Africa’s Banking Industry is a “hotbed” for digital innovation

Global consulting firm, Mckinsey, on Wednesday, released its 2018 Global Banking report which revealed that Africa’s banking industry is embracing digital innovation tactics to combat challenges in its industry. The overall banking market is the second-fastest-growing market of any global region.

The report titled “Roaring to life: Growth and innovation in African retail banking” assessed African Banking markets based on one or more five winning practices as African markets were illustrated in four segments that include “advanced markets” like South Africa and Egypt, “fast-growing transition markets” such as Kenya, Ghana and Cote D’Ivoire, “sleeping giants” like Algeria, Nigeria and Angola and “nascent banking markets” like DRC and Ethiopia.

McKinsey’s banking pools research revealed that the continent’s banking markets overall is the second most profitable among regions in the world and nearly twice as profitable as the global average, with Africa’s top group banks simultaneously four times more profitable and two times faster growing than Africa’s  bottom group of banks.

Africa's Banking Industry Global Position

Despite disappointing returns and sluggish growth challenges facing global banking industry, Africa’s banking industry recorded positive result as the banking market contrast to global reality with the fast-growth of its markets closing up to nearly twice as profitable as the global average.

Regarding the viability of retail banking in Africa’s banking industry, McKinsey reported that the retail banking sector in particular is a locus of new business models. However, Africa’s retail banking penetration stands at just 38 percent of GDP, which is half of the global average for emerging markets.

Here are some of the major highlights in the report

Africa’s banking industry gets innovative

Presently, Africa’s banking industry face several challenges which include low income levels in many countries, widespread use of cash in most economies, and poor coverage of credit agencies.

Sighting integral opportunities in these challenges, African banks have harnessed the continent’s “hotbed of innovation” through prevalent mobile-phone coverage by creating low-price offerings and innovative distribution models.

In South Africa, Nigeria, Kenya and Angola, the reduction of branches and ATMs available in the countries has influenced a higher proportion of customer’s preference for service delivery. Customers are inclined to make use of digital channels for their transactions in place of channels available in bank branches.

Banking revenue

African Banking

For over five years, African banking revenue pools grew at a compound annual growth rate of 11 percent in 2017. Between 2017 and 2022, Africa’s banking market is expected to grow at 8.5 percent. This will bringing the continent’s total banking revenues to $129 billion, of which $53 billion will be in retail banking.

However, a shift in “exchange-rate adjusted revenue” separates North Africa, East Africa and West Africa from South Africa.

Risk cost

Banking risk

Africa’s banking market has the second highest banking risk cost in the world. The continent’s poor data availability and less credit bureau engagement stand at 11 percent compared to an excess of 90 percent in advanced markets.  However, in terms of size, Africa’s banking market has approximately $86 billion in revenues before risk cost.