Banking in East Africa needs to change, actually banking in East Africa HAS to change. Whilst their European counterparts are looking at how to adapt to the new threat landscape imposed by FANG vendors, fintechs and challenger banks, and are in the process of building resiliency frameworks. East African banks face additional threats from adjacent industries including telecoms, in addition to the threats of regulatory change, fintechs and challenger banks.
The reality is, only 34% of Sub-Saharan African’s have a bank account, this is largely due to many believing they didn’t have adequate money to open an account, living in rural communities without access to physical branches or access to a smart phone. However, where the banks have failed to make an impact, the telco’s have. Through the introduction of M-PESA by Safaricom, a service that allows user to transfer money using a basic mobile phone, the telcos have leapfrogged traditional banking services and now in Eastern African countries like Kenya over 60% of residents use M-PESA. This service has revolutionised the way lower income workers transfer money to families in rural areas, meaning that wealth is better distributed and therefore leading to lower levels of poverty. In addition, M-PESA provides a safe, reliable and cost effective means of becoming truly cashless, all without having a bank account. This really is “fast” money! Already government organizations are encouraging the adoption of M-PESA with Kenya’s National Social Security Fund (NSSF) accepting M-PESA contributions from citizens.
East African banks are now reaching a tipping point, on the one hand they could fall victim to the myriad of threats that face them as we have mentioned here, whilst on the other hand they could well take advantage of the ever-increasing number of potential customers, a result of the regions booming population growth.
So does this mean that traditional incumbent banks will be slowly phased out as telco-lead fast money becomes the norm, or will the allure of the status that a bank account brings still be enough to convert a rapidly expanding population? Or will a new dynamic occur whereby telco and bank can co-exist in this market? Ultimately, what will be the structure that can align all elements of this competition landscape into a unified model to bring banking to the people of East Africa.
These are the elements that the Center for the Future of Work is set to uncover in its upcoming study into the future of banking in East Africa, where will be laying out the foundations of what threats traditional banks face and building a framework that they can use to build resiliency in this unique market.