By Kathy Gibson – The world of money and finance has changed rapidly with the spread of the novel coronavirus.
Liao Yong, vice president of Huawei Southern Africa Region, told delegates to the Huawei Sub-Saharan Africa Financial Services Industry Online Summit 2020 that advances in ICT present unique opportunities for the banking sector – especially when almost 70% of the region’s population don’t have a bank account.
“All of these ICT advances will be critical enablers to a thriving banking sector in sub-Saharan Africa. As we can see, the merging of these two curves of ICT and banking services is powerful. But how much we can unleash the power, depends on how much and how soon banking sector goes digital.”
There has been a rapid uptake of mobile technologies in the region with strong economic growth in the past two decades.
According to statistics by GSMA, 4G, mobile broadband technology, adoption will overtake 2G in 2023 and the total of unique subscribers in sub-Saharan Africa will reach 600-million by 2025, representing half the region’s population.
Brett King, author of Bank 4.0, points out that in some countries, like China, cash has become anathema. “It represents a way for the virus to be transmitted, so we have a seen a large scale cleansing and disposal of cash.”
This has enabled the growth on online payments to take the place of cash. “In the US, we have seen dramatic closing of bank branches during pandemic. Yes, banking is an essential service, but it can be delivered online.”
In many economies, bank branches operate at low profitability, or even a loss, King points out. “This marginal profitability will become a problem for branches the longer the virus goes on. So some of the temporary closures may become permanent features of the banking landscape.”
This is the first time in centuries that the basic banking model is changing, King says. “The oldest bank branch in the world today was stablished in 1472 in Sienna, Italy. And this is the template for banking that we have used ever since. The 20th century marked the first time we started seeing changes in the market.”
the 1980s saw the emergence of self-service with call centres and ATMs, followed in the mid-1990s with the introduction of internet banking.
“One of the problems for banks during the pandemic is that, while there has been a strong focus on deploying digital channels to enable self-service, customer acquisition has still been through the branch. And this became an issue during the coronavirus.”
The established banks also have to content with a number of challenger banks that have emerged in the last couple of years, many of which focus on compelling user experiences.
“We have seen a lot of support for challengers during virus, in both acquisition and engagement. In fact, they have fared well compared to smaller established banks.”
The emergence of new technologies like artificial intelligence (AI), smart glasses and other progressive applications of fintech technology is being seen from technology vendors as well as banking players.
We are also witnessing more reliance on mobile engagement for banking services, King says.
“All of these influences will change how banking evolves: we are already seeing the transition from banking 1.0 to banking 4.0.”
And this change will be accelerated by the Covid-19 pandemic, he believes. “The Spanish flu changed way people thought about the treatment of diseases. In the US there were no such thing as public hospital, but the Spanish flu saw a dramatic shift to the commitment of public funds to create a hospital network. Similar innovations happened around the world.
“During the time of coronavirus, we are seeing entrepreneurs harness technology for things like 3D-printing personal protective equipment. There is also rapid innovation around testing.
“So we are seeing healthcare innovations being rapidly deployed to improve responsiveness to the pandemic.”
Leading the charge in terms of innovation and response is the mobile industry, King adds. Apps are available for anything from screening to increasing responsiveness.
Mobile is also at the forefront of banking and payment innovation, and Africa is leading in this respect.
Because mobile is itself a relatively new technology, it is allowing for first principles of design in the banking sector as well.
“Most innovations through history share this single trait,” King explains. “Rather than adapting existing technologies, they use first principles of design to create completely new solutions. And the most successful are those that disrupt industries with clearly new approaches.”
We are seeing first principles of design in the banking sector, where innovations like mobile payments are already shaking things up.
“This brings us to the question of what will the new normal be when we emerge from the Covid-19 crisis? What behavioural changes will we see as a result of the pandemic?”
King believes there has already been a real shift to mobile commerce wherever it is possible, while e-commerce is seeing volumes like never before.
“These behavioural shifts to e-commerce and mobile banking, plus the decline in branches, are likely to remain permanent features of people’s lives.
“The shift to digital is creating a new reliance on digital experience, and a low need for interaction.”
This, in turn, is driving banking toward a ubiquitous banking system, which de-emphasis product and brand while emphasising strong experience.
“Companies with good technical experiences are likely to be seen as credible platforms,” King says.
Meanwhile, banks will have to change focus from encouraging people to spend more money, to getting people to save.
Another shift is towards biometrics that don’t require contact or touch. “There will be a move away from the need to sign a piece of paper in the branch, to more reliance of digital identity schemes,” says King.
“For Africa all of this means that, by 2025, most people who have a basic value store or bank account on phone won’t have received it from a bank in a branch. Instead, they will have downloaded it on their phone from either their bank, a technology company or a start up.”
With these big shifts underway, King warns that banks will have to start competing against digital pure-plays that are not saddled with the incumbent behaviours.
“So you have to be a technology company focused on delivered banking – not reiterating the same things you’ve always done.”
Chen Kunte, former CIO of China Merchants Bank and current chief digital transformation officer of global financial services in Huawei’s Enterprise Business Group, says digitisation will give the banking sector the resilience it needs in the public health crisis.
Banking everywhere can’t come true without leveraging cloud, AI and big data, he says.
“We need to restructure banks’ ICT platforms from legacy architecture to cloud-based, open architecture by building AI-powered and data-driven platforms to expand the way financial institutions engage and interact with their customers, and accommodate more innovative business models and service scenarios,” Chen says.