digital space: on the contrary, it is amplified and given a new voice.
- Overall net negative sentiment towards digital interaction with banks stood at 40%, the survey found.
- Standard Bank had the lowest net sentiment for digital themes at -72.7%, driven by complaints about its app.
- Nedbank also received high levels of negative sentiment for its technology, as part of a consumer backlash against the impact of innovation on jobs.
- A disgruntled digital customer is a customer with a megaphone: more than 30,000 consumers threatened to leave their banks on social media. Could there be a multiplier effect?
Digital banking has great potential to allow African trading horizons to expand. But the technology is a double-edged sword and user experience at home, even in the advanced market of South Africa, has yet to be mastered.