The banking industry is facing a host of challenges in a fast-changing landscape that involves technological advances, competition from disrupters, and changing expectations and banking behaviour on the part of younger customers, all of which are inter-related.
Are the traditional banks being too slow off the mark in adapting to this brave new world, which essentially revolves around one device: the smartphone?
Brian Richardson, the co-founder and group chief executive of Wizzit International, a mobile banking solutions provider, says although 90% of banking executives believe that change is accelerating towards digital banking systems, only about 13% say their core systems can support this change.
He says there is no stopping the financial technology (fintech) revolution. “Breakthrough innovations like mobile banking and transacting are enabling financial inclusion and closing gaps in the financial landscape. Fintech also opens the door for online shopping to flourish by alleviating traditional online shopping barriers, such as the fear of fraud and limited payment options.”
Richardson says banks can stay relevant by:
• Accelerating transformation. “Banks can operate more cost-effectively by implementing emerging technologies that can revolutionise costly legacy systems.”
• Developing digital platforms. “The shift to digital channels is essential to meet customers’ evolving approach to banking. In response, banks have to launch and refine digital mobile-first platforms to enhance operations and improve the customer experience.”
• Offering tailored solutions through big data and analytics. “Big data and analytics can provide deep insights into customer profiles and changing behaviours, which will result in tailored offerings, targeted cross-selling and effective retention strategies.
“The financial landscape is evolving swiftly, as are customer expectations and digital innovations. Despite rapid technology advancements, banks have been slow to evolve,” Richardson says. “In partnership with fintech specialists, banks can bridge the gap and exceed customer expectations – whenever and wherever there’s a mobile phone in the pocket.”
Bridget Nkandu, the head of youth markets in Absa’s consumer banking division, says technological change has turned the millennial generation into “digital natives”, who have very different expectations about banking. Nkandu says: “Millennials use apps to buy transport, food, accommodation and fashion, and consequently expect the same technology-driven convenience when it comes to customer service and communication from their bank.
“These young consumers, aged 21 to 37, represent 14 million consumers, or 27% of the South African population, and wield spending power of over R100 billion a year – more spending power than any generation before them. We need to fit in with them, not the other way around.”
For millennials, it’s a case of one size does not fit all, Nkandu says. “The desire to have a unique banking experience that resonates with their lifestyles has become a priority for this generation.”
However, they have unique financial challenges, she says. Apart from different needs to older generations, they lack financial literacy or the ability to stick with a long-term financial partner.
“To connect with young people, banks need to be able to walk with them from the moment they open a savings account, through to being teenagers, to young adults who need to make serious decisions around their future.”
Information sharing through social media, Nkandu says, is probably the most powerful tool available to banks in cementing this relationship.
Sreekanth Kodumur, the general manager of banking and financial services at IT services company Wipro, says that despite decades of refinement, the exchange of money is still hampered by high transaction costs, complex inter-bank arrangements and foreign exchange controls. “Even the simplest domestic transactions can still take a few days to clear,” he says.
New digital technologies, however, have the potential to reshape the way we pay for goods and services, making the flow of value far more fluid and instantaneous, crossing borders and compressing timeframes, Kodumur says.
What are the biggest technology trends set to revolutionise payments in Africa?
• Mobile payments and mobile banking converging. South Africa’s tryst with on-the-go mobile banking will continue to unfold, supporting both EFT-based bank payments and card-based payments. Contactless “near-field communication” and virtual cards will start to blur the lines between mobile banking and mobile payments, Kodumur says. “We’ll also see a significant increase in payment features being woven into the design of mobile apps and services. Here, the payment is embedded as an invisible step in another activity, such as ordering a taxi.”
• New peer-to-peer services. Handy apps will help us to more easily split the bill at the end of a group restaurant meal or to save as a community – digitising the South African tradition of stokvels.
• Digital forex and payments solutions serving uniquely African needs. “Over the coming years, expect to see new mobile payment apps enabling cashless, low-fee transactions between consumers and retailers as institutions across Africa look to technology to stimulate more cross-border trade corridors,” Kodumur says.
• Digital currencies will find their place and purpose. “So far, we’ve seen a strong focus on Bitcoin and the various alternative coins, as people are drawn in by the ‘get-rich-quick’ allure. This exuberance will cool off,” says Kodumur, "to be replaced by deeper conversations about the role of digital currencies in our society."
• Biometric authentication will pull everything together. Increasingly, we’ll shift away from passwords, PIN codes and signatures towards “something natural, and very difficult to forge, such as fingerprints, iris scanners, or voice-biometric services”.
THE ROAD TO HUMAN-FREE BANK BRANCHES
South Africa’s banking sector has a long road ahead in embracing artificial intelligence (AI), says Christine van der Mescht, the head of distribution at NMRQL Research, who attended the CFA Institute’s annual conference in Hong Kong recently.
“Throughout the conference, the advancement exhibited by other countries in robotics and related fields, such as AI, was astounding, showing an evolution from single-task devices into machines that can make their own decisions and autonomously navigate public spaces.
“Emerging economies in Asia appear to be leading this technological evolution,” she says, citing the world’s first fully automated, human-free bank branch in Shanghai. On entering the bank, customers are greeted by Xiao Long, or "Little Dragon", who is able to chat with them, accept their bank cards and check their accounts.”
Barriers preventing the broad use of AI in South Africa include a lack of access to local data sets, poor data quality and security, a lack of workforce readiness, as well as potential job losses. “These barriers are enforced by a lack of trust, a reliance on old technology and an inability to shift mindset,” says Van der Mescht.