Ethiopian Digital banking and the effect of Generative AI on the industry.

Ethiopian Digital banking and the effect of Generative AI on the industry

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Scaling gen AI in banking: Choosing the best operating model.

Generative AI is transforming financial services, offering opportunities for efficiency and innovation. As banks race to deploy gen AI, the right operating model can help unlock its potential.

Generative AI (gen AI) is revolutionizing the banking industry as financial institutions use the technology to supercharge customer-facing chatbots, prevent fraud, and speed up time-consuming tasks such as developing code, preparing drafts of pitch books, and summarizing regulatory reports.

In the realm of digital banking, 2024 is poised to be a year of significant transformation. Some key trends that are shaping the financial landscape:

1.????? The Rise of Gen AI:

Banks are likely to benefit more than other industries. Our analysis indicates that productivity could rise by 20–30%, and revenue by 6%. To achieve this, banks need to effectively utilize cloud and data while also rethinking work and talent1.

2.????? Capturing the Digital Dividend: While most banks have mastered digital channels, it has come at the cost of close customer relationships. In 2024, banks will need to focus on finding ways to have meaningful conversations with customers across these channels. Artificial Intelligence (AI) may hold the key to enhancing customer engagement.

3.????? All the Risks We Cannot See: Banks will face a variety of risks—some familiar, others less obvious. Planning for the unplanned will be crucial to navigate unforeseen challenges.

4.????? A Whole New Way of Working: Banks are realizing that people are just as important as technology. Talent is at the centre of their strategies as they reimagine the future of work in a human and machine environment.

5.????? The Power of Pricing: Optimized pricing can significantly impact top and bottom lines. Banks are combining intuition with gen AI and comprehensive data to turbocharge scenario planning and move closer to personalized pricing.

6.????? Thinking Cloud First: Most banks are now prioritizing cloud adoption. Cloud-first strategies are becoming essential for agility, scalability, and innovation.

Remember, the Age of AI is upon us, and banking, like most other industries, will never be the same. The challenge lies in ensuring that it's a force for good, benefiting organizations, people, and all humankind.

The top banks already know they need to move faster on transformation if they want to stay competitive and discover new revenue opportunities.

Accenture has identified five significant sources of change that have shaped and given momentum to the trends that are expected to have the biggest effect on banking in the next year.

1.????? Mobile Banking

Customers' preference for mobile banking to do banking tasks has increased over the last several years. Due to its portability and simplicity, mobile banking has quickly gained popularity.? According to Statista, there will be 1.75 billion people using mobile banking worldwide by the year 2024. As mobile banking services grow in popularity, banks that are sluggish to implement them risk losing clients to competitors who do.

2.????? Chatbots and AI Technology

The banking business is being revolutionized by the use of AI and Chabot’s to provide consumers with more individualized services. Since they are available 24/7 and can answer most questions immediately, Chatbots has quickly become an integral element of the customer care industry.

3.????? Payment Security in the Age of Biometric Authentication

On the other hand, AI is being put to use to provide shoppers with tailored suggestions and analysis of their past purchases. PwC predicts that by 2022, 77% of banks will have used AI. This figure is up from 16% in 2018.

4.????? Online Banking Accessibility

The concept of “open banking”, in which third-party providers may access bank customers' data via open application programming interfaces, is gaining traction. By working together with fintech companies, banks may provide their consumers with easy access to a wide range of financial products and services like accounting software.?

Open banking could potentially revolutionize the banking system by giving clients easier access to several types of financial products and services.

5.????? Blockchain and Digital Currencies

As a result of the rise of blockchain technology and digital currencies, users now have an option to use conventional financial institutions. Ethereum, Bitcoin, and Litecoin are examples of decentralised digital currencies.

• To counter this, blockchain ensures all transactions are both public and private. These innovations may significantly alter the banking sector by decreasing transaction times and costs while increasing safety.

In the rapidly evolving landscape of digital banking, industry leaders anticipate significant changes by 2025.

