Paradox of Technologies for Neo/Challenger Digital Banks
Sub-Saharan Africa comprises a significant share of the world’s population, with over 1.1 billion people. Demographically, it is the world’s youngest population. But a lack of banking infrastructure and the increasing population demands have necessitated the meteoric rise of digital banks. The recent demonetization in Nigeria and cash withdrawal limits have a part to play in the burgeoning growth of digital banking in Africa.
An Overview of Digital Banking in Africa
The fintech industry in Africa has been trying to bridge the financial services gap between the banked and the unbanked since 2012. With a potential customer base of 450 million, the neo-banking sector has invited hefty sums in investments. As of 2023, the digital banking sector is poised to challenge conventional African banks.
The keen adoption of a connected mobile economy has accelerated and promoted the digital transformation drive in Africa. This has spurred the overnight rise of innovative fintech solutions across the continent. MPesa, Africa’s biggest mobile money platform with over 42 million customers, exemplifies this mass adoption of digital banks.
While statistics paint a highly revolutionized picture of Africa in digitizing finances, inclusivity is still a far-off dream. The continent’s performance is not equally distributed across all regions. 68% of Africa’s banking revenue comes from Nigeria, South Africa, Angola, Egypt, and Morocco.
The rapid growth of digital banks in the past years is set to counter cash hoarding tendencies, inadequacies of ATMs and branch networks, and the alarming rate of bank accessibility. What was previously just cash-in and cash-out, salary and bill payments, or bank-to-mobile transfers has now progressed to include advanced financial services.
Out of this, a complete microfinance and insurance ecosystem is emerging, assisted by increasing digitization. This is evidenced by 346 million registered digital bank accounts in Africa (2018) instead of a meager 120 million in physical bank accounts.
A Guide to Digital Banks in Africa Through Numbers
The appalling number of physical bank branches (5 in every 100,000 inhabitants) partly explains the fintech eruption in Africa. The volume of digital transactions saw a 13% increase between 2014 and 2016. This has been made possible by the reliability, security, and improved availability of electronic channels. After the Asia-Pacific, Africa has become the 2nd fastest-growing global market for electronic payments. More than 40% of the continent prefers digitized services over traditional banking.
Digital banks in Africa are functioning with the goal of financial inclusivity. There has been a continual increase in new launches of neo-banks since 2012. What comprised only 2 digital banks in 2012 became a whopping 21 in 2021. One of the biggest contributors to digitized finances in this revolution is Nigeria, the home of 10 out of 21 digital banks in Africa. South Africa and Nigeria boast 80% of the continent’s digital banks, with nearly 27 million customers.
Currently, the top neo-banks in Africa include:
- Eversend (Uganda)
- Chipper Cash (Uganda)
- SOL Wallet (South Africa)
- Lidya (Nigeria)
- PiggyVest (Nigeria)
- 7aweshly (Egypt)
- Prospa (Nigeria)
- Sparkle (Nigeria)
- Bank Zero (South Africa)
- Bettr Finance (South Africa)
- Telda (Egypt)
- Dopay (Egypt)
Two challenger banks in Africa have made their mark. One is TymeBank (South Africa), and the other is Kuda. TymeBank is the biggest digital bank in the continent solely by funding. They have raised USD 169 million, according to Crunchbase reports. With an average new customer base of 110,000 monthly, TymeBank was predicted to touch 4 million users by 2022.
The next among the two names is Nigeria’s Kuda, with USD 100 million in funding, as per Crunchbase. Valued at a whopping USD 500 million, Kuda boasts 1.4 million registered users. Both these lucrative digital banks possess legitimate banking licenses to carry out their operations unhindered.
Technology Roadmaps of Digital Banks in Africa
The technology roadmap adopted by digital banks can take multiple forms. Whether a digital bank seeks a third-party technology provider for their digital services, buys a system license, or relies on self-sufficient technology depends on its financial capability and business goals.
