The African Bank is dead. Long live the African Bank

The absence of constraints based on culture and legacy systems is the link that will give birth to the new wave of banks in Africa. Donor partners all over the continent are busy looking for ways to fix and apply band Aid to the traditional banking system. National Banking bodies are also busy looking for ways that will create conducive conditions for banks to invest in rural Africa.

I firmly believe like I did back in the days of the early internet drive in Africa where the “Digital Divide” was the mantra which has now been replaced by “Financial Inclusion” that the real divide is within our Mindsets.  The saying about insanity and doing the same thing over and over again expecting a different outcome also comes to mind. 

The digital divide was not fixed by the money that was wasted by the world bank and other donors subsidizing connectivity costs nor was it fixed by the regulators it was fixed by market demand. The fact that when my power goes off I send a tweet to my electricity supplier, my daughters will share a snap of the meal with their friends. And 8 out of 10 friends are on Facebook, WhatsApp, telegraph etc, or when I like a song on radio I go find it on YouTube and play it again and again until it bores me. Behaviors like that multiplied thousands of times creating local content for local consumption fixed the “Digital Divide”.

Now this brings me to the financial inclusion story. Banks in Africa are still building bank branches based on some standard out of either Europe or the South African parent. Spending between 100 to 200 thousand dollars on a branch. Branch designs that have already been abandoned in the western markets. 

So the problem with financial inclusion falls squarely on the business models. Mobile Money has the makings of the future bank and new business models should be built around this model. The GSM networks also have embedded in them the silver bullet for this transformation in the form of a four letter acronym USSD or Unstructured Supplementary Service Data. 

USSD will be the birth of a new banking distribution model that will see full banking services taken to the furthest point of our communities creating new bottom up banking business models which will prove lucrative to the early movers. The power one possess by pressing 5 digits on our phones *233# and signing into our bank account means that a new entrant can build a new African bank with less than 10% of the current Operating expenditure costs of a typical bank.

By introducing task distribution, a new style bank could focus on rolling out low cost automated customer touch points, which support themselves through transaction charges. A central, let us call it Bank Operations Center (BOC) where an team of banking experts in a call center support a network of junior agents located within the community in small Micro Branches which can be co-located with telecom operator service centers. The automated customer touch points or ATM’s would be supported by new style Cash In Transit solutions that are light and nimble but fully tracked for security purposes. 

World bank statistics show that the ratio of ATM’s per 100,000 adults in Africa is very low. On the flipside the same ratio in developed markets has stagnated over the last 10 years and is beginning to drop thanks to electronic transactions. The commercial branch ratio follows almost the same trend.  As much as the mobile money concept has included many more into the financial system, its very nature has unintended consequences of building limitations on what can be offered. No amount of tweaking is going to change this. 

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We need to look at Mobile Money and USSD as the skeleton and backbone of the new African Bank, and then start building localized substance on top. This will enable the new bank of the future to really offer solutions that are diverse but also give the bank the ability to transform with the demands of the market.

Many African Financial regulatory authorities have been busy implementing Agency Banking policies in effect placing a Band Aid (plaster for my fellow Ugandans) to a nonexistent wound. Using a hand held POS to offer banking solutions to people who need more than the ability to deposit and withdraw money will not build inclusion. A radical approach for Banks could be close the white Elephants in the City center and open smaller technologically enabled banking touch points closer to the future client. Mobile money has in a painful way confirmed what many bankers new but did not want to publicly accept that city centers are not the cash cows for the banking industry. Real value is in the suburbs’ and new agile business models needs to be explored. 

To what we will soon call the legacy banker, or what we call “Historicals”, Be brave get a whiteboard for a day forget all you know about your daily banking routine and build a new village focused banking model. Trust me it will make sense. We already know the city is not where the real money is.