The COVID-19 pandemic’s unexpected and severe crisis has struck a terrible blow to East African countries, imperiling the lives and livelihoods of hundreds of thousands of individuals and generating a rapid economic contraction. This has had repercussions across the region, notably in the digital onboarding in the banking industry.
Despite a recurrence of the virus, the pandemic’s impact on African banks in 2021-22 was less severe than previously expected, as per the government data and financials disclosed by banks in Kenya, a major East African country. Given the importance of banks in East Africa’s broader economy and society, this could indicate a faster recovery for the region.
The first section of this blog seeks to introduce the baking sector in the African context. The following section deals with how banks in the region adopt new cutting-edge IT technologies to adapt to the changing times. The subsequent two sections are focused on the broad-ranging impact that digital solutions have on the region.
Youthful populations, high smartphone penetration rates, and challenges with unequal access to banks and banking services, particularly in rural regions, characterize most East African countries. Nonetheless, the introduction of mobile money and digital banking solutions across East Africa has aided formal financial inclusion and, as a result, poverty reduction in the region.
As the incursion of digital transformation is taking shape in the region, implementing it into a bank’s customer experience strategy has become critical to surviving this digital disruption era.
Streamlining front-end operations is a top goal for banks of Kenya, Uganda, Burundi, Tanzania, and others.
According to an Ovum ICT Enterprise survey, mobile and internet banking are the top IT priorities for over half of worldwide corporate banking respondents. This trend is also reflected in the Deloitte East Africa Banking Industry Trends Report 2021 for the concerned region.
From 29% in 2006 to 75% in 2016, Kenya’s formal financial inclusion rate has improved drastically. However, despite 75% of the population being involved in the formal financial sector, just 38% of the population uses commercial banks, compared to 71% who utilize mobile financial services. Similar numbers can be found throughout East Africa.
This indicates that adopting digital banking solutions with integrated mobile banking and WhatsApp Banking will naturally assist banking institutions in attracting more customers.
To restrict the spread of the pandemic, governments urged people to switch from cash to electronic money. This hit the banking system hard at first. Customers relied primarily on big companies in the mobile money market, such as M-Pesa in Kenya, MTN in Uganda, Tanzania, and Rwanda, and Tigo in Rwanda, as a result of this move.
However, banks in Eastern Africa are also evolving with the changing times. For instance, WeCodee entered into a strategic partnership to upgrade FinBank’s core banking solutions from a decade-old Oracle Flexcube 7x to Oracle Flexcube 14.3 and OBPM 14.5. The upgrade will assist the bank in meeting the need to increase client intimacy and competitive edge through cost-effective solutions while adhering to the stringent regulatory expectations of a dynamic regulatory environment.
Artificial Intelligence (AI) is a digital intervention that has significantly impacted the East African banking industry in recent years. Thanks to AI, the banking sector has a huge opportunity to understand the complete consumer footprint and accelerate its digital transformation path.
Without automation and intelligence, providing customers with a personalized experience is difficult. As in the case of FinBank Burundi, machine learning (ML) embedded in Oracle Flexcube 14.3 will help them achieve this goal. Read more about this partnership here.
Indeed, the improvements in mobile banking services are pronounced in rural areas due to mobile banking services’ capacity to penetrate the population better and the lower cost structures involved.
However, rural areas were particularly vulnerable to financial exclusion before mobile banking solutions, not only because of lower levels of financial literacy but also because of the high cost of providing formal banking services in areas where transactions are typically smaller, and investment opportunities are limited.
Commercial banks and microfinance institutions (MFIs) lacked the incentives, information, and expertise to reduce the risks of working with low-income clients outside of urban markets. On the other hand, mobile banking services are assisting in the development of East Africa’s long-overlooked rural areas by simplifying and improving access to business transactions.
As a result, since the introduction of digital banking services, formal financial inclusion in rural areas has increased significantly, encroaching on urban financial inclusion. The World Bank wants everyone to have access to financial services by 2030, and digital banking appears to be the most likely way to get there right now.
Increased financial inclusion isn’t the only possible benefit of digital banking and financial services’ growing dominance. Such technology provides a wealth of instruments to help emerging economies deepen their financial sectors, and East Africa is at the forefront of these developments.
In East Africa, mobile banking services have progressed beyond simple financial transactions to include a variety of financial instruments such as savings, insurance, credit, and investments.
Furthermore, ongoing advancements in financial technology are expanding the number of possibilities available through digital services.
Digital banking service platforms in East Africa now allow users to invest in the stock market, cryptocurrencies, and treasury bills. Kenya announced the world’s first mobile-only government bond, the M-Akiba bond, in March 2017, demonstrating that East African countries are rapidly attaining digital banking ambitions.
In conclusion, banks in the Eastern African region are focusing on delivering hyper-personalized services that can factor in a customer’s financial well-being holistically, by integrating their disparate data architecture across lines of business and functions and combining it with AI-driven analysis to create a 360-degree view of customers. The journey towards digital adoption and financial inclusion is long and banks need a companion to reach their destination quickly. WeCodee has proved to be that companion by modernizing the banking solutions.
