BUSINESS BEYOND COVID
MUZI NKOSI: Digital banking is key to firms successfully managing Covid-19 fallout
Banks will be required to provide systems that will dramatically widen the scope use of e-money
While digital banking growth in Sub-Saharan Africa had mostly been propelled by the need to improve access to the financial ecosystems of the unbanked through use of smartphones and mobile money, the advent of Covid-19 brings with it a new stimulus to large and small businesses to increase their use of digital banking in an effort to better cope with the pandemic.
The pandemic will act as an unforeseen accelerant of the adoption of, and improvements to, banking technology for Africa’s corporate banks and their business clients, which will become increasingly necessary to sustain their business activities.
Africa still has high utilisation of physical cash, with an equally high physical bank branch network, concentrated in developed cities with limited reach to rural outskirts.
And because some domestic and cross-border transactions, particularly those related to regulatory documents, are still being processed manually due to limited client bank systems and technology adoption, it has resulted in clients having to physically present themselves at branch networks.
But this is expensive, inefficient, much less secure and now, most importantly, presents a greater danger of transmitting Covid-19 as money is passed from person to person.
In most African countries, a number of fintech service providers have enabled mobile money or e-money offerings. E-money is an electronic store of money typically on a cellphone that can be used for making payments and for person to person value transfer. From mobile payments, people are gaining access to mobile banking and other services as they open savings accounts, buy insurance, borrow and invest with a few taps of their mobile phone. They can even finance electricity usage.
But to date, corporate or business e-money usage has been limited, operating on “closed loop systems” and limited to person-to-person transfers, which means payment can only be transferred within service providers’ limited partners with which they have agreements.
However, increasingly banks will be required to step in and provide systems that will allow all e-money fintech service providers and users to make and receive payments from business to person, and person to business, dramatically widening the scope use of e-money.
Banks in Africa have mostly viewed these new players in the financial sector as a threat to their survival, but the emergence of mobile money through fintechs and cellular network companies has lowered the costs of financial value transfers and enabled greater access and inclusion of remote communities.
Banks have to make critical decisions about whether to partner with fintechs, buy the fintechs for exclusive integration, or contract at arm's length with them to enable an integrated service that will help the banks reach higher customers numbers and use their platforms. All of these options have cost, risk and benefit implications to the banks in the medium to long term.
Corporates are likely to increase their need for e-commerce solutions as the general public increasingly wants to order goods and services through online channels.
There are also implications for trade. With so much of the world still in lockdown, the immediate and overdue opportunity is for Africa to look to itself for trade opportunities to drive economic growth.
The use of technology at African borders to enable faster transit of goods and services will become fundamental. Goods consignments can be processed online and import duties paid online therefore aiding faster cross border processing and reducing the costs of doing business across African countries.
By better embracing technology in all transactions and moving away from cash and paper, fraud would also be reduced because of the checks and balances inherent in digital platforms.
While technology presents opportunities for efficient transaction flows and trade in the continent, the outbreak of the virus has also highlighted the importance of banking relationships in difficult times.
The tough times many businesses now find themselves in has highlighted the importance and value of deeper relationships between businesses and their bankers. Where such relationships were nurtured, bankers find it easier to proactively support clients they truly understand, through debt payment relief programmes as well as advancing much needed liquidity to help cope with cash flow and continuity challenges.
Banks are demonstrating their ability to proactively help, be flexible and come up with relief solutions. It represents a sea change in the understanding that businesses and their banks must have long-term, sustainable relationships.
Now more than ever, corporate banking technology in Africa is poised to become a vital step that will propel Africa into becoming a truly digital economy.
• Nkosi is head of corporate banking for Africa at RMB.