Key insights:

1.????? Customer Experience Improvements:

• Personalization and predictive analytics are expected to be integral components of customer experiences.
• Digital account opening and onboarding will become commonplace.

2.????? Flight to Digital Channels:

• The transition to digital banking is inevitable.
• Omni-channel banking, where customers can seamlessly interact across various channels, will be a priority.

3.????? Competition:

• The banking industry will witness fierce competition.
• Fintech firms and other non-traditional players will challenge established banks.

4.????? Innovation:

• Chatbots are projected to handle over 80% of customer service inquiries.
• Data-driven personalization will enhance customer experiences.

5.????? Four Pillars of the Digital-First Bank:

• Omni-channel Banking: Providing consistent experiences across channels.
• Smart Banking: Leveraging data and analytics for personalized services.
• Modular Banking: Building flexible, modular systems.
• Open Banking: Collaborating with third-party providers for enhanced offerings

6.????? Regional Trends:

• In Southeast Asia, digital payments are set to exceed $1 trillion in transaction value by 2025, while lending, investment, and insurance services will also grow significantly.

7.????? Technological Impact:

• Blockchain,
• Artificial intelligence (AI), and
• The Internet of Things (IoT) will play a pivotal role in reshaping banking.

8.????? Generation Y and Digital Banking Platforms:

• Generation Y clients will drive demand for electronic services.
• Digital banking platforms will integrate clients, banks, and third-party service providers across various touchpoints.

In summary, the banking industry is poised for massive transformation in the next few years, driven by digital innovation and customer-centric approaches. Buckle up for an exciting journey into the future of banking

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The trends of digital banking in Ethiopia.

1.????? Adoption of Electronic Banking

• The adoption of electronic banking services in Ethiopia has been influenced by factors such as perceived ease of use, infrastructure, security, and trust.
• A study focused on the Commercial Bank of Ethiopia (CBE) found that customer trust plays a crucial role in mediating between ease of use, infrastructure, security, and e-banking adoption.
• The practical implication of this research is to provide information and knowledge to the Ethiopian Commercial Bank, which serves as the financial backbone of the country. Enhancing trust in technology can further boost confidence in the Ethiopian banking sector.

2.????? Current State of Digital Finance in Ethiopia

• Just over one-third of Ethiopians have bank accounts, and only 0.3% had mobile money accounts in 2017.
• Compared to the Sub-Saharan African average of 21%, Ethiopia's uptake of digital finance services remains low.
• Formal financial services, including banking, money transfers, and digital financial services, are essential for business growth and economic development.

3.????? Rising Demand for Digital Banking:

• As of 2022, approximately 45% of adults in Ethiopia have a bank account.
• Digital banking is significantly improving financial access and convenience, especially in urban and semi-urban areas where mobile phone penetration and internet connectivity are higher.

4.????? National Digital Payments Strategy (NDPS) 2021-2024:

• Ethiopia's NDPS outlines an ambitious approach to responsible digitization of payments.
• The strategy aims to enhance efficiency, transparency, women's economic participation, financial inclusion and sustained inclusive growth through digital payments.

In summary, while Ethiopia faces challenges in digital finance adoption, efforts are being made to bridge the gap and promote a more robust digital banking ecosystem. The government's commitment to technology-driven innovation and financial inclusion will play a pivotal role in shaping the future of digital banking in the country.

In Ethiopia, the vision for digital banking and financial services is ambitious, aiming to create a Digital Ethiopia by 2025. Here are some key points related to digital payments and banking in Ethiopia.

1.????? National Digital Payments Strategy (NDPS):

• The NDPS outlines a comprehensive approach to responsible digitization of payments in the country.
• It aims to drive greater efficiency in payment service delivery, enhance transparency, promote women's economic participation, boost financial inclusion, and foster sustained inclusive growth.
• The strategy focuses on several strategic pillars, including regulatory frameworks, innovation, and capacity-building.

