Banking in Africa is enjoying a powerful reawakening as an increasing number of foreign banks enter the broader African market. The good news for South Africa is that a healthy number of those banks are South African.
In 2007, the world’s bankers sat up and took serious notice when one of the world’s largest banks, the Industrial and Commercial Bank of China (ICBC) bought a 20% stake in Standard Bank for USD 5.5 billion. In one fell swoop, global bankers began to view Africa as a potentially large source of profit. Opportunities for foreign banks have come and gone, with one of the biggest disappointments being the crises suffered in Nigeria’s banking sector.
However, Africa’s growing trade links with major emerging markets have raised the strategic importance of its banking sector. There are mainly two kinds of institutions operating on the continent.
Firstly, there are the larger South African banks such as Standard Bank, which has operations in 16 countries. Another example is the Togo-based Ecobank, which is primarily active in central and west Africa.
Secondly there are the first-world firms from the developed world, which tend to operate where they have historical links. There’s Société Générale in the mainly French-speaking countries of west Africa; Standard Chartered and Barclays in the English-speaking countries; plus the Portuguese banks in Mozambique and Angola.
Citigroup has only run a very basic network since the 1960’s. They’ve all used variations of the same basic business model i.e. serving wealthy consumers, government departments and medium to large businesses. Banks usually gathered more in deposits than what they lent out and most of the resulting profits had to be parked or reinvested locally, as there were limits on how much could be sent back to their home countries.
Jean-Louis Mattei runs Société Générale’s international retail activities and although he wants more branches he says, “We have to be realistic, not optimistic.” He plans to add another 100 branches in sub-Saharan Africa to the 300 already in place. Mattei’s low-cost model includes the use of plain buildings and a regional back-office system.
Meanwhile, mobile banking is becoming increasingly popular, but only a few pioneering banks have found a way to cash in on this innovation. Wholesale banking is one of the more lucrative strategies in use and large construction companies firms, especially Chinese firms building airports, roads and power plants are highly sought-after clients.
Standard Bank has a large team in an office close to ICBC’s headquarters in Beijing, but unfortunately the financial performance of this relationship has been quite disappointing.
Local banks attractive overseas
Arguably the biggest deal to be struck recently was the one between Bank of China and Ecobank, operates in 31 African countries, the most widely represented bank in Africa which operates in 31 countries on the continent. The first Ecobank affiliate to have a desk dedicated and manned by staff from the Bank of China opened in Ghana less than three months ago. As HSBC continues its negotiations to buy SA’s Nedbank, William Mills, who heads up Citigroup in Africa, Europe and the Middle East, says the continent is becoming “more and more competitive”.
In August 2010 a new African holding company was announced by Brazil’s state-controlled Banco do Brasil and Bradesco with Banco Espirito Santo (BES), a Portuguese bank operating in Angola. Jacko Maree, Standard Bank’s CEO says, “Now everyone’s looking at Africa.” Most banks are tipped to use a “network banking” approach as they try to tap into the wave of natural resources and infrastructure investment in Africa. Citigroup appears likely to reinforce its position in investment banking and trade finance. If HSBC does buy Nedbank, it plans to use it as a vehicle for the creation of a lean presence clear across the continent.
Interestingly, following the 2005 Barclays purchase of ABSA, another of SA’s largest banks, it has not changed its position in the rest of Africa at all. This is disappointing in one sense as banks do not seem prepared for the inevitable consumer-banking boom that is on the cards. But this hard-headed strategy is actually a very positive comment on the future of the continent: it means the banks are taking Africa seriously.
Technology makes the difference
The continent has enjoyed massive improvements in accountability and services in its struggling financial services sectors, which are heavily bureaucratic and uncompetitive. Smartcard and wireless technologies are enabling the development of services being offered in previously un-banked areas and to previously un-banked consumers. This is helping to encourage local investment and tourist spend and also stimulating local economies.
David Smart, MD of Prism Payment Technologies, who specialise in electronic payment mechanisms in Africa says, “It is an immature market with an underdeveloped infrastructure. However, there is great potential for growth, utilising new electronic banking systems, without having to significantly upgrade the existing infrastructure.” Credit card facilities and ATMs are widely established in only a few African countries, with SA and Kenya being the clear market leaders. Kenya already has over 500 000 ATM card holders. Although in most countries, including notably large ones such as Nigeria, no Electronic Funds Transfer (EFT) system exists yet and only 10% of Nigeria’s banks offer their clients electronic banking services.
However, many African banks are moving in the right direction to embrace electronic banking in November 2000 Ghana’s consumers were was introduced to electronic banking following the launch of Orbicom, a Johnnic-owned satellite service company in partnership with Ghana’s Dart Communications. In 2001, four African banks launched a centralised banking system one of which was the Co-operative Bank of Kenya. For the first time, the bank’s customers could use ATMs countrywide, utility pre-payments and smart, debit and credit cards. Citibank have gone even further by introducing internet banking to 15 countries.
In SA, First National Bank (FNB) had been aggressively marketing its eWallet solutions and doubled its client base to 500 000 by April 2011. FNB is very positive about the future of the eWallet, with many experts predicting it will eventually replace the traditional wallet completely.
Competition in mobile banking
The mobile banking industry is still in its infancy worldwide, although its foothold in Africa is increasing by leaps and bounds. Vodafone’s M-Pesa appears to be dominating the market in terms of revenue, but its main competitor from a geographic point of view, is Orange Money, which has established itself in six of the mainly French-speaking West African countries with Equity bank as its main financial partner in Kenya.
MTN Mobile Money has been making significant inroads into the continent since 2009, aggressively targeting 23 African countries and in May 2011, introduced a mobile money product in a world-class partnership with Guaranty Trust Bank (GTBank) to the Nigerian market. The Acting MD of GTBank, Segun Agbaje, said “A distinctive feature of the GTBank Mobile Money service is its capacity to allow subscribers whose SIM Cards have been duly registered in line with Nigeria Communications Commission (NCC) recent directive, to send cash to recipients that do not have mobile phones or bank accounts, saying that all the recipient needs is to visit the nearest accredited MTN agent to cash out the funds.”
Another product that will play an increasingly important role in the growth of African electronic banking, are loyalty schemes. The retail and petroleum industries are enabling their customers with loyalty programmes and technologies in an effort to increase and retain their market shares. “Current technologies now find a place with card schemes and personal information tag-based systems that can be used in the petroleum forecourts and retail stores to entice customers with added benefits on their purchases.” says Prism’s David Smart.
Try your local supermarket
Supermarket banking is now one of the fastest-growing trends worldwide. In SA, Nedbank is the leader in supermarket banking with a number of retail partnerships; the biggest is with the Spar group. There are more than 20 outlets in Spar’s stores across the country. Supermarket banking is usually very cost-effective for a bank. Operational costs could be up to one-third less than running a full branch, plus there is the benefit of high traffic of potential customers through the store.
The innovation of in-store banking facilities offer a very convenient one-stop shop to its customers. The call for cheaper, more convenient and efficient banking is being made ever more loudly with the rise of consumerism. It is a call which banks ignore at their peril, because service and technological innovation will ultimately be the only differentiating factors in this new world of cheaper and highly competitive banking.