Emerging tech deployment by African financial services faces hurdles

Africa has come a long way in developing new countries digital payment and banking serviceslargely thanks to mobile money products, and the new offerings have helped alleviate issues related to financial exclusion – many people across the continent still do not have traditional bank accounts.

However, some experts believe there hasn’t been enough innovation and deployment of new technologies to expand digital finance beyond simple withdrawals and deposits. Although there has been some innovation in a variety of finance-related services, deployment and use have not taken deep root.

Most financial institutions have launched digital products that allow businesses and individuals to initiate and receive payments. Customers have also become accustomed to paying in digital format, particularly through mobile money payment options. But services like digital insurance, virtual bank accounts, digital investment products, and e-commerce are slowly changing.

While the increasing digitization of financial services products in Africa, particularly in the banking sector, is in line with global technology trends, other financial services, including insurance and regulatory technology, are not seeing as much growth, according to Deloitte Barometer of the African financial industry.

Large financial services projects have failed

Some projects to expand the use of digital payment systems have failed. A classic example is the botched plan to digitize the transport system in Kenya. There have been several attempts to persuade public transport players to adopt digital payments, but efforts have failed.

In 2014, banks were licensed to produce public transport payment cards that could be topped up with mobile money or at the counter. In the end, the product did not find favor with the industry, despite clear advantages.

“Digital transit payments have failed in Kenya,” said Victor Malu, financial services advisor and chair of the Digital Finance Practitioners Association of Kenya. “They have a cell phone and bank account in hand, but no utility in the transportation market.”

Legacy banks are slow to innovate

One of the growing trends, especially among young people, is the increasing use of online payments on global marketplaces such as e-commerce websites. South Africa, Nigeria and Kenya are well advanced in terms of using debit/credit cards online. However, some banks still insist that you either call or set a maximum payment amount if you want to use your cards online.

Sending money across borders has also been a problem for banks. To fill the gap in such services, fintech companies like Chipper, MFS Africa and Bitsika have entered the sector.

“While conditions across Africa are ripe for digital finance adoption, there are signs that some traditional banks are missing the moment,” it said Africa’s fintech transformation, A report from the developer of digital finance platform CR2. “To stay fit for the moment and resilient to disruption, traditional African banks need to pursue just the right product innovation to gain (and not lose) market share in digital finance to fintech companies,” the report states.

Cash preference creates hurdles

The cash preference of both users and some merchants is the biggest hurdle in financial product innovation, despite the efficiency of digital services. Compared to mobile money payments (which require at least the purchase of a phone), using cash is “free” for users, leading many to prefer it, says Malu.

Despite the advent of mobile money, most transactions in Africa are offline. Despite everything, online mobile money payments have not developed as expected Developments around APIs.

Safaricom’s MPesa, for example, has a full-fledged API that allows businesses to accept online payments. Companies and organizations using its API include the Kenya Revenue Authority, online e-commerce site Jumia, and payment gateways Flutterwave and DPO Payments.

However, due to growing cybersecurity risks, most traditional businesses still seem to be keeping doors open for offline and cash-based payments.

The test run of cashless transport payments in Kenya revealed distrust of the system, with many bus system managers citing cancellation of cash payments by passengers as soon as they step off the vehicle.

Banks should start listening to their customers, to find out where their pain points and concerns lie, to find innovative ways to address their problems, says Kuldip Paliwal, managing director of First Alliance Bank, Zambia.

Financial system interoperability is high on the wish list for most mobile money users in Kenya, he says. The industry needs to find a way to shape a culture that will lead to the development of diverse mobile money products that can communicate with each other for the benefit of the customer.

“Customers are always waiting for the right solutions,” emphasizes Paliwal.

Banks are encouraged to partner with fintech companies

Banks can accelerate innovation in their products by partnering with fintech startups, which Paliwal says have a faster route to market than established financial institutions.

“Over 40% of Africans are unbanked and identity (verification) is still done manually,” says Paliwal, explaining the magnitude of the challenge facing Africa’s banking sector. Some fintech startups like Kudabank are already offering virtual bank accounts to 1.4 million Nigerians.

At least some fintech organizations agree that banks should accelerate innovation, and partnering with startups is a prime way to do that.

“However, Africa’s banks should not go this route alone. Partnering with fintech startups and technology partners can accelerate their path to success,” states the CR2 Africa Fintech Transformation Report.

There are a multitude of success stories in Africa that prove this. For example, Amole, a payment and money transfer service set up by Ethiopian Dashen Bank and Addis Ababa-based fintech Moneta Technologies, has more than 3 million users. And in Nigeria, the Country open banking regulatory frameworklaunched last year has helped launch dozens of startups and simplify banking by using open APIs.

Despite the growing number of partnerships between banks and start-ups, some large financial institutions have chosen to innovate on their own terms, creating smaller units within their organization to work on innovative products.

Absa Bank’s chatbot, Abby, offers millennial and Gen-Z populations banking services on chat platforms they’re familiar with. Through Abby, users can access their bank details including balances and summary statements.

Whether through partnerships or internally led innovation, financial institutions have countless opportunities to make their services useful to consumers and other customers. Listening to customers and figuring out how they want to interact with banking or financial products seems to be key to expanding those services.