Banks are competing heavily with telcos for the dominance of the future of mobile banking: with only 34% of Africans holding a bank account, mobile operators are currently leading the pack with over 85% mobile phone penetration.

This is according to Pieter Zylstra, Regional Director, Digital Transformation - MEA at Orange Business Services.

Zylstra referred to a recent GSMA industry report which stated that a staggering 338 million mobile money accounts call Africa home.

"Countries like Kenya, Tanzania, Uganda and Ghana are mature markets in this sense, with mobile operators having so much as invented the mobile money success. South Africa, Zimbabwe, Ivory Coast and Cameroon are maturing, partnering with African FinTech companies to deliver new innovative mobile banking services."

Zylstra said having experienced the profitable mobile money phenomena, as pioneered by the mobile operators in Sub-Saharan Africa, traditional banks are reinventing their business models and launching new digital-banking-as-a-platform initiatives in order to reclaim the mobile banking initiative.

"This is a time not only for the banked, but increasingly for the underbanked and even unbanked population of Africans. Egypt, for example, has 40 banks competing for 10 million banked customers, with no banks providing services for the 90 million unbanked population! If well executed, this is a huge business opportunity for the existing retail banks," the Orange Business exec added.

Digital dilemmas

According to Zylstra, traditional banks face a major challenge in launching digital transformation strategies – something he refers to as 'digital dilemmas'.

"There is no single P&L owner of 'digital' within the bank, since digital transformation touches equally upon innovation, channels, platforms and networks. How can you agree on a digital strategy if there are multiple owners who have conflicting agenda's? Unless the digital governance is resolved, and until a consistent strategy is adopted, you cannot expect middle management to become change agents," he said.

"'Failing fast' is something most banks try to avoid at all costs, no matter this principle will become the most important principle for any digital bank," Zylstra continued.

Another digital dilemma is that within most banks the internal business processes require to start with an unknown end in order to calculate, justify and approve financial investments - something that is not easily achieved if market change is the only constant.

Banks would do well to spend less time calculating WACC, IRR, NPV and ROI, and spend more time and money on launching MVPs into controlled user testbeds, in order to create, launch, improve and monetise these more agile financial services solutions, Zylstra explained.

In its recent 2018 report African retail banking next growth frontier McKinsey predicts that the percentage of bank account holders will increase to 48% by 2022, creating an additional 156 million new banking customers.

Zylstra asks: "Whereas traditional banks are excellent at issuing a two million dollar loan for a corporate customer, will they be able to issue one million simultaneous loans for two dollars for the unbanked population as well?"

Regulator responsibility

He said business models being implemented will vary and competition between mobile operators and retail banks will accelerate financial inclusion.

Zylstra also believes the responsibility of the regulator will become critical to address open banking concerns, while at the same time create a level-playing field to simulate FinTech innovation.

"Clearly formulating 'guiding principles' and providing regulatory sandboxes should allow the market players to gain hands-on experience and find investment to launch innovative solutions. Without a regulatory framework retail banks in Africa as anywhere else will not only have to deal with niche FinTech start-ups but more with the looming threat of dominant mobile operators and internet giants stepping into the financial services market," he added.

Co-innovation will likely be the name of the game as banks need to learn to be more pragmatic and embrace digital partnerships, with integrators, vendors, fintech, internet companies – and even with mobile operators.