Telcos dominate the mobile payments industry across Africa. Banks need to move out of catch-up mode. By Ria Pinto, Director, Financial Services Sector, IBM
Africa truly is the mobile continent. Consider the figures: some two-thirds of Africans have a mobile phone, and 600 million mobile devices can be found on the continent.
However, Kenya aside—where 50 percent of citizens use mobile money for key payments—mobile commerce or m-commerce has been slower to take off. But as big investment in m-payments by South Africa’s big-four banks shows, the opportunity is substantial.
M-commerce adoption will be driven by the high proportion of unbanked citizens (67 percent in South Africa, according to some) and growing market penetration of smartphones. The $50-dollar handset is changing everything, and according to IDC, smartphones accounted for 41.9 percent of all mobile handset shipments to the Middle East and Africa in 2014, as compared with 27 percent in 2013.
Africa’s adoption of mobility means that Africans are leapfrogging directly into the Digital Age. This new generation of consumers expects the “app experience” from all service providers on the mobile channel: instant, ubiquitous access to services and content using software that is intuitive but comprehensively functional.
In business terms, this means consumers want a total experience that matches their needs.
The result? A disruption of business models and value chains across all industries. In financial services, the first wave of disruption has focused on payments, with well-publicised ventures like M-Pesa digitising cash across Africa’s complex trade routes.
Significantly, this payments revolution is being led by the mobile operators. Their brands are strong and trusted in these markets, whereas the financial services brands have little traction in markets that are largely unbanked.
Now these telecommunications companies are partnering with financial services companies to provide insurance products. The basic product is often paired with value-added services like weather and market information for crop insurance: a customised experience that goes beyond the merely transactional.
Banks are of course involved but primarily, it seems, at the back end. They provide the financial expertise and also the all-important banking licence, but they are not the face of the new offering.
In short, banks risk disintermediation. Digital consumers in Africa tend not to see “paying”, “shopping”, “travelling” and other functions as silos. What they want is to achieve a particular goal.
What does this mean for banks? Simply, that in order to attract this new generation of African consumers, they will have to partner with companies in other industries, especially telcos, to provide consumers with solutions to life’s challenges—not products.
Window of opportunity
Banks have a limited window of opportunity to bid for a leadership position in these ecosystems, despite the telcos’ early advantage.
In order for banks to seize the opportunity offered by mobility in Africa—and particularly by the growing numbers of smartphones—they should put the basics in place. IBM believes that developing a mobile strategy that increases operational efficiency, and empowers employees to improve the customer experience, is vital. Cloud computing is critical here, as it enables flexible access to the latest technology.
In South Africa, cloud has the potential to help banks overcome a basic challenge: inflexible, legacy back-office systems. Banks know what to do, but their systems cannot respond quickly enough. Newer entrants, unburdened by legacy systems, are already using the cloud to great effect.
IBM also views data analytics as a critical capability. Providing the “app experience” outlined above means turning data into actionable insights in real time. The company is working with local banks to use analytics as the key to differentiation in a highly competitive market. Banks, recognising that they are not yet engaging with their customers in a customised manner, are looking to IBM to develop solutions that will create the appropriate customer experience.
The final foundational competence is security. IBM believes that approached in the right way, security can be a key enabler of the mobile channel. CIOs and their C-suite colleagues need to look beyond just apps and devices to take in the whole data life cycle of the mobile channel, from the user through to the transaction and back again.
At a time of disruption, innovation is the key to success. Of course, banks need to improve the mobile banking experience itself, but to build lasting customer loyalty, they will have to think about what Africans—individuals and companies—want, and forge the partnerships necessary to provide it. In so doing, African banks will gain valuable experience that will put them in pole position as other markets adopt mobility.
 “Smartphones usurp feature phones”, IT Web, 26 April 2015, available at http://www.itweb.co.za/index.php?option=com_content&view=article&id=142825:Smartphones-usurp-feature-phones&catid=260.