Toward a deep transformation of the banking industry in Africa
This blog was originally published on the World Bank Blogs website.
Newly assigned to Dakar, Senegal, I must, of course, take steps to have water, electricity, internet and a bank account. For the latter, I chose a large bank for its reputation and its wide network of branches and ATMs. What follows is not fiction but a reality that I thought had disappeared years ago. Here is the story.
Arriving at the bank office, I am quickly welcomed by an agent who gives me forms to fill. I sit in a corner of the agency and start filling the documents: last name, first name, address, phone number, passport number, annual salary, etc. Very quickly, I realize that all the forms, 8 in total, except a few, ask more or less the same basic information.
After the amazement of such an administrative burden, I stop on a document that presents an offer to subscribe to life insurance. Surprised, I ask the agent for further information. He explains that this insurance, in fact mandatory, will allow the bank to guarantee itself in case of my death, and there is a negative balance in my account. I propose that, instead of this insurance, my account be simply blocked in case of an insufficient balance, so that the bank is never exposed to such huge risk. I'm retorted that the insurance will allow the bank to charge any fee after my death, even in case of insufficient balance. Unstoppable. Astonishment follows a slight annoyance.
I realize then that, besides the life insurance policy that claims an annual premium in the amount of $ 50, none of the documents the agent gave me indicate the fees and commissions to which I might be subject. I therefore ask what would cost me, on an annual basis, ownership of a current account with a checkbook and a visa card. We reach very quickly the sum of 500 dollars a year, an amount that I consider totally disproportionate to my needs that would be limited, in practice, to a dozen withdrawals and checks per month. The annoyance then gives way to a form of misunderstanding mingled with spite. I decide, in the end, not to open a bank account in Dakar and continue to manage with my US bank account.
An extreme case will you say? Perhaps. But that tends to say it all on the relatively low financial inclusion rate in Africa. Beyond the anecdote, this little story is a good demonstration that a banking model invented and tested for decades in the West hardly finds its place in this part of the world and that new forms of banking must be found.
The good news is that solutions seem to emerge from the banking world, thanks in particular to the concomitance of three factors:
Competition from mobile operators. With their sprawling network of resellers, these operators have grown considerably in the space of a few years, allowing in some countries to exceed the 100% mobile ownership rate. To the initial telephony functions were quickly added the so-called transaction accounts, providing their users with the ability to store, withdraw, transfer money and pay bills electronically, securely and in real time. But if these new features were primarily intended to eliminate secondary network of recharge cards, they are also found to be the first serious stab in the traditional business of banks. It seems that still few mobile operators have started moving up the value chain by offering more typical banking financial services such as remunerated savings or credit. But many operators are thinking about it, and it could come pretty quickly. The competition might then be particularly tough for banks.
Regulatory innovation. Little by little, the central banks are making a revolution. Traditionally averse to change, however, they are now allowing foundational innovation to emerge. Modern banking agents regulation (based on the successful agents of mobile operators’ model) or more risk-based KYC/CDD regulations are good examples. A welcome upgrade the competitive game when one knows all the benefits that the customers could draw from a direct confrontation between banking and mobile operators, two industries with huge appetites and deep pockets.
Technological innovation. The almost universal use of mobile phones has offered opportunities well understood by bankers. However, in practice, these same banks face particularly heavy ICT constraints, which can be explained by the entrenchment of several decades of internal developments (forming the famous Core Banking System) that makes it almost impossible for banks to design and market products and services in phase with consumers’ new expectations. Faced with these challenges, second generation Core Banking Systems are about to emerge and with them the promise to finally see the deployment of new banks that would place digital at the heart of their mode of operation and allow a complete democratization of basic banking services (and probably also non-bank).
This conjunction is happening in Africa, in some countries like Angola. The rebirth of Banco Postal is a perfect illustration of the fact that the bank can reinvent itself and set out again to conquer the market. Through its new offer (Xikilamoney), Banco Postal has by far the most comprehensive range of financial services (including digital financial services and traditional banking services). Thanks to its network of about 200 access points (including branches and kiosks), Banco Postal onboarded already 200,000 customers in just 18 months. In Angola, the three ingredients are present: strong competition from telecom operators, more open banking regulations on the issues of branchless banking and the adoption of a new generation CBS.
Other countries could quickly follow suit, such as Senegal (and other WAEMU countries), where agent banking regulation could change soon.
These country-led developments also align with the World Bank Group’s approach to financial inclusion, particularly its Universal Financial Access (UFA) initiative which goal is that by 2020, adults globally will be able to have access to a transaction account to store money, send and receive payments as the basic building block to manage their financial lives.
About the Author
Laurent Gonnet joined the World Bank in 2007 as Financial Sector Specialist, after a 10-year experience at the Banque de France as on-site and off-site supervisor. He is leading the policy dialogue with several monetary and financial authorities across the region and contributing to the implementation of several reforms in the banking sectors. He is notably in charge of reforms implemented by Central Banks in West Africa, Egypt, Lebanon, Algeria and Tunisia. In those countries, M. Gonnet led several analytical works (FSAPs, real estate financing, financial stability, financial intermediation) and technical assistance (stress tests, crisis preparedness exercises, banking supervision, etc.). Laurent is graduated from the Economic Science University of Montpellier, the Political Science University of Montpellier and the Business School of Montpellier.