Africa’s digital future - Afrikan Heroes

The Role of Banks in Africa’s Digital Future

September 12, 2023

Mpumi Makhubu-Mukogo, is global markets digital head at Standard Bank

Banking in Africa is on the brink of its next transformative era, writes Mpumi Makhubu-Mukogo.

Africa has demonstrated its propensity for embracing new technologies, particularly in the financial services sector. With about eight in 10 people on the continent owning mobile phones and more than 570 million people online in 2022, up 470% from 2010, access to information and services has become easier.

Now more than ever, digital access to financial services in Africa is imminent. However, we must solve the infrastructure challenges, collaborate more and strengthen institutional connections.

There is a tremendous opportunity to apply lessons learnt from mobile money adoption.

To remain relevant, banks and central banks must evolve to embrace and adopt the opportunities presented by new technologies such as blockchain, mobile money and cloud computing. However, new opportunities also come with risks, which require updated regulations that are effective but do not stunt innovation, especially those that are being driven by fintech start-ups. Fintechs should not be seen as threats to the banks, but as partners that could help established players meet the needs of customers.

On a continent where physical cash still accounts for more than 70% of transactions, there is a tremendous opportunity to apply lessons learnt from mobile money adoption and get more people into the banking economy in a safe and accessible way.

Mobile money is among the fastest-growing payment methods in Africa, and we can make the next exponential step by leveraging it beyond just payments or peer-to-peer transactions. Africa has a young, digital-native and rapidly urbanising population. The continent is a hotbed of start-ups and fintechs helping solve financial challenges, and many countries and territories are easing regulations to speed up technological banking adoption.

Role of banks

We need to embrace technology as we always have, while learning from other early adopters to produce the best new-age solutions for our customers. Mobile money solutions have vast potential to evolve into more complete banking products, including lending, saving and investing – and banks must lead that charge.

There is arguably no market in which the growth of – and demand for – more inclusive and accessible financial services is more prevalent than in Africa. Our rapid commercial growth and globalisation over the past decade have made more inclusive financial services even more critical. The growth of SMEs and entrepreneurship, and accompanying innovation in fintech – particularly blockchain technology – has the potential to drive the improvement of financial infrastructure across the board.

Another key area that needs development is efficient and lower-cost cross-border payments to facilitate intra-African trade as well as trade outside the continent. One solution which seeks to address the intra-Africa need is the pan-African payment and settlement system, or PAPSS, which enables cross-border instant payments across African countries, without the complexity, time and money it takes to make these payments using traditional banking methods.

With PAPSS, participants do not need to first convert local currency to a hard currency like the US dollar as an expensive, time-consuming intermediary step when making a payment to a participant in another African country. Wide adoption of PAPSS across the continent will revolutionise payments and contribute towards economic growth. For this reason, Standard Bank South Africa has signed a memorandum of understanding to provide settlement of these transactions. It also aims to be a participant bank in most of the markets it operates in.

Meanwhile, several African countries have seen a rapid uptake of cryptocurrencies as a means to access more efficient payment rails provided by blockchain networks and yield returns on income with assets such as bitcoin and stablecoins, which are designed to maintain stable value through being pegged to an asset such as the US dollar.

Because of the volatility of cryptocurrencies, the real potential for increased financial inclusion in Africa lies in the blockchain infrastructure that underpins them, rather than in the currencies themselves – stablecoins aside. The distributed ledger system can instantly eliminate fraud and human error in transactions and foster transparency in financial records, which can enable the creation of corruption-resistant and robust welfare systems.

It can also provide mechanisms for fair and transparent microfinance and increased purchasing power to support the creation and growth of small enterprises that serve communities. Blockchain technology can kick-start new trade opportunities between nation states and give Africans the opportunity to take part in a technological revolution and form part of the decentralised economy.

Where does that leave traditional banking? It’s clear that the answer is not to compete with fintechs, but rather to use new technologies through participating in our own right, and via partnerships.

The distributed ledger system can instantly eliminate fraud and human error in transactions and foster transparency in financial records.

Digital banking solutions that will matter now and in the future are those built by not only leveraging emerging technology, but through collaboration between traditional incumbent banks, central bank regulators and fintechs in solving the challenges that inhibit access to financial services in and outside of Africa at true scale.

Ultimately, the aim is to contribute towards sustained economic growth and development in Africa, and we are likely to move towards this faster through partnerships with the fintech start-ups and mobile network operators that are often more innovative and agile in solution delivery. By layering a culture that supports agility and measured risk-taking on top of a base of sound technologically innovative solutions, we can set the true potential of Africa alight.