Seeking Out Technology Providers
Some African digital banks partner with technology providers to provide more modern, efficient, and secure banking services. Technology providers offer a range of services. This includes data analytics, artificial intelligence, machine learning, and more.
Services provided by technology providers allow banks to understand their customers better and provide them with tailored banking services. Technology providers also help digital banks reduce risks, improve customer service, and increase operational efficiency.
Buying System License
A few African digital banks choose to buy system licenses to access the latest technology and ensure their operations are as secure and efficient as possible. A system license helps them access proprietary software and technologies that are not available through open source. This can let them better serve their customers with a more robust and reliable digital banking platform.
The Self-Reliant Way
Some African digital banks choose to have their own technology to provide a better user experience, reduce operational costs, and increase operational efficiency. Having their own technology gives some African digital banks the ability to:
- Customize the user experience to their customers’ specific needs
- Provide innovative solutions to common banking problems
- Create a more secure banking environment
- Provide more competitive rates and fees
- Faster processing times
- More reliable services
But let’s not overlook the cost of building, maintaining, and upgrading a self-sufficient technological platform.
Nigeria Case Study
Over the past few months, the Central Bank of Nigeria has made two new drastic changes that disrupted the market. The first being issuing new currency banknotes but not printing enough to be circulated which has caused significant cash liquidity shortages. The second being drastic cash withdrawal limitations from bank accounts and ATMs. This has caused a sudden surge in the demand to use the various digital channel alternatives whether on digital banking apps aor mobile money wallet apps. Major commercial banks across Nigeria had crashed due this unprecedented event and some remained down for over a week!!
Currently, after the final results of the presidential elections, all banks are considering going to the drawing board again, revlauating their digital roadmap and it is not merely an increased investment in existing IT infrastructures and adding a server or two more to accommodate this increased customer capacity. It is more of innovating new methodologies of how to deliver new creative financial products addressing new cusotmer segments and how they are consumed. It is what technology tools we need to enable the banks and other financial institutions to accomplish that. It is the revolution in which this increased demand will certainly mean more pressure into customer experiences and satisfaction. How flexible banks can create and design new products and quickly take them to market exposing them across their various digital channels.
If we look at UBA one fo the very few banks that has withstood the pressures of this surge in demand, it would be worth looking into the digital banking platform that empowers it, VERICASH with over 3 million different services being delivered on it daily supporting over 3 million customers. And albeit that, the bank has great ambitions into innovating a more hip and agile manner into delivering more of its services to its customers.
What is the Best Way Forward?
The cheapest way for African digital banks to go in the future is to seek out technology providers. Purchasing system licenses can be expensive, and developing one’s own technology can also be costly.
- Access to leading-edge technology: Technology providers offer access to industry-leading technology, such as cloud-based services, mobile banking, and integrated payment systems. This can help African digital banks stay competitive and provide better customer service.
- Security and compliance: African digital banks can benefit from technology providers’ security and compliance features, helping protect customer data and adhere to regulatory requirements.
- Scalability: Technology providers can help African digital banks scale their operations and expand their customer base.
- Cost savings: Technology providers can help digital banks reduce costs by leveraging existing systems and infrastructure.
- Increased customer satisfaction: Technology providers can help digital banks provide better customer services, increasing satisfaction.
By seeking out technology providers, African digital banks can acquire the technology they need at a lower cost. Additionally, technology providers may also be able to offer advice and support that can help African digital banks optimize their operations.
How VeriCash Helps Make A Difference?
VeriCash is a mobile payment platform. It is designed to help African banks overcome the challenges they face regarding digital banking. We offer a secure, reliable, and easy-to-use solution for banks to:
- Manage customer accounts
- Process payments
- Monitor transactions
- Reduce costs and increase efficiency
VeriCash allows banks to provide customers with a better experience. We provide them with access to their accounts and transactions in real-time. We offer access to various services and products, such as online banking and mobile payments. Our services facilitate banks in Africa to become more competitive and provide better services to their customers.
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.