A report by the African Financial Retail Index (AFRRI), produced by marketing consultancy Calleo together with iVeri Payment Technologies, has found that of the eight countries from Sub-Saharan Africa featured, only South Africa achieved a 'ready' status – the rest (Kenya, Nigeria, Ghana, Tanzania, Uganda, Zambia and Zimbabwe) has fallen further down the spectrum.

"With large rural populations, low GDPs/ high poverty rates, as well as a general lack of infrastructure, these countries generally have extremely unfavourable environments for providing financial services," according to AFRRI.

Using criteria including population dynamics, economic indicators, literacy, infrastructure, as well as the current banking penetration, the report determined that in many parts of Africa, retail banking services are severely lacking, or are only available in major urban centres, and rural areas across sub-Saharan Africa are extremely under-serviced when it comes to banking infrastructure.

Calleo Senior Research and Marketing Analyst Caryn Mather explains, "Sub-Saharan Africa has approximately 4 bank branches per 100 000 adults and only around 30% of the population has a formal bank account. The world average for bank branches per 100 000 is three times that, and globally 60% of people have a bank account. In many so called 'developed' or 'western' countries formal account penetration is usually closer to 90% and even other developing regions will mostly have higher account penetration than this. (South Asia 46%, East Asia and pacific 69%, Latin America 51% - according to world bank data)."

Telecoms and ICT

The report suggests mobile penetration levels are generally high, with a comparison between the number of fixed broadband subscriptions and that of internet users reflecting the influence of smartphone penetration rates.

"While less than one percent have broadband subscriptions, almost 20% of the population have access to the Internet in some manner," states the report. "With the exception of South Africa, the majority of sub-Saharan Africa does not have a significant fixed telephone line infrastructure," it continues.

When it comes to infrastructure, the report asserts that South Africa has higher electricity access and consumption, connectivity rates and larger retail footprint – and this combines to develop a more mature financial services industry, according to the research.

In terms of infrastructure, Mather says South Africa has an extremely mature financial services sector and, based on the use of technology and products offered, it rivals many developed countries (for example South Africa migrated to EMV compliant chip and pin cards many years ago, while the US is only now beginning this process).

"The main problem that can be seen across Sub-Saharan Africa and even in South Africa, is the divide between rural and urban access. This means that people living in urban centres may have complete access to a full suite of retail financial services, to the point where a city like Lagos might be oversaturated with bank branches or ATMs, but as soon as you move outside the city access drops off dramatically. This is due to several factors, including lack of basic infrastructure, which makes it hard to build functioning branches, and the low income and low education levels of the people living in the rural areas, which makes them less appealing as customers. They are also more widely dispersed which means you would be servicing fewer customers per branch," says Mather.

Financial inclusion vs full retail banking

Mather says mobile money is an important factor as far as financial inclusion is concerned, and believes the barrier to entry for mobile money is very low.

"It has therefore provided people who would have previously only ever transacted with cash a way to store and transfer their money electronically. The majority of mobile money transactions however, are still simple cash-in cash-out processes, basically making it a safer and more efficient way to move cash around. Full retail financial services on the other hand are a bit more complex. In order to open an account one must go through a registered official of the bank (as opposed to a mobile money agent, who can work on behalf of different providers), and you must be able to provide proof of identity. Once this is done however the range of products and services is much more diverse," she says.

As mobile money offerings become more complex, new regulations and legislation will be required to redefine financial services and the requirements for offering them, Mather adds.

The lack of basic infrastructure will impact Africa's ecommerce progress. "It is important to note that like with many things in Africa, ecommerce may be growing at a high rate, but this growth comes from a very small base (the number of broadband subscribers in Sub-Saharan Africa basically rounds to 0, while just 20% of people have some access to the internet – most probably through smartphones.) so while there is potential, it must be looked at with a long term view in mind," she continues.

According to the researchers the challenge is for the retail financial services industry to come up with solutions that will work in Africa. While banks may have world-class technology, they need to consider what is feasible and provide unique solutions that are able to deal with Africa's unique environment.