Cash is still largely king in Africa, according to PwC’s 2022 Open Banking and Payments survey, which polled 1 357 respondents in Kenya, Nigeria and South Africa. While the majority of people in South Africa have bank accounts, ‘25% – 8.3 million individuals – prefer to withdraw all of their money and transact in cash’, says Chantal Maritz, PwC Africa payments transformation leader. She explains that the reason is twofold – the lack of alternative payment solutions and a lack of financial education.

However, consumers ‘are ready for a fully-digital experience’, argues Tijsbert Creemers, MD and partner at Boston Consulting Group (BCG). Creemers co-authored a report of a 2022 BCG study that found the vast majority (more than 86%) of South Africans across income bands prefer conducting banking digitally. Even 50% of those born into the pre-digital world (over-60s) are comfortable using a fully digital banking service

‘While COVID-19 initially forced many to change their banking behaviour, they have now adopted digital servicing as the norm,’ he says. But with about half of those customers still preferring the face-to-face personal approach, physical bank branches might still be with us for a while. ‘Banks will need to deliver an ecosystem of trusted and secure services that add value and guide people to adopt certain behaviours over time.’

‘The digital and traditional banking models will exist together and there is a space for all of these. How banks act depends on their starting position. For example, incumbent banks need to digitalise existing processes and services that their customers are used to and expect from them, in addition to delivering new digital interaction and service.

‘On the other hand, a new entrant or challenger bank can create a completely new digital experience from the start.’

One developing technology that banks are keeping a keen eye on is open banking. Open banking, explains Finance Magnates, enables banks to use application programming interfaces (APIs) to exchange client data with independent financial service providers, allowing smoother transactions such as buying a car, which is normally complicated by cheques having to clear and cash limits on credit cards and EFTs.

In a recent online post in Ventureburn, Christopher Ball, co-founder of Finch Technologies, which creates fintech solutions for developing economies, writes that the global market value for open banking is expected to top US$123.7 billion by 2031. ‘To stay competitive globally, South African banks must embrace open banking; this presents a unique opportunity to innovate, satisfy customer needs and secure an edge in the market,’ he says.

The PwC survey points out that while cash is still the preferred method of payment, most respondents in Kenya and Nigeria are willing to share their data with reputable companies, provided that it benefits them.

‘While the majority of South African respondents are hesitant to open bank accounts with companies other than banks, Kenyan and Nigerian respondents are two times more willing to open bank accounts with non-banks,’ it notes.

‘South African respondents said they were more likely to open an account with a retailer (27%), compared to the other markets, which highlights the many South Africans who already hold clothing and loyalty accounts with some long-standing retailers.’

According to Ball, some banks such as Investec, Discovery Bank, Capitec and Nedbank are investing heavily in the open-banking landscape. Investec, for example, offers API access to consumers and businesses, prioritising simplicity and compliance.

Discovery Bank’s app enables customers to access value-added products and integrate non-Discovery products to enhance their Money Status, which rewards good financial behaviour with Vitality points.

Capitec and Nedbank, meanwhile, have partnered with third-party providers (TPPs) to improve banking ease and convenience. Through Ozow and Stitch, Capitec Pay provides consumers with secure online payments, while Nedbank’s partnership with Xero integrates banking transactions for SMEs, thereby streamlining accounting processes.

‘Open banking offers numerous benefits to banks, fostering collaboration with TPPs to spur innovation and improve value propositions,’ says Ball. ‘It enables banks to better engage customers, deliver personalised experiences and gain insights for informed forecasting.’

The South African Reserve Bank (SARB), meanwhile, through its Intergovernmental Fintech Working Group (IFWG), is reportedly ‘continuing to research and analyse such areas to inform the policy and regulatory response to open finance’.

The IFWG was established in 2016 to develop a co-ordinated approach to policymaking on financial services emanating from fintech. It appears to be bearing fruit.

In March, BankservAfrica, in conjunction with the SARB, launched South Africa’s first rapid-payments system, Payshap, which allows real-time, instant transactions of up to ZAR3 000 using only a mobile phone number. While the service was initially only available from Nedbank, Standard Bank, FNB and Absa, it is now also offered by Discovery Bank, TymeBank and Capitec. And the uptake is promising with transactions reportedly passing the 1 million milestone in six months.

‘Though it is currently linked to a bank account, the potential to open up quick and easy payments using one identifier – a mobile number – is a breakthrough for financial inclusion,’ reports Toby Shapshak in Financial Mail.

McKinsey estimates that the financial services market in Africa (excluding South Africa) could grow at 10% a year, reaching US$230 billion in revenue by 2025. As the fintech market grows, so will service providers’ need for customer data, to monitor their behaviour and assess their credit worthiness. Yet access to customers’ data in Africa is hamstrung by the prevalence of cash transactions and the relative lack of interconnectivity.

This, however, is changing. Speaking to FinExtra, Rajesh Savji Parmar, co-founder and CEO of Cloud Africa, a UK start-up which facilitates in remittances to Ghana, says the younger African population’s growing mobile usage is expected to have a significant impact on data.

‘With the increasing adoption of smartphones and mobile internet, there will be a growing volume of data generated from mobile devices. This data can be used to gain insights into consumer behaviour, improve the delivery of services, and drive innovation in various sectors. Moreover, the younger generation’s preference for mobile-based solutions is likely to drive the adoption of new technologies.’

Africa, with its youthful population, has often been touted as a good fit for cryptocurrency, but 10 years after the launch of Africa’s first crypto exchange, South Africa’s Luno, ‘there are still less than a dozen serious companies trading or using crypto at scale across the continent’, reports Forbes.

Quoting a recent study by ConsenSys and YouGov, the publication says that Nigeria and South Africa – whose combined population is expected to hit 377 million by 2050 – are two of the top five markets globally where the understanding of digital currencies is highest. However, a large population and the growing penetration of mobile phones does not automatically lead to an increased use of crypto, Forbes argues, with fintech start-ups reluctant to let ‘crypto in the door’.

There have, of course, been success stories on the continent, with Luno recently making it possible to buy groceries with cryptocurrency, and Nigeria’s Nestcoin launching its virtual card product. ‘Compared to fintech overall, it is time to recognise that web3 and crypto are essential but, ultimately, a supporting piece of the overall fintech ecosystem; not the other way around,’ says Forbes.

All the data points to a younger, more connected customer base in Africa that’s willing to try digital banking; now the fintech ecosystem just has to keep up.

By Robyn Leary
Images: Gallo/Getty Images