2.????? Expected Growth:

• A report forecasts that the size of digitally transacted economic activities in Ethiopia will grow to 3 trillion Birr by 2025, representing 39% of the country's GDP.
• This growth is driven by the increased adoption of digital financial services, mobile money, and other digital payment channels.

3.????? Challenges and Opportunities:

• Building a robust digital financial services ecosystem in Ethiopia involves overcoming barriers and leveraging opportunities.
• The country is committed to addressing technical issues, expanding access points (such as ATMs and POS terminals), and digitizing various payment streams.

4.????? Innovation and Technology:

• Ethiopia aims to create an enabling environment for innovation.
• This includes clarifying the roles and responsibilities of fintech companies, enhancing access to global resources, and setting up risk-controlled innovation and technology development frameworks.

5.????? Long-Term Goals:

• Longer-term priorities include expanding telecommunications reach, achieving interoperability across platforms, and digitizing cross-border remittances.

In summary, Ethiopia is actively working toward a digital future, with digital banking and payments playing a pivotal role in economic development and financial inclusion.

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In Ethiopia, banks aiming to excel in the digital landscape should focus on several strategic areas.        

key actions they can take to enhance their digital competitiveness:

1.????? Develop a Reliable, Inclusive, and Interoperable Infrastructure:

• Invest in robust digital payment infrastructure that facilitates seamless transactions across various channels.
• Ensure interoperability between different payment systems and players.

2.????? Champion Adoption of Digital Payments:

• Promote awareness and education about digital payment methods among the public.
• Encourage businesses and individuals to adopt digital payment solutions.

3.????? Build a Robust and Consistent Regulatory and Oversight Framework:

• Strengthen regulatory capacity to monitor and enforce compliance.
• Monitor the implementation of regulations related to agent networks, and mobile money services, and Know Your Customer (KYC) requirements.
• Enhance financial consumer protection and cybersecurity measures.
• Create legislation to accept electronic receipts as proof of payment.

4.????? Create an Enabling Environment for Innovation:

• Clarify roles and responsibilities of fintech companies.
• Facilitate access to global resources for fintech development.
• Establish a risk-controlled framework for innovation and technology development.

By addressing these areas, Ethiopian banks can position themselves for digital success, contribute to a cash-lite economy, and foster financial inclusion.

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?Generative AI (gen AI) has emerged as a powerful force in the banking industry, promising both positive outcomes and new challenges.        

How it impacts Ethiopia's banking sector:

1.????? Enhanced Efficiency and Automation:

• Generative AI streamlines labour-intensive processes within banking workflows. Once time-consuming tasks, such as creating reports, generating memos, and analyzing data, can now be expedited and enhanced using generative AI models.
• Routine activities like account management and paperwork processing can be automated, reducing the need for human resources.

2.????? Customer Experience Transformation:

• AI significantly influences customer service. Banks can now provide personalized, efficient, and seamless experiences through chatbots, virtual assistants, and natural language processing.
• The shift from tedious physical channel experiences to digital ones is facilitated by generative AI.

3.????? Fraud Detection and Prevention:

• Machine learning algorithms and pattern recognition techniques, powered by AI, bolster fraud detection and prevention measures in the banking industry.

4.????? Economic Impact:

• The McKinsey Global Institute estimates that generative AI could add $200 billion to $340 billion annually to the banking sector's value, equivalent to 9% to 15% of operating profits. Increased productivity plays a significant role in this economic impact.

5.????? Strategic Adaptation:

• Banking leaders must navigate the complex landscape of AI terminology, including reinforcement learning and convolutional neural networks. Strategic positioning and adaptation are crucial.
• Gen AI opens up pathways that could alter job roles and customer interactions, potentially leading to new business models.

In summary, generative AI holds immense potential for Ethiopia's banking industry, transforming processes, enhancing customer experiences, and reshaping the way banks operate. However, thoughtful implementation and strategic alignment are essential to fully harness its benefits.        

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So WHAT???

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References

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