Mpumi Makhubu-Mukogo, is global markets digital head at Standard Bank

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Unlocking Africa’s digital future By Philippe Le Houérou

September 29, 2020

Philippe Le Houérou, CEO of IFC, a member of the World Bank Group

Before Africa can reach the uplands of digitization — the robotics and the AI — it must first do the hard slog of reforming telecoms markets and opening up to competition, argues the outgoing head of the IFC. In a COVID19-treatment facility in Rwanda, Akazuba, Ikizere and Ngabo are moving through the hallways relaying doctor’s messages and delivering blood samples.

The three health workers are not at risk of infection. They are robots. Meanwhile, Babyl, a chatbot, triages first medical problems and schedules physician appointments for 30 percent of the population. In Rwanda, digital technologies have become literal life savers.

Such inspiring examples, which are found across many sectors and countries in Africa, offer a glimpse into the profound development potential of digitization. A number of reports highlight (correctly) that a bright future awaits when vibrant digital business models permeate throughout economies to create new consumer markets; and when frontier technologies – such as AI and 3D printing – reshape entire industries.

The big pot of gold at the end of the path to digitization can lure us into believing that most countries are speedily heading towards it. Many are not. Digitization remains constrained by the poor state of internet connectivity. In sub-Saharan Africa, only 20 percent of the population subscribes to the internet. When people subscribe, they use it sparingly: The average user consumes 300 Megabytes per month, roughly enough for half an hour of video conferencing.

Addressing these constraints has little to do with AI, big data and an army of coders. The first steps to digitization are decidedly unsexy and very analog. Governments need to address vested interests, monopolization and regulatory barriers in connectivity markets to get people connected to the internet.

Fast internet requires a seamless integration of different providers. It travels through undersea cables, landing points, fiber landlines and wireless masts into the phone of the end-user. If one provider in this chain holds too much control, it can hold players downstream hostage to its pricing power and faces few incentives to upgrade its network.

In Africa, until today, monopolistic incumbents, often tightly linked to governments, operate critical infrastructure nodes for fast internet. Both mobile and broadband markets are the most concentrated in terms of ownership.

Even where companies compete, markets are not necessarily open for new entrants: Regulatory capacities to close down on collusive behavior and to enact important enabling regulations – such as granting new competitors open and fair access to existing infrastructure networks – are in many cases insufficient or absent.

Companies may find it attractive to ask for exclusive contracts. But investment that is contingent on adopting anti-competitive practices can end up blocking digital development.

Take a typical country where one government-owned telecommunications company owns all landing stations and has a dominant position in operating the fiber infrastructure. It charges money from retail companies to move their internet traffic through its lines. It is also a retail provider itself, competing with its own customers.

Competitors seeking to change the status quo by building out their own fiber networks have mostly been unable to obtain permits. Despite the country’s abundant connection to international traffic, internet quality is low; an investment backlog in the billions has accumulated.

Consumers pay for this lack of competition: A mobile bundle with 500 Megabytes of data costs on average 16 percent of monthly income, 10 percentage points more than the global average of 6 percent.

Once a bundle has been bought, poor connection limits user experience: 91 percent of the connections in sub-Saharan Africa are 3G or slower. In the face of prohibitive prices, only 2 out of 10 people subscribe to mobile broadband internet despite the fact that 7 out of 10 people are geographically covered by network.

Certainly, digitization requires more than open internet markets. It requires digitally savvy consumers, a workforce that keeps innovating, and entrepreneurial capacities to create new products and services that are relevant for local needs. Those capacities need to develop. But for people to build skills and for entrepreneurship to take advantage of fast connection, people and businesses must be connected in the first place.

The recipe for moving forward is in many ways simple: African governments must aggressively open infrastructure markets for investment; they must break monopolies and shut down rent-seeking behavior. For the complex modern internet value chain, the presence of strong politically independent regulators and competition authorities with the capacity and authority to instill competition is crucial.

Governments have the opportunity to cooperate across borders.

Taking down cross-country communication barriers and opening markets for regional competition, coupled with harmonized regulation and anti-trust prerogatives, can instill a virtuous cycle of investment and lower prices. Moreover, speaking with a common regional voice is the best way to enforce common standards on private companies and prevent them from demanding special treatment.

That the recipes are simple does not make them easy: Entrenched national interests and institutions are hard to break. Immediate revenue from high fees and taxes is hard to sacrifice in favor of future revenue. And conceding authority to regional bodies is unpopular.

First and foremost, the challenge of digitization is one of political will. The will to think bigger, to understand the big pot of gold as a call for taking the unflashy steps now and not as the soothing promise that digitization will happen by itself.

Philippe Le Houérou is the CEO of IFC, a member of the World Bank Group and the largest global development institution focused on the private sector in developing countries.