Latest edition of News & Views magazine features a piece by WSBI-ESBG Managing Director Chris De Noose, who explores the challenge of connecting with customers in Africa.
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Banks in Africa face unprecedented challenges. A demographic “youth bulge”, poor educational opportunity, and limited access to finance make the continent prone to economic malaise and societal struggle. Compounding these are digitalisation and globalisation, powerful forces that affect Africa’s 1.2 billion inhabitants in new ways. Like other regions of the world, Africa looks to financial institutions like savings and retail banks to help address most, if not all, of these obstacles at local level, in swelling cities and remote rural areas alike.
Especially daunting for banks is Africa’s population, set to quadruple by century’s end. Among the many challenges that population growth will present is the need to serve peoples’ financial needs better at the macro level while connecting better with people at the micro level. The question is “how?” The answer: offering products and services based on customer need that are usable, affordable, accessible and sustainable. While doing so, banks have to remain viable businesses that receive a fair return. A prime example is how best to offer much-needed low-balance savings accounts.
Scale2Save, a partnership between WSBI and Mastercard Foundation, aims to tackle this challenge. Its mission is to establish the viability of small balance savings in six African countries. The programme addresses the issue of high poverty rates, financial exclusion, and low formal savings rates in Africa. Part of the programme annual research effort, survey results and conclusions are shared with the international community and financial institutions in Africa – and beyond – to drive change in the banking sector to close the financial inclusion gap.
Finding ways to make viable low-balance savings accounts work requires a customer-oriented approach that entails approaches often misunderstood by formal financial service providers worldwide. In Africa, they rightly see great potential to build out a “savings market” based on people from various low-income segments. Findings of a recently released Scale2Save report reveal banks struggle with needs of customers – and how much they can afford to pay to satisfy those needs. Their business models appear to fall short when it comes to customer experience, giving rise to extremely high incidences of dormancy and inactivity in bank accounts. These effects cause significant drain on bank operating costs. That result disqualifies potential sustainable business cases that senior executives within banks want, bringing to market accessible financial services to people becomes more elusive.
Given the population-driven future of Africa, the question arises whether banks in the region can meet the growing needs of people there. They can. According to the McKinsey Global Banking 2017 report, the African banking sector is among the most dynamic in the world, the second-best performing global banking market in terms of growth and profitability as well as a home to significant innovation. Other research shows that retail banking in Africa has huge potential. Those banks already deploy a vast set of tools and new business models to offer banking services that address the need to widen financial inclusion, which remains stubbornly low throughout the continent. Nearly three-fifths of Sub-Saharan Africans remain unbanked, and nearly half of those living in North Africa lack a basic bank account. Africans use cash excessively too, which can hinder economic growth and societal stability.
Despite low banking penetration rates, 2017 Global Findex data on financial inclusion rates draws some hope. They show financial inclusion in Africa has improved greatly, driven by digital payments, government policies, and a new generation of services accessed through mobile phones and the internet. A bulging youth demographic in Africa will benefit greatly from those breakthroughs. Industry experts and policymakers should view WSBI member banks and Scale2Save programme partners ideally placed to help the next generation of adults build a growing, prosperous Africa.
As work continues to progress in Africa, we also share in this edition of News & Views efforts in other regions. We high light the recent advocacy work on remittances, postal financial services reform, a new memorandum for EU policymakers, as well as regional group meetings and the ADBI-WSBI Conference taking place in Tokyo on the sidelines of the G20 Japan Presidency.
This edition also touches on overlapping challenges in different regions, especially digitisation and innovation, better regulation and financing the real economy. We show the impressive breadth and depth of work done by WSBI-ESBG and its members to help widen financial and economic inclusion.