Global management consulting firm, McKinsey and Company, has called on banks in Africa to embrace digital transformation as contained in a recent study by the company. The report, titled Roaring to life: Growth and Innovation in African Retail Banking, generally explores five drivers of success among Africa’s retail banks, among which is the adoption of digital technologies in the industry.
On the Digital First section, findings of a survey of 2,500 bank customers in Africa reveal a growing preference for mobile and internet banking over traditional branches in the continent. This comes as no surprise considering how fast digital technologies are penetrating the continent.
Some 40 percent of the African banking customers surveyed prefer to use digital channels for transactions, roughly the same share as those who prefer branches. While in four of the continent’s major banking markets, the share of customers who prefer digital channels is significantly higher than the share preferring the branch channel.
“Africa’s retail banks have compelling reasons to embrace digital transformation … Africa’s retail banking markets are ripe with potential and present huge opportunities for innovation and further growth,” the McKinsey report stated.
While citing new technologies such as robotics, machine learning, mobile technology, and cryptocurrencies as some of the tools for advancement, the consulting firm presented four alternative digital strategies that banks could adopt to fully maximize the opportunities for innovation and growth.
Similar to what Equity Bank in Kenya has done, African banks can digitally transform their existing operations. This enables them to increase their share of digital sales and transactions to beyond 60 to 70 percent on each measure.
Secondly, collaboration with telcos or FinTechs can help banks deliver mobile financial services to their clients at a cost below that of the branch network. The partnership between Commercial Bank of Africa and Safaricom in Kenya to create MShwari – the mobile-based loans application – is an example.
The third digital strategy involves the building of a digital bank from scratch. An example is Africa’s first fully digital bank, ALAT, launched by Nigeria’s Wema Bank in 2017.
Lastly, banks can build an ecosystem or platform of non-banking services. Alipay in China and the Commercial Bank of Australia have applied this approach at scale within travel and hospitality, and home-buying sectors respectively.
The overall picture shows that African banking customers are “enthusiastic about digital banking channels,” McKinsey said, adding that the question that follows is whether banks will be able to answer the call and provide these services.
The McKinsey report draws on the experience of the company’s partners and colleagues serving banks across the continent. It also includes information from McKinsey’s Global Banking Pools research; a proprietary database of the financial performance of 35 of Africa’s leading banks; a survey of executives from 20 banks and financial institutions across Africa; and the broad-based survey of 2,500 customers mentioned above.