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Expect more digitisation
The attraction of cash, paper and branches remain. Still, the obvious cost inefficiencies made writ large by the forced efficiencies owing to the pandemic probably have many bank chiefs wondering if they had not been derelict in their duties. In Nigeria, for instance, banks chose to rationalise their branches, opening a set one week, a different batch on another.
Renaissance Capital’s Solanke tells me “there has been some cost optimisation but less so staff-related but more from cutting unnecessary costs from the stack.” “Additionally, there are some costs that naturally fell away as many people worked from home but that also led to additional costs in some instances, such as IT capex, software licenses etc.”, Solanke asserts.
“On a net basis, we are seeing more banks having reduced costs in the second quarter than grown it sequentially”, Renaissance Capital’s Solanke adds further. “There were indeed some layoffs or reductions in bonuses”, Solanke says, “but not in the magnitude as you might have expected.”
Considering banks have been able to deliver their services relatively efficiently with less resources, some executives must clearly now wonder about the redundancies in their operations. Some complain they had little or no choice. Regulators insist on many measures that still require physical, face-face, and pen-to-paper activities. As the same regulators are the ones insisting on more digital approaches, the boats may have really sailed this time around.
Considering banks have been able to deliver their services relatively efficiently with less resources, some executives must clearly now wonder about the redundancies in their operations. Some complain they had little or no choice
Customers do not need to speak to anyone for what are already known typical issues. Answers to frequently asked questions can be automated. Biometrics and an increasing trend towards digital IDs suggest there might not be a need for currently tasking onboarding processes in the near future. Mobile money does not require much ado in any case. More African banks have started to make their digital banking offerings similarly convenient to forestall attrition from fintech firms and agile and nimble digital-only counterparts.
Renaissance Capital’s Solanke analyses the competitive landscape as follows. “The competitive landscape is evolving rapidly, often aided by regulatory action and inaction”, says Solanke. “FinTech’s are finding different verticals to wrap a new business model around but we find that the banks are not necessarily sitting idle as all this happens”, adds Renaissance Capital’s Solanke. Besides, “partnership more so than direct outright competition seems to be the winning response from the banks”, Solanke asserts, confirming what many bank chief executives say when asked the question.
In fact, “increasingly banks are opening up their infrastructure to partner with fintech’s via APIs, setting up internal accelerator platforms, investment funds etc.”, says Renaissance Capital’s Solanke. That is not to say banks are giving fintech’s a free pass. Because even as partnerships are more likely in new market or low-end areas, Solanke believes “when the fintech’s are going directly for the banks’ core customer base, the innovators risk getting acquired, out-competed, or eventual death.”
Making loans still requires human contact for some aspects and should continue to be the case, to establish bona fides, due diligence and so on. Mundane tasks like customer queries, cash withdrawals and deposits and others do not. And yes, customers would still like to know that their banks exist on the ground, that there is a branch they can go to, and that their virtual cash can become physical cash on a whim, and that a paper process can be availed them if they choose to.
Still, the evidence suggests they are less likely to want the inconvenience. Renaissance Capital’s Solanke believes the increased adoption levels of digital solutions of the banks, both online and offline, by both customers and merchants, would be sustained. This is because “the pandemic has lasted long enough for some stickiness to be expected”, Solanke adds.
Some banking activities like trade finance remain stubbornly paper-based. But even in this regard, some progress towards digitisation is being recorded. According to the International Chamber of Commerce, “some banks have already streamlined internal processes to promote electronic processing of trade finance transactions”. However, “they also note that these measures will have limited impact without appropriate national and global regulatory support.”
For instance, only Nigeria, Cameroon, Egypt and South Africa currently “allow e-signature and electronic authentication of official documents”, according to the AfDB. Amish Shunker, head of the trade and working capital solutions structuring group at Standard Bank in Johannesburg confirms that “some governments [are beginning to allow] the usage of electronic documentation (e-Bills of Lading, and the like) to support trade transactions”.
More African countries may follow suit. According to Moody’s Kypreos, “the success of M-Pesa has encouraged other countries to allow fintech’s (and banks) to deploy similar technologies.” The pandemic has helped a bit in this regard. “During the pandemic, we have seen even more emphasis on digitalisation”, says Moody’s Kypreos, “and specifically on electronic payment platforms as authorities encouraged social distancing.”
Besides, “with the possible exception of South Africa, the focus is not on cutting costs, but on reaching the unbanked” adds Kypreos. “For those that achieve this feat, the benefits can be substantial as they will be tapping into a new revenue stream with little impact on their existing revenue sources”, Moody’s Kypreos believes. In a nutshell, expect to see more digitisation by African banks. And for the right reasons.
An edited version was first published in the Q4-2020 issue of African Banker magazine.
