COVID-19 Triggering African Banks & Financial Institutions to adopt Digital Transformation:
The COVID-19 pandemic has become a major catalyst for digital transformation around the world. For institutions, the adoption of digital nutrition has become the new norm.
According to McKinsey’s analysis, African Bank’s revenue will fall by 23 to 33% between 2019 and 2021 as a result of COVID-19. Over the same period, the African Bank’s return on equity could decline by 5 to 15 percentage points due to higher risk costs and lower margins. According to the analysis, banking revenues may not return to pre-crisis levels until 2022-2024, depending on whether there is a rapid or slow recovery.
African banks and financial institutions must take bold steps to manage risk and capital, optimize resources and costs, and adapt to changes in consumer behavior to weather this storm.
African banks and institutions need to achieve 25-30% productivity to restore pre-crisis profitability. This requires them to control their costs and optimize their resources. Below are the short and long-term actions institutions can take
Promote short-term actions
• No Third Party Charges: Entities must cancel third-party charges. This can be done by predicting and allocating physical money through advanced analytics that will help the bank reduce the total cost of physical money by 20-40%.
• Mass re-use and retraining of personnel: Institutions seeking to increase speed and agility can provide flexibility in workforce management. They can assign 50 to 65 percent of the workforce to roles of low complexity and also upgrade more skills, allowing institutions to dynamically reconfigure the workforce.
• Reflection-reflection: insights can be collected in digital banks, models that prefer digital. To serve low and middle-income customers, they can offer bank branches. To serve high-income customers, banks can set up third-party advisory centers that provide digital services to customers.
• Extension of shared services: Institutions can extend shared services and services to improve efficiency and reduce operating costs. Such as ATMs, cash, KYC, back-office services, and transaction infrastructure.
• Apply technology to reduce costs: To save net costs and enable third-party banking services, institutions can leverage leading cloud-based banking platforms, mobile banking, and internet banking. This will help reduce costs in the long run.
• Apply new dynamics to improve productivity: Institutions can take a flexible approach and adopt and implement flexible practices, such as creating multifunctional crisis teams. In this way, institutions can explore their new dynamics in decision-making and act faster. approach to further improve productivity.
We are seeing rapid changes in consumer behavior as these ever-changing needs force financial institutions to redefine their business models so they can deliver their services online.
Below are some areas where banks and financial institutions can tackle the crisis.
Banks and financial institutions can use digital tools and analytics to assess credit processes and assess customers’ travel and risk assessment structures. For the first time, institutions can automate credit processes, as credit distribution is often one of the most time-consuming processes.
Institutions can streamline their Know-Your-Customer (KYC) and customer documentation processes with digital customer software.
Institutions can use artificial intelligence and advanced creditworthiness analysis. These machine learning algorithms are used in millions of mobile wallets, mobile phones, and transaction data signals, helping financial institutions identify and segment customer risk profiles.
Banks can collaborate with Fintech. Banks have the advantage of trust and a large customer base but can innovate no more than fintech players. In recent years, African Fintech has become a strong innovation in payment and lending methods, but it may not be as scalable and reliable as banks. By working with them, banks can accelerate innovation and address talent shortages, enabling FinTech players to grow.
Banks and financial institutions can accelerate digital transformation by prioritizing the following specific milestones:
• Quickly digitize travel with mobile and internet banking to cover 100% of revenue and simple services.
• Simplify the catalog of consumer and commercial products and ease navigation on digital channels.
• Introduction of digital banking adoption programs to all customers, which will increase customer awareness and the importance of digital banking.
• Increases IT security and technology flexibility and does not tolerate disruption to ATMs or mobile platforms.
According to McKinsey’s Africa Consumer Sentiment Survey of May 8, 2020, the use of internet banking, mobile banking, and mobile payments has increased by 30 to 40 percent. After the COVID crisis, once normal life has resumed, 30-40% of consumers plan to increase their use of digital channels. Therefore, financial institutions need to adopt digital banking platforms.
Despite the pandemic crisis, banks and financial institutions will play an important role in supporting and restoring Africa’s economy and livelihoods.