Before the outbreak of the COVID-19 pandemic in 2020, Africa’s financial services sector was struggling to reach its full potential to be at par with its European and American counterparts. The pandemic slowed progress in the sector, as well as in other critical sectors. And as policymakers strive to drive the financial services sector against a global headwind, the continent further recorded a significant exit of foreign banks. This retreat which began in the last decade has resulted in job losses and dwindling investments in the continent. However, we have established that these exits have created a favourable window for local players to pursue cross-border expansion within the continent.
A walk back in time
In 2016, Barclays announced its withdrawal from the African market after over a century of operations. The British bank gradually reduced its 62 per cent stake in Barclays Africa Group to a non-controlling stake of 14.9 per cent. This came after a report of a two per cent decline in profit and a dividend drop of more than 50 per cent per share.
Last year, Atlas Mara Ltd (Atma), a UK-based financial conglomerate that had acquired banks in seven African countries, made several moves signalling its exit from the continent. The decision followed a resolve that its African investments were “risky” and the sub-Saharan African macroeconomic environment was “challenging” for its profitability. According to a report by Business Insider, the bank said currency volatility and drying up of liquidity in African markets adversely impacted its operations.
Some of these banks labelled the continent as bad for business even before the pandemic, as they exited to focus on primary and most profitable markets. However, Standard Chartered Plc (SC) is tapping Africa’s digital banking economy to manage running capital and increase market share while shutting down physical offices. A win-win situation. Recently, Bloomberg reported that SC concluded plans to half its Nigerian branches as it tilts towards digital banking. The bank moved to reduce its branches to thirteen from twenty-five branches, a strategy expected to help reduce its operating cost, mitigate losses and tap into Africa’s vast unbanked market.
While the likes of Atma and Barclays Plc have made solid moves to exit the continent, SC has permanently adopted digital retail banking and working practices initially implemented due to the pandemic. If more multinational banks could adopt SC’s strategy, they would create more jobs, reach more customers and spend less working capital.
The impact of digital banking in Africa’s financial sector
Although digital banking existed in Africa prior to the pandemic, it was underutilized. Many questioned the legitimacy of such simple, quick, and convenient banking, but the pandemic highlighted its value, particularly for Africa’s vast unbanked population. The digital revolution arrived in Africa when telecom operators such as Kenya’s Safaricom (a subsidiary of the British group Vodafone) and South Africa’s MTN introduced mobile banking, which quickly surpassed commercial banks. With increased competition from neobanks like Tyme Bank, a South Africa-based digital bank, and big tech companies, commercial banks in the country have continued reimagining financial services.
In 2021, twelve commercial banks listed on the Nigerian Stock Exchange earned N200.45 billion from their e-business units between the first and 3rd quarter of the year. Banks revenue from electronic banking in Nigeria surged by 41.1 per cent to N200.45 billion ($487.6 million) compared to N142.1 billion ($345.8 million) recorded in the corresponding period of 2020.
As of Q1’2021, Equity Bank Kenya, a leading Kenyan tier-one bank, reported that 98 per cent of all its transactions happen on EazzyNet, its digital platforms. The bank noted that EazzyNet registered the most significant growth with a 235 per cent jump from Ksh 2.9 billion ($25.55 million) in March 2020 to Ksh 9.7 billion ($85.47 million) in March 2021.
Written by Ishioma Emi