The Quickest Adoption of Your New Era Digital Banking and Digital Lending Platforms
Africa is increasingly featured on the world map for good reasons. However, with the rise of digital banking and digital lending platforms throughout the continent, Africa is now home to one of the fastest-growing banking markets in the world. This is according to a McKinsey report published in February 2018. While the banking industry is suffering from poor performance and slowed growth in various other parts of the globe, Africa’s banking sector continues to thrive and has in fact shown significant growth over the past few years.
The report by McKinsey revealed that African banks continue to experience growth in terms of account opening. 300 million accounts were opened in 2017 as opposed to 170 million opened in 2012. However, it is interesting to note that traditional banking still has a long way to go in terms of adaptation across the African population. Nonetheless, with banks adopting digital channels for banking including electronic payments, banks continue to grow and thrive across the continent. According to The African Digital Banking Transformation Report 2020, 96 percent of banks operating on the continent attribute their growth to digital transformation.
The Origin of the Digital Banking Revolution in Africa
The widespread adaptation of digital banking in Africa finds its roots in the introduction of mobile money. Africa’s telecommunication industry has seen tremendous growth in the last two decades. This can be attributed to the widespread coverage of mobile phone networks as well as increased access to affordable mobile phones. The introduction of mobile money platforms made it possible for even those in rural areas without access to traditional banking facilities to transfer and receive money easily. In 2018, there were more than 346 million registered mobile money accounts on the continent. There were only 120 million registered bank accounts throughout the continent during the same period.
Mobile money has since evolved from having purely transactional operations i.e. sending and receiving money, salary payments, and bill payments, to providing a wide range of financial services. Many mobile money platforms are an entire financial ecosystem on their own offering insurance, microfinance, loans, and investment opportunities to the masses.
M-Pesa is one of the most notable examples of a mobile money platform that is transforming digital banking. The mobile-based digital wallet targets mobile subscribers in Kenya. It offers a wide range of financial services including savings, lending, payment, insurance, and even investments. M-Pesa services took advantage of the widespread mobile subscription to offer an easy way to send and receive money to any subscriber anywhere in the country. This popular mobile digital wallet now even offers international money transfers.
The widespread adaptation of mobile money platforms gave rise to the adaptation of digital lending platforms. These independent lending platforms are fully in the financial services market offering financial products that are aimed at bridging the gap in infrastructure across the continent as well as meeting the urgent needs of merchants of customers. Some of these services have transformed into licensed digital banks.
A notable example is Tala. This digital lending service was first launched as a mobile application that offered subscribers access to credit as well as collateral-free loans. The Kenyan fintech company has disbursed more than $2.7 billion in loans to date. Tala further gained traction by diversifying its financial services offerings. Their services now include savings as well as money management. The app now has a presence throughout East Africa and in other regions including Mexico, the Philippines, and India.
FairMoney, a Nigerian fintech, followed a path similar to that of Tala. The app, launched in 2017, started out as an online lender offering customers access to instant loans as well as bill payment. The fintech has since grown and now offers consumers bank accounts with debit cards as well as free transfers. The fintech now holds a microfinance bank license that was issued by the Central Bank of Nigeria. By 2020, FairMoney had over 1.3 million active users and over 6.5 million loan applications. The company had disbursed over $93 million in loans to its users.
Turning Competitors into Partners
The rise of fintech and mobile money platforms across Africa caused disruptions to the traditional banking market for years. These new digital financial services subjected banks to a new type of competition in a market with which banks were already having a hard time. Fintech had a more widespread reach than traditional banking services. Their services are more accessible than traditional bank accounts.
Fortunately, banks in Africa have adapted to the changing needs of the population and have been able to stay competitive. Banks have formed partnerships with telecom operators as well as other fintech companies to offer their customers a wider variety of services at lower costs. Banks are now able to reach a wider audience than their traditional branch network could.
Banks have partnered with telcos for example to offer easier transfer of funds from bank accounts to mobile money payment platforms and vice versa. This has made it easier for the population to have access to traditional bank accounts and other financial services offered by banks.
Banks in Africa have also responded to the competition by fintech by creating their own technology and digital financial platforms. PesaLink, a real-time payment rail in Kenya, is a great example of this. This industry-led initiative was cosponsored by over 20 banks operating in the country. It offers customers an easier way to transfer money from bank to bank. The 24-hour service is a low-cost solution that is available through mobile apps, online banking, and USSD.
Unified Payments in Nigeria is another great example of banks adapting to the changing markets and the rise of digital banking. The service was established by a consortium of Nigeria’s leading banks in 1997 and has since been reimagined to offer digital banking services.
Digital banking and digital lending have changed the banking industry. The shift to digital banking has led to tremendous growth in the banking industry by making traditional banking offerings more readily accessible to the masses.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.
Digital banking is the normal in the Kenyan market. My personal experience with safaricom’s Digifarm ; a credit platform for small holder farmers gave me a glimpse of the brilliant possibilities presented by digital platforms. In 2022 digifarm reached out over 100,000 mall holder farmers with digital loans for farm inputs disbursing over 10 Million USD within 8 months. Digifarm not only gave access to inputs on credit but also gave access to markets to these farmers. While digifarm operations were suspended in 2023, due to operational inefficiencies in loan recovery, digifarm gave a glimpse of the opportunity digital platforms can be tapped not only to provide deeper financial inclusion but also tackle food security by providing the much neededcredit inputs to small holder farmers. Yara has introduced its digital platform in Kenya with a promise of “uberizing” agriculture. Even without loan facility the yara bodega platform reduces the cost of inputs to the farmer by about 20%! It also promises to digitally provide better market access to these farmers. The platform will open unreached segment of market to input manufacturers of bout 10 million farmers in Kenya which I value at a staggering 1,000 million USD in the next 3 years. This in effect will increase the much needed food security in Kenya and the East Africa region. In the end Kenya han to tame the rising cost of food in the next 2 or 3 years.
Am available to help veicash play a role in this space if called upon.
Nice analysis. It’s no doubt that the digital services have greatly impacted the banking industry.