In Africa, reliance on technology and digital platforms is rapidly growing.

A new survey by Backbase, a Dutch engagement banking platform provider, reveals that banks are prioritizing digital transformation, focusing on enhancing operations and integrating advanced technologies like cloud computing and artificial intelligence (AI) to boost customer satisfaction and accelerate the launch of new products.

The study, which polled 155 banks in Africa, reveals that 76% of the respondents view digital transformation as either their biggest or one of the three biggest priorities, showcasing that banks in Africa are recognizing the need to leverage digital technologies to change how their organizations operate and deliver value to customers.

Retail banking remains the top focus in banks’ digital transformation efforts (39.5%) with now more complex processes such mortgage applications being targeting. This trend is particularly noticeable in countries like South Africa, Namibia and Egypt where the mortgage market is most substantial, the report says.

Another key focus is on small and medium-sized enterprises (SMEs), with 26.3% of surveyed banks prioritizing this sector. Micro enterprises make up over 95% of African SMEs and still largely rely on informal funding. Despite this, many African banks have yet to develop SME-specific digital platforms. This gap presents significant growth opportunities, the report says.

Banks in Africa are also using digital banking to expand into new markets cost-effectively. One example is Egypt’s CIB is entering the Kenyan market through its acquisition of Mayfair Bank, focusing on trade finance activities and digital banking services without a major expansion of its branch network.

Transforming banking operations

The survey results also reveal that the majority of banks in the region are fully embracing the benefits of digitalization. 60% of the surveyed banks said that most of their operations had been digitally transformed, with nearly half transforming more than three-quarters of their operations digitally. This indicates that a large number of organizations in the region are at the forefront of digital innovation and demonstrating a high level of technological maturity.

Another 28% of organizations have digitally transformed between a quarter and a half of their operations, while just 12% have minimal digital transformation with less than a quarter of their operations switched to digital processes to date. This suggests that while progress has been made, there is still potential for more comprehensive development.

Building digital infrastructure requires investments beyond usual spending. The study found that a fifth of the banks surveyed allocate more than US$3 million to digital transformation a year, a decrease from 28% in 2023. Conversely, 32% of banks spend less than US$300,000 annually, up from 27% last year. According to the report, both figures could reflect lower investment once new platforms have actually been established.

Cloud computing and AI as top technologies

When asked about the technologies they are incorporating into their digitization strategies, banks in Africa cited cloud computing as the top technology, with 25% of responses. Cloud computing is followed by AI with 20%, and big data and cybersecurity and resilience, which were each cited by 15% of respondents.

Cloud computing allows banks to scale their infrastructure rapidly, reduce costs associated with physical data center and enhance data privacy and compliance. AI, on the other hand, enables banks to analyze vast amounts of data for better decision-making, personalize customer services through predictive analytics, and automate routine tasks, thereby reducing human error and operational costs.

These technologies align with the primary benefits banks seek from digital transformation. Survey participants reported that increased customer satisfaction and loyalty (21.6%) are the most common outcomes of their digital efforts, followed by better customer engagement and personalization (18.9%), faster market entry for new products (16.2%) and increased revenues and profitability (16.2%).

Banking digitalization in Africa is advancing due to the emergence of new digital-first players in the market. The Fintech Times identified 45 neobanks in the Middle East and Africa region as of December 2023.

While most of these brands are digital banking arms launched by traditional banks, several independent players are also present. Successful examples include TymeBank, a South African neobank with more than nine million customers; Kuda, a Nigerian digital bank boasting seven million customers; and Chipper Cash, a US-headquartered and Pan-African neobank serving five million people across Nigeria, Ghana, Rwanda, Uganda and the US.

Featured image credit: edited from freepik