Africa's journey to financial inclusion- Building a digital bank

It was more than 15 years ago when I presented to the board of one of my former employers -Banking and Financial Inclusion in Africa can and will never be a brick-and-mortar branch story due to the cost and diversity dynamics ... considering the cost of real estate, cash, networks, security, generators, and human capital ... it's impossible to justify the existence of a branch in war-torn Goma Corridor or a far off village in Malawi, Burundi or Conakry or one of the far-flung islands in beautiful Sierra Lone, Sao Tome or Comoros.

The way Africa bypassed landline telephony a couple of decades ago and mobile communications revolutionized and connected the continent, similarly, digital banking and mobile money are the future of Africa.

Over the next three decades, Africa will have the world's youngest working-age population. The global working-age population will increase by 2 billion over the next three decades, and 80% of that will be in Africa, driving domestic consumption. Africa and India will drive the global GDP growth which is supposed to be (as per IMF estimates ) 3.8% and 4.2 % in 2024/2025 compared to global 2.9% and 3.8% and these numbers will become more stark as Africa progresses.

Africa has globally the most financially excluded population with 40% of the population having no access to financial services and 90% of the transactions in Africa are cash transactions .33% of the adults in Africa have mobile money accounts compared to 10% globally.

Banking in Africa is a very different paradigm due to the diversity of this beautiful continent unlike what we understand of banking in the West or even some of the emerging markets like India and/or Asia. Many multinationals like Barclays /Atlas Mara etc have burnt 100's millions of dollars of investor money with bankers from Canary Wharf and Wall Street unsuccessfully trying to build a seamless banking model for this continent. This continent needs the patience, vision, and innovative DNA along with the strong belief and risk appetite of someone like the iconic ex-Citigroup Chairman John Reed who did this in India and some other emerging markets in 80's and 90's but the journey today is much easier than the India or Indonesia of the 80's due to digitization and mobile money rails. What's important to remember is that not one size or any one model fits all.

It's much easier today to build a mobile network and send data or satellite signals across regions or countries thousands of miles apart than building branches thousands of miles away with no water, power, or roads.

Interestingly I recently traveled with an Indian trader who has been running a grocery trading business in the copper mining belt of far-flung Congo - Lualaba & Haut Katanga Province for the last 25 years and only connectivity to this far-flung region -one of the richest in copper deposits is a 4 1/2 hours flight to Kinshasa offered only 3 times a week. This place where Malaria every 3-4 months is the way of life but he explained to me how mobile money has made life and business much easier for him and how business has flourished due to mobile money and that he now does not need a bank branch.

Digital connectivity is what the continent and its burgeoning youth population want. They have never seen face-to-face banking and hence for them its convenience and safety are what matters. For that very reason, the continent has straight moved to mobile payments.

Over the next few decades, the captive consumption and a well-oiled market penetration strategy could provide strong tailwinds for the fintech and payments service providers to build a very successful pan-Africa business model.

There are successful business models that already exist on a continent - MPESA being the flag bearer of Mobile money globally. The initial uptake for Mpesa even in a virgin market like Ethiopia ( where I remain very bullish ) is quite exciting and worth a close watch.

Mpesa which is owned by Vodacom along with MTN, Orange, and Airtel is making initial moves to tap this massive potential including the launch of Orange Bank by Orange in Cote d'Ivoire but the big question again remains that most of the telcos still lack the risk appetite and mindset of the bankers whereas the traditional bankers on the continent remain cocooned in the old mindset of bureaucratic and tedious risk management paradigm which only serves large corporate customers.

A vibrant retail / SME business that forms the backbone of the economy needs to be run more than a well-oiled factory assembly line and that task today is much easier with AI and digital data rails. Most of the successful emerging market retail banking models are a blend of banking risk matrix and FMCG mindset.

Africa is surely headed towards a great few decades but the future rests on who can tap into that potential.