AI and digital innovation to continue driving banking in Africa - KPMG survey

Auguste Claude-Nguetsop, is a partner and head of Banking Advisory at KPMG in Southern Africa. Photo: Supplied

Auguste Claude-Nguetsop, is a partner and head of Banking Advisory at KPMG in Southern Africa. Photo: Supplied

Published Apr 23, 2024


Artificial intelligence (AI) and digital innovation are expected by bankers to play a key role in the future of the sector on the continent, according to the findings of KPMG’s inaugural Southern African Banking Survey that was released yesterday

The African bank market has seen the withdrawal of many global banks over the past five years, but local banks have expanded aggressively, led mostly by South African, West African, and Northern African banks - 100% of survey respondents indicated that the size of the market is a key driver for their growth strategies on the continent.

According to the respondents, this growth would be driven primarily by opportunity in corporate banking, investment banking, and transaction banking, followed by retail and wealth management – underpinned by innovation that enabled more customers to access banking services through mobile banking.

According to the survey, there remained significant opportunities for the unbanked through alternative finance, which includes the rapid growth that was expected from innovations such as blockchain technologies.

“One need only look at the remarkably quick uptake of mobile payments across Africa, and then compare it to the more legacy systems still prevalent in the developed world. AI and digital innovation open further opportunity for financial inclusion, personalisation, and customer service,” said Auguste Claude-Nguetsop, a partner and head of Banking Advisory at KPMG in Southern Africa.

“The arrival of digital-first banks in Africa, and their easily understood customer offerings has proven this. Challenged by legacy infrastructure and technologies, skills shortages, and regulatory requirements, traditional financial institutions have a longer adoption curve,” he said.

The survey found that key challenges for expansion across the continent were the existence of a reliable regulatory framework, solid governance and transparency across the industry, as well as considerations around anti-money laundering and compliance, as well as currency and political risk.

“While the major banks in South Africa have recorded excellent profitability, this can be largely attributed to rising interest rates and escalating consumer over-indebtedness - signifying growth in revenue within banks' retail offerings, but with medium to long-term risk potential,” said Claude-Nguetsop in a statement.

He said a high level of customer uptake in lending and transactions, was a concern, especially as banks raced towards innovation that enables ease of use for customer on-boarding and retention.

The survey, which polled a large number of respondents in Southern Africa and across the continent, also drew on the perspectives from KPMG’s Advisory business units across Africa.

“The African banking landscape is undergoing a metamorphosis, driven by technology, a vibrant fintech scene, and an insatiable demand for convenient, and personalised financial services,” said Claude-Nguetsop.

He said the future of banking in Africa was destined to be borderless, and the present already was.

Africa was currently poised to be the second fastest-growing regional economy, with more than 10 African countries experiencing substantial GDP growth, he said.

“In line with our analysts’ assessments, financial institutions are looking towards combining a ‘build and buy’ strategy to enhance their AI and digital innovation skills and portfolios,” he said.

In the survey, 38% of participants confirmed that between 21% and 30% of their IT budget was devoted toward these priorities. However, 54% of survey participants indicated that the primary factor preventing the adoption of AI and digital innovation lay within budgetary constraints.

Fifty percent outlined that they had, or intended to, deploy AI technologies to reduce the costs associated with compliance.

“From a South African perspective, South African banks may have ensured resilient growth through turbulent times, but maintaining it will hinge on the appropriate adoption of technologies, a continuing commitment towards innovation, and an agile focus on adaptability,” said Claude-Nguetsop.